Nasir el-Rufai Page
Fiscal Responsibility Commission – The Sleeping Watchdog
Fiscal Responsibility Commission – The Sleeping Watchdog
By Nasir el-Rufai
A few days ago, the Nigerian minister of finance, Dr. Ngozi Okonjo-Iweala warned that economic activities may be shut down and that the Federal Government may be unable to pay its workforce by September if government failed to resolve the lingering problems with the 2013 Appropriation Act.
The fact that the Federal Government is still talking about this year’s budget seven months into the year is indicative of weak fiscal practices and management at all levels of government. Sadly, the effects of government inertia would worsen matters for economically vulnerable Nigerians – a group that has grown significantly in size since President Goodluck Jonathan assumed office.
Considering how dependent the Nigerian economy is on government activities, it is inevitable that the budgetary inertia will further exacerbate poverty and unemployment and slow down what is essentially a jobless GDP growth in the face of increasing poverty. How did things get to this stage? Are there no mechanisms in place to check the attitude of government and its numerous agencies to fiscal responsibility?
Actually, there are several agencies of government charged with this task, except that perhaps taking a cue from the head of government, many of them are asleep, and if anything and have themselves, become part of the problem. It is therefore imperative that we examine some of these MDAs in a bid to highlight their purpose, effectiveness and productivity since their establishment. In continuance of our analysis of MDAs set up by the Federal Government, the first spotlight will be on the Fiscal Responsibility Commission (FRC).
It was then Vice President Atiku Abubakar that first persuaded the National Economic Council to approve a fiscal management framework for the federation in 2001, along the lines adopted by the Brazilian Federation. The Fiscal Responsibility Bill was thereafter initiated by the Obasanjo Economic Team (2003-2007) to ensure the coordination of national economic policy between various tiers of government, and enable monitoring of agencies that are ‘off-budget’ but whose activities have significant impact on fiscal policies.
The Fiscal Responsibility Act (FRA) was enacted in 2007 ‘to provide for prudent management of the Nation’s Resources, ensure long-term Macro-Economic stability of the National Economy, and secure greater accountability and transparency in fiscal operations within the Medium Term Fiscal Policy Framework. The FRA established the Fiscal Responsibility Commission to ensure the promotion and enforcement of the Nation’s Economic objectives; and for related matters’. However, it was not until 2008 that the chairman and members of the commission were appointed, under the leadership of Alhaji Aliyu Jibril Yelwa.
The FRA in itself is a laudable legislation if it is implemented to the letter as conceived by the Economic Team. However, five years since the establishment of the commission, are there any achievements to show for it or is it just another drainpipe for the nation’s resources? Is the current administration enabling the commission to fulfill its obligations or is it a stumbling block to its overall productivity. Is the FRC an agency that is necessary or is it just another institution with substantially overlapping functions of another in existence? We shall try to answer these and assess the commission’s performance thus far vis-à-vis its statutory mandate.
In clear terms, the FRC is responsible for monitoring budget implementation in the various MDAs at both the Federal and State levels to avoid mismanagement of public funds. The commission is also responsible for ensuring that annual budgets are derived from the Medium Term Expenditure Framework (MTEF) prepared by the Ministry of Finance for a period of three financial years, and approved by the National Assembly. According to the FRA, every government corporation is required to establish a general reserve fund where 20% of its operating surplus is allocated annually while the balance is to be paid into the Federal Government’s Consolidated Revenue Fund. The commission is also required to publish, on a quarterly basis, a list of each of the tiers of governments in the federation that have exceeded the limits of consolidated debt, indicating the amount by which the limit is exceeded.
So far, attempts at implementation of the FRA are mainly at the Federal level. This is grossly insufficient given that the sub-national governments (states and local governments) control over 50 percent of nationally-shared revenue. Available data collated in 2010 indicated that only 20 out of the 36 states in the Federation had initiated the process of Fiscal Responsibility legislation. Apart from enacting the fiscal responsibility laws, there is a major problem with implementation. There still exists sickening mismanagement of public funds across MDAs with huge figures appropriated in the budget and no corresponding capital investments to show for it. The FRC which is the body responsible for ensuring fiscal responsibility and the due implementation of budgets and projects is lax about fulfilling its role.
Earlier this year, the House of Representatives revealed that 60 government agencies generated N9.3trn in three years (2009-2012) but only remitted N174.9bn to the coffers of Federal Government. In its report titled, “Poor Remittance of Internally Generated Revenue to the Consolidated Revenue Fund (CRF) by Government Owned Agencies”, the Central Bank of Nigeria (CBN), the Nigerian Maritime Administration and Safety Authority (NIMASA), the Nigerian National Petroleum Corporation (NNPC), Nigeria Ports Authority (NPA), Asset Management Corporation of Nigeria (AMCON) and National Pension Commission (PENCOM) are among the defaulting agencies being scrutinized. It was discovered that they habitually under-projected their revenues and over-estimated their expenditures thereby ensuring that their remittances to the CRF were minimal, if any at all.
Just last month, the Federal Ministry of Finance threatened to close accounts of agencies which had failed to remit revenues to the Consolidated Revenue Fund (CRF). Apparently, the practice is for these government agencies to invest the excess funds generated in dodgy and unapproved accounts which yield high interest for the few engaged in these shady deals.
Sadly, the above cases of misappropriation of public funds were not queried by the FRC whose primary responsibility it is to carry out such activities. It is public knowledge that the FRC had sometime last year demanded that NIMASA render audited accounts, but the FRC’s demands were blatantly ignored, without any consequences. What is the purpose of the FRC if it can only bark but not bite?
Several countries such as India and Brazil have enacted Fiscal Responsibility laws to strengthen their fiscal institutions and establish a broad framework of fiscal planning successfully. In India, the union government passed the Fiscal Responsibility and Budget Management Act in 2003, a year later, all 28 states replicated the Act. Brazil passed a Fiscal Responsibility Law in 2000 which applies uniformly to the federal, states and municipal governments. The Brazilian law set out borrowing criteria and penalties for default of this rule. It placed limits on public spending, the size of the fiscal deficit, and public debt, and disallows debt refinancing between the state and central governments. It was the Brazilian success that Nigeria sought to learn from.
As expected, in India, the fiscal responsibility law positively improved the management of public debt both at the Federal and State Government levels and within the first six (6) years of its operation, India recorded a 4.4% and 4.8% reduction in Central and State Government debts respectively. Brazil on the other hand, 9 years after strict adherence to the Fiscal Responsibility laws, occupies ninth position in the league of the most 20 developed countries in the world. In the case of Nigeria, the external debt stock has doubled from $3.3bn in 2007 when the FRA was enacted to $6.7bn by March 2013. What then, is the purpose of this legislation in the Nigerian instance, if our debt stock is on the increase?
Incidentally, two years ago, the federal government set-up a committee headed by then Head of Service of the Federation, Steve Orosanye, to restructure and rationalize the public service. One of the expected outcomes was the reduction of the cost of governance by reducing the duplicity and overlapping functions inherent in the current structure of the Public Service of the federation.
According to the Orosanye report, there exists about 541 government agencies and parastatals which have huge financial implications for the nation especially when their productivity does not measure up to their running costs. Some of the recommendations of the report included merging, reversing and abolishing certain Ministries, Departments and Agencies (MDAs). It is opined that if the recommendations of the Orosanye report are implemented to the letter, it would potentially save the country N862bn by 2015, nearly a fifth of the annual federal budget.
The Orosanye Committee report rightly observed that the FRC has a similar mandate with the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) whose function is to “Monitor the accruals into and disbursement of revenue from the Federation Account”. With a 2013 budget of N592m for a commission whose responsibilities are partly being carried out by the Ministry of Finance, House of Representatives and the RMAFC, it is questionable if this is money well spent.
The structure, implementation process and weak leadership are encumbrances to the FRC living up to its maximum potentials. The authority of the commission in ensuring fiscal responsibility is neither acknowledged nor adhered to. The commission on its part has been lethargic in identifying, investigating and prosecuting MDAs and tiers of government that are suspected of squandering the nation’s resources. The reported amount of funds unaccounted for in the last 3 years alone is almost equivalent to the federal budget for two years! Then again, this state of affairs may just suit President Jonathan and the party at the helm. When everybody in government is bathing in mud of funds diversion, who can point the accusing fingers?