Budget capture, agency costs, and fate of Nigerians

There is an urgent need to reinvent the national budget. The concept of annual national budgeting is fast losing its significance, becoming instead a mere yearly ritual full of fanfare. The budget is, supposedly, about the people of Nigeria, but the document, in both spirit and letter, is fast losing its human face.  You might […]

There is an urgent need to reinvent the national budget. The concept of annual national budgeting is fast losing its significance, becoming instead a mere yearly ritual full of fanfare. The budget is, supposedly, about the people of Nigeria, but the document, in both spirit and letter, is fast losing its human face. 

You might call what has happened budget capture, or give it some other appellation, but certainly, there is a disconnect between the budget and the majority of those who should benefit from it. This is because what passes today as the national budget is largely a public-sector-dominated document. In a market economy, the presentation of such as a document is supposed to make up for the imperfections of the market system, described by economists as market failure. The phenomenon of market failure is said to occur when the allocative power of the market forces fails to recognise and cater to the needs of the low-level players in the economy. 

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Now, in the existing system, it is not quite clear whether it is the market that is failing or the government, with its helping hand. What is becoming glaringly evident is a systemic morass, with both the government and markets becoming inefficient in resource allocation. 

This is why the people, ordinary Nigerians for whom the budget is designed, now fail to see themselves in the budget as presented, and perhaps a little from the details such as the ones to be presented today by the Minister of Finance. 

The budget is the central public finance document of the government that details the visible hand of the state and how it intends to direct the movement of the economy for a given period. As an expression of intention, the budget shows us where the government’s interest lies, which is indicated by the quantum of resources allocated to given sectors, industries, or areas. 

But the budget is also becoming an instrument of oppression and class domination. On this point, two factors are seen to be playing key roles: Group interest and agency. The uproar that has greeted the 2023 budget announcement is virtually against these two factors. While the budget is supposed to be designed to cater to the needs of all segments of the Nigerian economy, part of the tragedy that has befallen this process is the brazen misallocation of resources and the distortions that accompany it. 

Collectively, the agents that service the machinery of government, known as the civil servants, and the political interest groups they interface with, have become the primary beneficiaries of the budgeting process. They first take care of their interests, which is why recurrent expenditure keeps ballooning. They decide what figures to add to what lines and under which sub-heads. They decide who gets what and in what size. If you look at the figures in the budget proposal, the indiscriminate manner of allotting the expenditure figures will become obvious to you. 

For instance, in one item under travels for one of the big Ogas, the difference between this year’s estimate and the estimate for 2023 is simply N20m that was added. In other words, the office of this Oga just sat down and figured out that the man’s travels for next year will be exactly N20m higher than what he is spending this year on the same item. 

Why has recurrent expenditure become so entrenched that nothing seems to move those behind it, no matter the general opprobrium against it? In whose interest are budgets made and executed in Nigeria? Why have we not seen any significant shift in budget allocations in favour of capital funds, which by definition are those that will build the economy and help it to grow? 

This is best seen in the lopsided allocation of resources as shown by the overloaded size of recurrent expenditure over capital expenditure. Indeed, their actions now smack of moral hazard, by which economists describe actions taken by agents unmindful of the consequences because such impacts will not affect them. Whether the economy grows or shrinks may not significantly affect the civil servants who dictate the budgetary allocation. Nor will they be part of the high unemployment figures that now characterise our economy. 

Further confirmation of the capture of Nigeria’s budgeting process is evidenced by a report that many revenue-generating agencies in the country either fail to remit any revenue or remit a very small fraction to the government. This was one of the findings in the report, “Options for Revamping Nigeria’s Economy,” by Agora Policy, an Abuja-based policy think tank. 

Agora described this practice as “a serious problem that needs to be addressed. Apart from depriving the FG of much-needed revenue, the action of such agencies is in violation of the Fiscal Responsibility Act. The Act mandates revenue-generating agencies to remit 80% of their operating surpluses to the Consolidated Revenue Fund and retain 20% in their reserve fund.” 

All these are happening in a country where poverty is increasingly becoming the order of the day. The Agora report says that 40.1 per cent or 82.9 million Nigerians live in poverty.  It says that on average 52 per cent of rural dwellers in the country are poor. 

Let the designers of the budgets, the current one, and others tell Nigerians where such persons feature in the budget in such a way that by the implantation of the proposals, their lot would have changed. 

Like other reports before it, Agora’s report is a call to a change in the way the Nigerian economy has been run. As most people know, the country’s basic economic indicators show there is danger going forward, and Agora has also drawn attention to this fact: Nigeria has the largest economy, but it is missing on the fundamental factors: the level of inclusive development is low, with the current incidence of poverty; the average years of education is 6.1 years; 14.3 per cent of the population have never attended school; 36.8 per cent of children under 5 suffer from malnutrition; the infant mortality rate is 75.7 per 1,000 live births. All these factors combine to give a life expectancy at birth of 52.7 years, according to the report.   

These call for urgent changes in our budgeting process.