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O. E. Obademi and A. O. Sokefun
Keywords: Porous economy, Budget performance, Medium Term Expenditure Framework, Budget Deviation Index.
As a matter of fact, MTEF is becoming popular in developing nations in the quest to draw up Poverty Reduction Strategy Programmes. This popularity dates back to the late 1990s. The MTEF approach proposed by the World Bank followed Public Expenditure Review in many countries. The need to track poverty alleviation related expenditures resulting from debt relief has made this imperative in many developing countries including Nigeria. The main thrust of MTEF is that it helps provide the linking framework that allows expenditure to be driven by policy priorities and disciplined by budget realities (World Bank 1998). MTEF has since become a major issue in Public Expenditure Management Reforms. In Kenya for example, according to the report of the Institute of Policy and Research, the approach involves public hearing and the engagement of the private sector and civil society in budget preparation. Though the procedure is still being faced with teething problems in respect of the non-adherence to budget ceilings and over-optimistic modeling, it is an improvement on the earlier approach with better chances of success (IPAR2004).
The general consensus among scholars is that a good budget and budget process is germane to any attempt by a country that desires to achieve socio-economic transformation and sustainable development. This is what the MTEF approach seeks to achieve. According to the World Bank’s Public Expenditure Management Handbook 1998, MTEF consists of a top-down resource envelope, a bottom-up estimation of the current and medium-term costs of existing policy and ultimately the matching of these costs with available resources in the context of an annual budget process. The top-down resource envelope is basically a macroeconomic model that indicates
fiscal targets and estimates revenue and expenditure including government financial obligations and high cost government-wide programmes such as civil service reforms.
A budget as a tool of macroeconomic management herein with reference to public sector management demands that the budgetary process and implementation be given special attention because of its critical role in the management of any economy. Budgeting must be done with a sense of seriousness hence the need for an innovative approach to always make the process efficient and result oriented. Consequently to support the general macroeconomic model with MTEF, sectors normally engage in bottom-up review with emphasis on sector policies and activities. MTEF thus seek to address the previous policy making, planning and budgeting disconnect.
The six stages of a comprehensive MTEF are:
An overview of MTEF application in Africa
Many times in most of these countries, budget releases do not conform with the amount budgeted for the various sectors’ projects. In a study carried out by Le Honeron and Taliercio (2002) as reported by the World Bank, in Malawi 20.7% of development budget was budgeted for the health sector but it actually received 3.6% of the executed budget. The same scenario has been witnessed in Ghana and Nigeria with the incidence of a high budget deviation index.
Budget deviation index is the sum of the absolute values of the difference between the approved budget and the executed budget expressed as a percentage of the approved budget. One of the issues highlighted by the aforementioned study is that countries with weak institutional capacity might not be able to absorb the present mode of multiyear MTEF.
Budgeting and life experience in Nigeria
Table 1: Growth figures and the Incidence of Poverty in Nigeria
Year Growth Rate % Budget Deficit Inflation Incidence of Poverty %
Source: Central Bank of Nigeria
The rate of growth of the economy has not justified the supposedly huge government expenditures. Even in years when growth figures have shown marginal improvements, do they translate into per capita welfare increases or enhance the direct beneficiary index? One key issue that has hindered the performance of budgets in Nigeria is the fact that Nigeria’s economy is a very porous one; allowing the leakage of funds and resources that would have been used within her boarders.
A porous economy has the following characteristics:
Consequently, what comes to the government as revenue and what ought to come in as revenue cannot be properly authenticated as true.
The budgeting system
have grown phenomenally since 1970s due to the upsurge in oil revenue, inflation and continuous devaluation of the Nigerian currency the naira. He also found out that there have been fluctuations in federal government expenditure as a ratio of GDP, which has a range of between 12.0 percent and 34.0 percent annually. He also found out that the pattern of government spending over the years shows that unproductive expenditures have been crowding out productive expenditure.
A study by Omopariola (1984) also found out that the traditional budget procedure does not inter-relate financial outlays with physical and fiscal targets. In the same vein, Obadan (2003) states that targets and strategies of a budget must be based not just on national development goals and the needs and aspirations of the people, but also on a realistic assessment of the financial resources, executive capacity, and institutional framework, as well as the application of appropriate budgeting system for social change and economic development.
With reference to the economies of countries like Egypt, Nigeria, Brazil and Liberia, Schick (1997) opines that in reforming the budget process, there must be the control of inputs before seeking the control of outputs. In essence, sector policy making, planning, budgeting, management systems and processes must be well integrated.
It is instructive to say here that this is one of the things that the Medium Term Expenditure Framework (MTEF) budget seeks to correct. Since the adoption of the MTEF in the year 2004 to date, many human and procedural problems have hindered the optimal delivery of the benefits envisaged to be derived from it in respect of;
There is no doubt that the idea of MTEF is good but in Nigeria the implementation of MTEF has been frustrated hitherto by;
From the angle of the revenue projection, there have been instances when revenue projection fell short of projected estimates due to technical incapability of government agencies responsible for revenue collection. For example the Department of Petroleum Resources (DPR) that is responsible for the supervision of the upstream and downstream operations of the oil and gas industry lacks modern technology to effectively monitor the operations of the oil firms and as such the DPR sometimes depend on data fed them by the oil companies they are supposed to monitor in respect of the number of oil wells, platform and daily production output.
Also there have been accusations against some commercial banks that they do not remit into the federal government coffers as at when due money collected on behalf of the government. In years past, there have been over-estimation and sometimes under-estimation of the revenue expected by the government.
In addition, disagreements among the three tiers of government on what should be the percentage of money in the federation account that should go to each tier of government have many times resulted in delays in the release of funds for budgeted development projects. Even when released, misallocation of resources i.e. ineffective and inefficient use of resources is prevalent.
Arguments Against a 3-Year Expenditure Framework and making MTEF work.
Also the capability of a 3-year MTEF based budget to deliver on its objectives can be undermined by exogenous factors such as economic crisis and natural disasters among others. The possibility of these challenges and their effects are likely to be more when you have a 3-year budget estimate. The tendency also is that when the operationalization of a budget is designed to take a long time, the likelihood of its being jettisoned is higher. The too frequent changes that occur at the administrative level of government programmes also make a 2-year budget more realistic. A 2-year MTEF based budget will make it more difficult for overestimation of future revenue by politicians.
For MTEF to succeed in African countries, it should be deployed at both federal/national, states/sub-national and local government levels. It is equally important that the legislative arm of government should be sufficiently engaged during the process of essential tradeoffs when MTEF is being put in place. Civil society participation right from the outset is equally germane so as to give the needed credibility, acceptance and ultimate accountability that the system demands. Considering the issue of accountability, it may be necessary for the civil society groups and donor agencies to compel government to publish budget execution reports and external audit reports.
It should be borne in mind also that periodic capacity development of line ministries staff must be done while the setting up of institutions to check abuse of procedures must be established, equipped and allowed to perform their functions. In the case of Nigeria, the government should muster enough courage and political will to carry through her reforms especially as it concerns giving effect to the fiscal responsibility bill.
Conclusion and Recommendations
objectives of poverty reduction and enhanced human welfare as has been witnessed in Nigeria over the years.
Considering the complexities associated with the peculiarities of porous economies like Nigeria as earlier enumerated and the myriads of exogenous factors that assail the economy it is recommended that a 2-year budget should be used by governments with these peculiarities. In conclusion while a case has been made herein for a 2-year budget, it in instructive to say that the required legal and institutional frameworks that can support the implementation of the budget should be established and where they already exist, they should be strengthened. In Nigeria agencies like the Bureau of Public Procurement, Budget Monitoring Implementation and Price Intelligence Unit, Revenue Mobilization Allocation and Fiscal Commission should rise up to their responsibilities while working assiduously with the Central Bank of Nigeria as required. This will reverse the trend of national poverty that has left the populace bewildered.
Obadan, M.I (2003) National Development Planning and Budgeting in Nigeria: Some Pertinent Issues. Ibadan: Broadway Press Limited
Omopariola, S. (1984): Value For Money in Public Sector. The Quest for Budget Reform in Nigeria during the Second Republic, Ibadan: NISER
Phillips, A (1997) Nigeria’s Fiscal Policy 1998-2010. NISER Monograph Series, No 17 Ibadan
Schick, Allen (1997) Budget Innovation in the United States. Washington D.C. The Brooking Institutions.
World Bank (1998) Public Expenditure Management Handbook “Linking Policy, Planning and Budgeting in a Medium Expenditure Framework”