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Zero-based budgeting and its consequences for 2016

By Dele Sobowale

One of my favourite wise cracks is the Law of the Hammer which says, “Give a young boy a hammer and he suddenly decides that everything he sees needs to be hammered immediately. Nigerians voted for change, without obtaining a clear idea of what we wanted changed and when. Commonsense, which incidentally is not common, would suggest that not everything needs to be changed. And surely not all existing systems and structures can be altered at the same time.

Budget
Budget

Certainly, not everything can be changed this year. Yet, in the manic rush to “change” everything, we might be committing great errors which will be costly to correct in four years. As a general principle, it is easier to destroy than to build. It required several years of planning to put up the World Trade Centre in the US; it was reduced to rubble in a few hours when Al Queda struck on September 11, 2001.

What has this got to do with Zero-Based budgeting, you are probably asking? Plenty, as you will soon discover. At least, regular readers of this page would remember that last week the question was asked, “WHAT HAPPENED TO THE 2016 BUDGET?” Now we know part of the answer: “Nothing much”. Professor Osinbajo, SAN, but not an economist, did not say “Nothing much” when he made the announcement about Zer0-Sum Budgeting.

But, professional economists know that when an entity (government, business etc) is still talking about the method or approach for its budget in September, when the draft of the actual budget should have been ready by month-end, then “Nothing much” had been done. And, for 2016 budget, that means trouble. The change from traditional budgeting procedure to Zero-Sum invariably requires a lot of time to impose in any organization, especially government. It is certain to result in delays and avoidable errors if it is introduced in the little time left for this year to end. Two reasons would be sufficient to illustrate the point. But, before stating the reasons, let me summarise for our readers what the palaver is all about.

Conventional budgeting procedures can generally be characterized as “top-down” programmes. Government reviews what was budgeted in the current year, projects what the year-end results will be; forecasts what the gross revenue for the coming year will be and the Executive branch allocates what it considers appropriate for each Ministry, Department and Agency.

The underlying assumptions are that all the ongoing programmes and projects will continue; that the staff strength will remain the same and very little will change. It is an evolutionary approach to budgeting which has its positive and negative attributes.

The good news is, with conventional budgeting those charged with the responsibility of drafting it can work quickly and get it done in the shortest possible time. Furthermore, because this had been the traditional way of budgeting, all the operators are familiar with it and can easily adjust their programmes when the need arises. The downside of conventional budgeting is that it often fails to take account of projects and programmes which had been. Or should have been terminated and no longer funded.

For the 2015/2016 budgets the perfect example are the Millennium Development Goals, MDGs, to which Obasanjo committed the country in 2000. Nigeria, like several other nations, was a signatory to an agreement mandating the achievement of eight development goals by the end of 2015. Whether achieved or not, and Nigeria failed woefully in at least six of the MDGs, the programme terminates in December this year.

The staff in various Ministries, employed to ensure the success of the MDGs will actually become redundant – unless other uses can be found for them. Traditional budgeting methods will not be able to detect the redundant staff and recommend either discharge or transfer or redeployment to other Ministries, Departments or Agencies.

By contrast, Zero-Sum Budgeting, which is allied with Management By Objectives, MBO, is a “bottom-up” approach to budgeting and development. The Federal Government has announced that “The Zero-Sum budgeting will be carefully coordinated to ensure that it is policy-driven; especially regarding the proposed social intervention policy of President Buhari’s administration”.

In reality, all budgets, irrespective of whether conventional or Zero-Sum, should be policy-driven. At any rate, the benefits, or otherwise, to the nation will determine the soundness of the policy – not the approach to budgeting. Zero-Sum budgeting can produce great disasters as conventional budgeting if the policy driving it is wrong-headed.

A good example is the, now disputed “free meals for school children” programme – which was announced before counting the costs – which will run into hundreds of billions of naira. Neither conventional nor Zero-Sum method of budgeting will remove the fact that, if government actually intends to implement it, then government is taking on the responsibility of feeding close to fifteen million kids every school day – at least two hundred days per annum.

The modalities for ensuring that every kid, irrespective of how remote the location is, gets fed, had not been worked out; neither has the nutritional content of each plate of food been determined – among other matters arising from this laudable but complex proposal. One thing is certain; it cannot take off in January 2016, and perhaps not until 2017.

Zero-Sum, being new will need to be introduced gradually, and it cannot be done in time for the 2016 budget to be presented. That is its major drawback for now. There are others….

 

 

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