Budgeting: Senate Seeks To Merge Finance Ministry, Planning Commission

In the aftermath of the budget crises between the executive and the National Assembly over the 2013 Budget, the Senate has moved to reduce the role of the federal Ministry of Finance in the budgeting process.

A federal lawmaker, Senator Olubunmi Adetunmbi, on Thursday, sponsored a motion which would make budget making a joint responsibility of the Budget Office and National Planning Commission.

Nigeria Reduces Parliament’s 2011 Spending, Punch Reports

Nigeria’s budget announced on Dec. 15 slashed money allocated to parliament for its operations next year to 111.2 billion naira ($718 million) from 156 billion naira in 2010, Punch reported.

About 108 billion naira is for recurrent expenditure, while 3.21 billion naira is for investment, according to a breakdown provided in the Lagos-based newspaper.

Lamido Sanusi, governor of the Central Bank of Nigeria, said last month that lawmakers are responsible for a quarter of the government’s recurrent expenditure, a statement that parliament demanded he retract.

Recurrent expenditure gulps 59% of 2011 budget

The trend of disproportionately high rate of recurrent expenditure that has characterised Nigeria's annual budget estimates has persisted, as it will gulp 59 percent of the 2011 budget.

Figure from the N4.226 trillion budget that was presented to the National Assembly by President Goodluck Jonathan on Wednesday proposes N2.481 trillion for recurrent expenditures. This is contrary to government's earlier plan to cut recurrent expenses.

The Finance Minister,Olusegun Aganga, had the penultimate week, in a public hearing organised by the House of Representatives Joint Committee on Finance and Aids, Loans and Debt management in Abuja said that he was working on changing the trend in the country's supplementary expenditure which was suffocating capital expenditure.

Mr. Aganga's view was corroborated by the Senate President, David Mark who told Mr Jonathan on Wednesday, during the budget presentation ceremony in the National Assembly, that disproportionate ratio of recurrent and overhead expenditure to capital expenditure is unacceptable and unsustainable.

"No nation desirous of meaningful development can afford such a disproportionate allocation of its financial resources between consumption and investment towards its own future development," the Senate President told the President. "This means that the cost of running government has been increasing at an unsustainable rate. We must all rise together and address it."

Cutting it

He added that the National Assembly will henceforth re-evaluate budget aggregates and other major macroeconomic variables across the board for all Government(Ministries Departments and Agencies) MDAs and other arms of government to lower the personnel and overhead expenditures, and improve the level of appropriations for capital expenditures." we must drastically cut down the cost of running government vertically and horizontally in the three arms of government as well as the three tiers of our federating unit," the Senate President said. "In this regard, the National Assembly will lead the crusade. We will make the required sacrifice and review our recurrent expenditure. We expect others to make similar sacrifice."

Mr Jonathan, however, said the government is mindful of the unsustainable trend in recurrent expenditures and is implementing a wide range public financial management reforms which will boost fiscal prudence and increase quality and efficiency of spending.

"To ensure that this trend does not result in the crowding out of the critical capital investments required to achieve our development goals, a high powered Expenditure Review Committee was established to suggest practical measures to rationalise recurrent expenditure without compromising the quality of service delivery," the president said.

He added that the government has already saved N12 billion in personnel cost by introducing an integrated payroll and personnel information system in 16 MDAs.

Auditing NNPC

The president also added that the government intends to block all revenue leakages in the system by conducting audits for all revenue generating agencies including the Nigerian National Petroleum Corporation.

He also said the government will strengthen the pre-shipment inspection for crude oil and gases, fast track the implementation of key reforms by the Federal Inland Revenue Service and the Nigerian Custom Service.

The 2011 budget estimates is 18% less than what was budgeted last year. It comprises N196.12 billion for statutory transfers, N542.38 billion for debt service, N2.481 trillion for recurrent (non-debt) expenditure, and N1.005 trillion for capital expenditure.

The 2011 budget is predicated on assumptions that reflect the outlook for 2011 and "our expectations for improvements in domestic oil production, stability in the international oil markets and sustained economic growth," the president said.

The assumptions include: oil production of 2.3 million barrels per day, benchmark oil price of $65 per barrel, exchange rate of N150 per US dollar, joint venture cash calls of $4.5 billion, and projected growth rate of 7%.

Government budgets N4.2tr for 2011

The federal government has proposed a budget of N4.2 trillion for the 2011 financial year, with a crude oil benchmark pegged at $62 per barrel.

Capital expenditure is expected to take N1 trillion while the remaining N3.2 trillion will be gulped by recurrent expenditure.

It was confirmed that contrary to earlier reports, the federal government intends to commence a cut in the recurrent expenditure starting from the 2012 financial year. The Presidency was however still tinkering with the budget proposal ahead of its presentation to the joint session of the national assembly today.

Meanwhile, the House of Representatives, on Tuesday, approved a request by President Goodluck Jonathan to extend the lifespan of the 2010 budget to March 31, 2011.

Mr Jonathan had made the request to the National Assembly two weeks ago, following the row between the House and the Executive arm over the poor implementation of the capital component of the budget.

The House had threatened not to consider the 2011 Appropriation Bill until it was satisfied with the implementation of the capital profile of the budget. It however, rescinded the decision last week after the president’s letter.

Cutting the work force

It was learnt that the government can only cut recurrent expediture if things can be reviewed, like the downsizing of the workforce in the ministries, department and agencies (MDAs) of government; and the merging of ministries, and parastatals.

Available information also revealed that the government is looking at the prospect of voluntary retirement and payoff for civil servants who are willing to leave the service.

“All these are cost saving measures but they are things that cannot be done overnight. It is not a six months thing. The government will have to do this gradually and over time,” a top Presidency official said yesterday in an interview.

The ministry of finance, as part of steps towards the auditing of staff of the civil service and MDAs had already spent over N12 billion in building a database of staff in 16 MDAs with a view to cover all the MDAs and parastatals of government by the end of the 2011 financial year.

“This processes require time,” the source said adding that “people who will be laid off will have to be paid or provided alternative jobs. It has to be planned carefully in order for it not to have a back lash effect,” the source said.

It was however gathered that the disproportionate budgeting pattern had been a subject of concern to the Minister of Finance Olusegun Aganga, hence the setting up of a committee in September to review the expenditure pattern and advise government appropriately.

The committee, as at the time of finalising the 2011 budget proposal, was yet to turn in its report.

Central Bank sells $400m in auction sales

The Central Bank of Nigeria (CBN), yesterday, sold $400 million in its by-weekly Wholesale Dutch Auction System (WDAS).

This is the highest sale of foreign exchange at the official window since September 27 auction when $650 million was traded. The Central Bank has sold about $4.9 billion in the last two months in 18 auctions. Similarly, the foreign reserves dropped to $33.84 billion on Friday from $34.16 billion the previous day. Analysts forecast a surge in forex demand in the next few weeks due largely to the increased market reliance on CBN. Official data for the months of January-August 2010 indicate that the central bank supplied approximately 27.1 per cent of the dollar demand of $52 billion of inflows into Nigeria’s foreign exchange market with autonomous sources (oil companies, international institutions, and remittances) accounting for the rest. The naira sold at the official market at N149.01, while at the interbank it sold at 151.865, at the bureau de change at N152 and 153 at the parallel market.

Demand pressure

According to analysts at Afrinvest, an investment and financial services firm, the naira may “inch upwards this week as demand pressure increases towards the end of the year.” The firm in its weekly report however said sustained inflows from oil majors will likely stabilize the naira in the interbank market. The report noted that demand for forex increased last week when compared to a slowdown in the previous week. Although the CBN maintained its volume of supply, market demand of $548.7m outstripped the $450.0m offered. This demand pressure continued this week as $447.62 million was actually demand out of which the CBN was able to meet 89.36 per cent of demand.

A bureau de change operator on Broad Street in Lagos, Gali Kabiru, said the increase in dollar supply may be due to anticipation of increased demand. “People expect that after next week, the foreign exchange market may be closed until next year so many people are making provisions for such occurrence,” he said, adding that interbank rate at N153 makes parallel market rate. He said the demand may increase for the next few auctions before the closure.

Sustain dollar rate

Regional Head of Research, Africa Razia Khan, Standard Chartered, London, Razia Khan said it is important for the central bank to commit to meeting market demand in full, to sustain any given dollar-naira rate. “Because the auction cut-off represents the lowest successful bid, most bids for foreign exchange are likely to have been settled at higher dollar-naira rates, and the interbank market will normally trade at a higher rate than that determined by the WDAS auction,” she said. According to her, naira stability would be achieved with the supplier able to comfortably anticipate and meet market demand. “In this case, it would require the CBN to stay ahead of the market, and pre-empt any spike in forex demand,” she said.