Before 2007, there was a clamour for a body that would ensure prudent management of the nation’s resources. The fear was that if public sector spending was not strictly monitored, there would be the tendency of public office holders to misuse resources allocated to them. Based on that, the then government of Olusegun Obasanjo enacted the Fiscal Responsibility Act, FRA, of 2007. The Act, among other things, is to provide for prudent management of the nation’s resources, ensure long-term macro-economic stability of national economy, and secure greater accountability and transparency in fiscal operations. For the Act to fulfil all its functions, the Fiscal Responsibility Commission, FRC, was established to ensure the promotion and enforcement of the nation’s economic objectives. Specifically, the commission is empowered to monitor the Act.
Two years after the Act and the commission came into being, the African Institute for Applied Economics, AIAE, is desirous of finding the extent to which the Act has lived up to its responsibility. At a seminar tagged The Progress and Challenges in Implementing the Fiscal Responsibility Act, organised in Abuja, recently by the AIAE, stakeholders in the financial management sector and the civil society took turns to express their views on the performance of the Act in relation to promoting prudent resource management.
The consensus at the seminar was that though there has been great improvement in macroeconomic and fiscal policies, poor budget and public expenditure management remains a challenge to government. Eric Eboh, executive director, AIAE, explained that government’s fiscal and budget system is a “powerful mechanism for driving productivity, growth and prosperity” therefore there was need for “accurate fiscal responsibility, accountability and transparency.” Such fiscal responsibility and transparency are required to keep the economy and all tiers of government on wait. But sadly, while the FRC works tirelessly to ensure financial discipline at the federal level, the states and local governments which account for more than 50 per cent of Nigeria’s total spending are not monitored.
Between 2003 and 2007, states and local governments, on the average, accounted for about 52 per cent of total annual public spending. By 2008, their share rose to about 57 per cent of total spending. In terms of total capital spending, the two tiers accounted for 59 per cent between 2003 and 2007. At the sector level, state governments alone accounted for 53 per cent and 51 per cent of total public spending on education and health respectively from 2003 to 2007.
The implication of this obvious rising profile of states and local governments in total public spending is that without sound fiscal and public expenditure management at the states and local government levels, national fiscal responsibility will remain a mirage. More importantly, fiscal responsibility at these levels is crucial for the effective production and delivery of public goods and services. “Fiscal responsibility should not be the concern of the federal government alone,” Eboh observed.
Aliyu Yelwa, chairman, FRC, affirmed that the exclusion of the states and local government from the FRA will stall attempts to ensure fiscal discipline in the country. According to him, the states and local governments see the Act as alien to the concept of true federalism and therefore regard it as unconstitutional. The only aspect of the Act that affects the states and local governments are the management of public debt and banking which fall within the purview of the federal exclusive legislative list. “With the states outside the Act, it will be extremely difficult to fully realise the objectives of the Act”, Yelwa warned.
Interestingly, some other countries in the world where federalism and democracy operate have employed the fiscal responsibility Act to improve efficiency and transparency in public spending. India, the largest democracy in the world and a federation, enacted the fiscal responsibility law since 2003 and up to date, the law has been operational in the country. To respect the federalism of the country, the federal government has its own fiscal responsibility law while the states have theirs. In fact, some states adopted the law before the federal government. “That is to tell you the level of financial discipline that exists in India. The states should not be coerced into implementing such law, knowing that the resources belong to the people,” Eze Onyekpere, executive director, Centre for Social Justice said.
Brazil, another country operating the federal system, had a tough start with the Fiscal Responsibility Law. The states took the federal government to court on the ground that the law was unconstitutional in a federation. But the supreme court of Brazil ruled in favour of the federal government and since 2007 to date, the laws have bee been in operation and apply to the states, municipalities and all corporations, agencies and government owned companies.
- The need for the FRA at all levels is more paramount now that Nigeria is grappling with the global economic recession which has consequently led to substantial shortfalls in revenue, productivity and employment. The present scenario has made it difficult for Nigerian government to balance its budget in the face of declining revenue and mounting expenditure. Yelwa noted that the impact of the Federal Responsibility Laws in India and Brazil assisted them in coping with the global crisis.
However, the absence of the FRA at the states and local government levels is not the only challenge confronting the Act and the commission. The inability of the federal government to abide by the provisions of the Act is a major source of worry to Yelwa and other stakeholders. The Act provides that the budgetary deficit should not exceed 3 per cent of the Gross Domestic Product, GDP. But apart from 2008 when budget deficit in relation to GDP was 3 per cent, the budget of 2009 was more than 3 per cent while that of 2010 budget bill as presented to the National Assembly stands at 4 per cent.
Also, the Act sets a limit on the public debt and borrowing by all tiers of government. By the provision of the Act under sections 41-47, state governments are not expected to borrow more than 50 per cent of their statutory allocation in the past one year. But the magazine investigation shows that some states borrow as much as 150 per cent of their previous year’s statutory allocation. To confirm such finding by the magazine and affirm the level of challenge the FRC is facing in relation to managing government’s borrowing, Yelwa said that “information is not yet available to the commission to make it clear whether or not the public debt management is being carried out according to the Act. The office reforms necessary for data gathering, particularly at the state and local government levels are still rudimentary. However, the overall impression is that the level of public debt is on the rise.”
This further buttresses the conflict between the FRA and the Official Secrecy Act of the civil service. The whole gamut of the FRA is transparency and openness in public spending, but public office holders, in keeping with the demands of the official secrecy provisions, hardly relay information to the public and civil society. “For government to show seriousness in implementing the FRA, it must bring it in harmony with the official secrecy rules,” Onyekpere stated.
Even at the federal level where the FRA is meant to operate at full scale, the Act is still not very effective. The Act is meant to cover all government-owned corporations and agencies. Only 31 corporations are covered by the Act and out of that number, seven have been privatised and more are still undergoing privatisation and commercialisation. The Act ceases to apply to a corporation once it is privatised or commercialised. In essence, soon, the number of corporations covered by the Act may reduce to very insignificant number. The revelation by Yelwa that even the 24 corporations currently under its purview are not complying with the Act makes it more worrisome.
This is regrettable considering that by the position of the Act, the minister of finance is required to add more corporations to the scheduled list from time to time but “none has been so included since the law came into force on July 30, 2007,” Yelwa explained.
In view of these challenges, Eboh stressed that the seminar was an important step by the AIAE in collaborating with the Fiscal Responsibility Commission for effective fulfilment of its statutory responsibility. Eboh stated further that in the past nine years, AIAE had regular engagements and collaboration with policymakers which had increased the appreciation of the importance of research in policymaking. Based on that record, Eboh is optimistic that the seminar would facilitate the efficiency and effectiveness of the Fiscal Responsibility Act.
Eboh: Optimistic of the effectiveness of FRA
Yelwa: Worried
Onyekpere: Wants Official Secrecy Act harmonised with FRA |
