Power Rotation

By Victor Okeke

Policy experiences show that strong fiscal governance is an important factor for fiscal performance. In this piece, VICTOR OKEKE makes a case for the amendment of the current fiscal law to help contain the deficit bias of fiscal policy making in Nigeria.

The decisions we make play an important role in the critical stages of our lives. On the individual level, many of such decisions involve temporal dilemmas, that is, conflicts between the immediate and delayed consequences of one’s actions. In the same way, governmental decisions have a direct impact on the standard of life and economic stability of entire populations, being very important that these decisions have a solid strategy, a good management and a solid legal framework.

There are a lot of people who believe that fiscal responsibility, a concept which involves transparency, efficiency of public administration and care for future generations by improving sustainable development, has large and positive effects on fiscal performance. According to the International Monetary Fund (IMF), “transparency in government operations is widely regarded as an important precondition for macroeconomic fiscal sustainability, good governance, and overall fiscal rectitude”

Herein lies the issue. Nigeria External Debt reached 33.5 USD billion in June 2021, compared with 32.9 USD billion in the previous quarter. As of November 2021, it will become 50.9 billion USD following the Senate’s approval of the Federal Government’s request for $16bn and €1.02bn fresh loans on Wednesday. Curiously, the senate gave their approval for the loan request without even knowing the terms of the loan request but rather passed a resolution that the terms and conditions of the loans from the funding agencies be forwarded to the National Assembly prior to their execution for approval and proper documentation.

The truth is that fiscal choices that the government makes today have implications for the future. When the government borrows, it borrows from those who save. The richer you are, the more you save. Thus, borrowing will ultimately widen the inequality gap. This cost of borrowing must be balanced against the benefits that accrue from these financing sources, which involves assessing what the borrowed money is being spent on. It is possible that the net benefit will be positive, but this needs an assessment of the composition and effectiveness of government spending. If the government is merely borrowing to fund consumption expenditure, then this is difficult to justify. A subsidy to the poor financed out of borrowing, means the rich get paid for the subsidy. This is the logic behind the recent proposal by the Minister of Finance, Zainab Ahmed that the federal government will pay Nigerians transport allowance after removing fuel subsidy.

The Nigerian economy requires a fiscal battle plan and this, in turn, requires an appropriate legal fiscal responsibility framework. According to the Lead Director of the Centre for Social Justice, Eze Onyekpere, the numerous challenges facing the Nigerian economy have led to several reforms in different aspects of public finance and resource management including the enactment of the Fiscal Responsibility Act (FRA) 2007.

It has been fourteen years after the enactment of the FRA and this calls for a review, some sort of evaluation to determine whether the clear and unambiguous goals and objectives of the Act have been met or whether sufficient steps have been taken in the process of meeting the goals.

“The emerging posers include: Is the economy more stable today that it was fourteen years ago? Is there greater accountability and transparency today compared to the earlier period? Yes, the Fiscal Responsibility Commission (FRC) has been established but where is Nigeria in the promotion and enforcement of the economic objectives detailed in the Fundamental Objectives and Directive Principles of State Policy found in Chapter Two of the Constitution of the Federal Republic of Nigeria 1999 as amended,” Onyekpere asked?

Brave enough, the Nigerian Senate in its wisdom is considering a bill to repeal the extant law and to re-enact a new FRA. This bill is a product of a systematic evaluation of the challenges, an acknowledgement of the truth, that Nigeria has not suppressed the mischief and that the frameworks and procedures established to drive the remedy are too fragile and may not carry the weight of the reforms.

The Chairman of Fiscal Responsibility Commission (FRC), Victor Muruoka while reeling out some of the rationale for the proposed amendment said that that current Act by specifying some powers which the Commission ought to wield in order to fulfill its mandate, led to situations where requests and directives of the Commission were routinely disregarded without consequence. This has led to the expansion of the powers of the Commission in S.2 of the proposed amended Act. The amended section gives the commission power to compel any person or government institution to disclose information relating to public revenues and expenditure; and conduct investigations to ascertain whether any person has violated any provisions of this Act.

It will also have the power to monitor and enforce the remittance of revenue by all Corporations and government agencies into the Consolidated Revenue Fund as provided and publish same at the commencement of every fiscal year.

Also, of great significance is conferring of direct prosecutorial powers on the Commission. “This, we firmly believe, will enhance the powers of the Commission to enforce the provisions of the Act more effectively. This provision is without prejudice to the Constitutional powers of the Attorney General of the Federation. Without this power, the Commission is a mere toothless bulldog,” the FRC Chairman said.

To ensure that a definite person or office is responsible for matters relating to the MTEF, section 10 of the proposed amended Act provides that the Federal Government shall prepare and submit the MTEF to relevant authorities through the Minister of Finance. The reason for this is that the use of “Federal Government” in the existing Act is too wide and makes it difficult to impose liability for non-performance of function created therein on any particular office or officer.

The section included the “consolidated debt profile and limit for the Federal, State and Local Governments” as part of the information that shall be contained in the MTEF. This is to make the debt profile of each tier of government evident and help in the management of the consolidated debt of the Federation.

The amended Act has made public consultation in the preparation of the draft (Medium Term Expenditure Framework) MTEF compulsory by changing the word “may” in section 12 (2) (a) to “shall”. This amendment is proposed considering the importance of the input the public shall make to the preparation of the MTEF.

Timelines have also been provided for the preparation and presentation of the Annual Budget to the National Assembly. This is to reverse the previous ugly trend of late preparation and submission of the budget to the National Assembly with its adverse consequences on the economy and to make the recent gains/improvement made in that regard, permanent.

The proposed amended Act, in section 21 now provides for additional documents including estimated revenue broken down into Monthly collection targets which the corporations and agencies of government listed in the Act shall prepare and submit along with their Annual Budget and their Revenue and Expenditure Schedule to the Minister of Finance. Also, their projected Operating Surplus must be broken down into quarterly estimates. This is to ensure fiscal accountability on the part of Schedule Corporations/Agencies as well as commit them to taking measures to combat corruption and diversion of government revenue, while making revenue available to Govt. while still carrying out their operations.

There is also a clear provision to limit the expenditure of MDAs to not more than 75% of their gross revenue.

In the meantime, Nigeria must ensure there are clear and predictable fiscal rules that allow constrained discretion on policy, while securing long-term sustainability in the public finances. This will include reductions in debt. Such measures need to be announced alongside recovery plans, as they are essential to secure investor confidence in the sustainability of the public finances.

Ultimately, the adoption of a fiscal responsibility legislation for attaining fiscal stability goals succeeds only if there is strong political commitment to fiscal discipline.

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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.