By Elizabeth Adegbesan
The Director General, Budget Office, Ben Akabueze, in this interview, speaks on budget preparations, the reasons for low government revenue and possible solutions.
One of your achievements that people don’t talk about is the restoration of the January-December budget cycle. What have been the challenges in the process, especially on the backdrop of COPVID-19 disruptions.
Ideally what we would love to do is have hands on some physical training on locations and that is what we used to do until last year. With the onset of COVID-19 last year, we couldn’t even do it physically in any of the locations. Last year, the entire training was virtual. This year, we are having a combination of physical and virtual training in Lagos and Abuja locations where we have the largest concentration of the MDAs (Ministries, Departments and Agencies). We are holding the training on a physical basis so we can get the optimal impact. But, in the other locations, for this year, we are continuing on a virtual basis due to the COVID-19, and again because we couldn’t hold the training in every city or in every state. We used to hold it in seven cities across the country in each geopolitical zone and then Lagos as the Center in this August period but that will entail travel in some of the zones.
We thought that given the prevailing security situation in some of the states, for this year we should still hold it virtually. As you can see we are now entering September. We expect right on the heels of this training of the MDAs officials to upload their budget. The budget call circular has been issued. While they are in the training their bosses are making decisions of what items should be included in the budget. As they return to work, after this training they are already fresh from the training to ride ahead of their budgets and we expect that by the 3rd of September that they would be uploaded which may enable us to meet Mr President’s timeline to get the budget to the National Assembly before the end of September.
This year will be the earliest that the federal government has presented the budget (to the National Assembly) and will further enhance the prospects of ensuring that it gets passed before the end of the year.
It is not just a question of complying with the constitutional or physical calendar. The truth is that in aggregate all of the spendings by governments in the country – federal, state and local governments, is only about 12 percent of the country’s GDP.
So the significance is not in the fact that the government overwhelmingly controls the nature of the economy but that there is a strong signaling impact. First, government as a single entity is the largest spender in the economy. Also the government budget is not just in numbers, it signals the direction of government policy. So, first the state governments and local governments take some queue from the federal government’s budget. So it is very important that the federal government presents its budget but the rest of the economy then takes their cue from what the government is doing.
It introduces greater credibility for people in the economy to be able to plan. If people don’t know when the federal government budget is going to be passed, how do they plan? So we are hoping that we will never get back again as a country to the speculation of when the fiscal and financial year begins, and nobody knows when the budget is going to be passed.
What advice do you have to give the States and local governments on budgeting?
One key advice, each state government has to focus on is optimising revenue potentials because as a country government revenues are extremely low, indeed, one of the lowest in the world. Government revenue to GDP ratio is about the lowest in Africa. We are only higher than Sudan. I am talking about all of the governments. It is just eight percent of our GDP. Whereas the average for Africa is 20 percent and the only country lower than us, Sudan, has seven percent.
So, if we are going to be able to meet the funding requirement for developmental growth, the government needs more revenue. The sustainable ways that governments are funded all over the world is through taxation and when it comes to taxation you can only tax income. I am not talking about taxing every Nigerian because a large number of Nigerians don’t have income that we can tax. But those who have the income need to be taxed in accordance with the law because taxation is a matter of law. We are not talking about even imposing new taxes; we are talking about tax administration. Making sure that people pay what is expected of them.
We have one of the worst income distribution patterns in the world, where you have stupendous wealth existing side by side with extreme poverty. The wealthy must accept that they have some responsibility to comply with the tax laws of the country. In situations where entrepreneurs, prosperous business people pay less taxes than poorly paid public servants it is simply not acceptable and that is why there is a greater focus on the shift towards indirect taxation because while people may be able to hide away their incomes given the large informalities that exists in our system, you might hide your income but it is harder to hide your expenditure. That is the only way we can ensure sustainability.
Because of the weak revenue base of the government we have had to rely on borrowing. Our aggregate revenue to GDP is only eight percent but our public expenditure to GDP ratio is 12 percent which again is still one of the lowest in Africa. The Africa average is 22 percent. That is why our government is not able to meet a lot of the basic obligations they have to the citizens. If our revenue is 8 percent and our expenditure is 12 percent you can figure out that the 4 percent gap is covered from borrowing.
I know a lot of people will say we don’t pay tax because we don’t know whether it will be well spent. That is a valid concern. However, the empirical evidence in the world is that when people actually begin to pay correct taxes, you will take a greater interest in how those funds are being spent.
You talked about government revenue dwindling. Why do you think our revenue is dwindling?
When you say government revenue is dwindling, in Nigeria we have two broad categorizations of government revenue because of our history. We talk about oil and non-oil revenue. While oil revenues are dwindling, the truth of the matter is that non-oil revenue has been growing. It is not just growing at a sufficient pace, but it has been growing. The oil revenue is dwindling and it is dwindling because it is something we don’t control. Basically, the vagaries that determine oil price are outside of our control.
Even the quantity that we can produce and sale in the international market is out of our control. We are members of OPEC (Organisation of Petroleum Exporting Countries). OPEC determines the quantity. Right now we have domestic capacity to be able to produce up to 2.5 million barrels of crude oil per day but current production, even if you add the condensates which don’t count towards the OPEC quota, it is only 1.7 million barrels and our OPEC quota is less than 1.5 million barrels.
On the aggregate revenue side, because we are producing less and because our costs are also high, we have become a high cost producer largely because of insecurity in the oil producing zones. Because of the history of insecurity, companies that operate there have now had to devote a lot of resources to securing their operations. Even as we speak there continues to be vandalization of oil pipelines and whenever that happens somebody has to step in and remediate it at a cost, and sometimes when that happens it even disrupts your ability to sell.
In Saudi Arabia which is one of the lowest cost producers in the world, it is desert land. The pipelines are on the surface all over the place, nobody is vandalizing pipelines. Here we are having to incur costs to bury the pipelines deep in the ground, so your cost becomes higher, and despite that people still go after it deep in the ground. So these have eroded our revenue earnings to become a high cost producer. Then you know we don’t control the aggregate revenue. So these are why the oil revenues are down.
Why do you think the citizens are apprehensive when the government takes loans?
The citizens are apprehensive, one because I think there is a misconception about borrowing. Again as a people, even in our personal lives, we don’t borrow a whole lot. In countries where they have a credit culture everybody is borrowing. Borrowing doesn’t stagger them. In our country, people try to fold up so they expect the government to also function that way.
Secondly, we must concede that over the years there have been questions on the quality of public expenditure and so for people, understandably there is a concern on the ground that borrowing creates obligations for generations to come and yet there is no tangible output from those funds. So it’s up to the government and its citizens to ensure that borrowed funds are duly paid.
Right now a number of CSOs (Civil Society Organisations) that are active in that area, following the money. You know the fiscal responsibility act limits what you can do with borrowed funds. So what the citizenry should be doing rather than outrightly rejecting borrowings is to see that the borrowings are within levels of sustainability and two, following the money; to know what it is used for.