By law, the Federal Government through the Minister of Finance is obliged to prepare, not later than four months before the commencement of a financial year, a Medium Term Expenditure Framework which will be endorsed by the Executive Council of the Federation and thereafter laid before the National Assembly for approval. The lawmakers are to approve the MTEF with such modifications as they deem necessary by a resolution of each House. The MTEF is a three-year fiscal framework, which forms the basis for the preparation of the annual budget. The sectoral and compositional distribution of estimates in the budget must be consistent with the developmental priorities set out in the MTEF. The law sets out specific activities, consultations and engagements preceding its formulation and approval.The fiscal framework is made up of five major components, namely a macroeconomic framework; a fiscal strategy paper; and an expenditure and revenue framework. It also contains a consolidated debt statement setting out and describing the fiscal significance of the debt liability of the Federal Government and measures to reduce any such liability; and a statement describing the nature and fiscal significance of contingent liabilities and quasi-fiscal activities and measures to offset the crystallisation of such liabilities. However, going through the extant MTEF raises several questions. Did it comply with the enabling provisions of the Fiscal Responsibility Act or did it seek to explore new grounds' Are the policy prescriptions and directions intended to improve the business environment and the standard of living of the majority of the populace'The Minister of Finance is under obligation to hold consultations with stakeholder groups before the preparation of the MTEF. No such consultation was held; and there is no record of the Ministries, Departments and Agencies of Government being engaged in the preparation of the Medium Term Sector Strategies, which precedes the MTEF. If this was done, it must have been done secretly because previous MTSS sessions had other stakeholders on board. The endorsement of the Executive Council of the Federation did not come by the end of the second quarter as stipulated by law. The law anticipates that the MTEF should get to the National Assembly latest by September but the current one was not submitted until October 2011. This has laid the foundation for the late submission of the budget estimates by the President and its eventual late passage by the legislature, likely by the end of the first quarter of 2012, if recent experience is a guide. It is instructive that previous MTEFs complied with the three year time frame, but the extant one is novel in extending the period to four years without legal authority. The macroeconomic framework is to set out the macroeconomic projections for the next three financial years, the underlying assumptions for those projections and an evaluation and analysis of the projections for the preceding three financial years. Unlike previous MTEFs, the one in review has no targets on growth, inflation, interest and exchange rates and accretion to external reserves. Rather, there was an omnibus statement to the effect that the goal of low inflation, interest rates consistent with strong and sustained economic growth, a stable exchange rate reflective of real market conditions and a build-up in external reserves in the presence of high oil prices will be pursued. There was no attempt in this part to link up this statement with the targets in Vision 2020, a very significant omission. The above statement is vague and can be subject to as many interpretations as there are Nigerians. If there are no targets and promises made by government in the macroeconomic framework, how will performance be monitored' The review of previous performance started with the 2010 budget and ended with the performance so far in 2011. This is in sharp contrast with the requirement of an evaluation and analysis of the projections for the preceding three financial years. This leaves a lot of questions unanswered on its trail.The assumptions in the oil benchmark price and production in millions of barrels per day are realistic. There were no projections on accruals to the Sovereign Wealth Fund or the Excess Crude Account. The sectoral composition of GDP simply replicated those adverse figures that Vision 2020 sought to change. Will a country that seeks to be in the top 20 bracket in about eight years time still project its manufacturing sector to contribute 4.6 per cent of the GDP in 2015' Will an infrastructure deficient country still expect building and construction to contribute 1.8 per cent of GDP in 2015' If the targets in Vision 2020 and its First National Implementation Plan 2010-2013 do not inform the MTEF, why did government waste money to prepare the Plan'The Fiscal Strategy Paper, inter alia, talks about rebalancing the distribution of government spending and merely proposed a reduction of the recurrent expenditure from 74.4 per cent in 2011 to 72.5 per cent in 2012. From the fiscal tables, it targets 29.07 per cent, 30.6 per cent and 31.1 per cent capital expenditure in the outer years of 2013, 2014 and 2015 respectively. This is a far cry from the target of the National Economic Empowerment and Development Strategy 1 that was almost met60 per cent recurrent and 40 per cent capital. Under fiscal consolidation, the removal of the proverbial fuel subsidy to free up about N1.2tn every year is proposed. With this tokenistic approach to the reduction of recurrent spending and increasing the capital vote, the implication is that apart from the proposed savings in the SWF, the administration plans to free up resources for frivolous recurrent expenses! This is just not the way to develop a country. Furthermore, plans to increase available revenue in the MTEF ignored the increased income that would accrue to the nation if the Petroleum Industry Bill is passed into law and the fact that the burden of Joint Venture Cash calls may be removed from the Treasury. Experts project that Nigeria will realise over N3tn additional revenue annually if the Bill is passed into law. So, the larger picture of what gets more resources into the Treasury should supersede the immediate gratification of removing fuel subsidy.Nigeria is still planning new borrowing of N794.44bn in 2012, N751.41bn in 2013, N660.72bn in 2014 and N514.03bn in 2015, in addition to existing debts which are in the neighbourhood of $40bn. The MTEF is stuck in calculating the ratio of the Net Present Value of Debt to GDP without due consideration for the ratio of debt to gross revenue and ratio of debt to recurrent revenue. Our debt is growing faster than our revenue and this should be a reason to rein in the debts through a moratorium. The MTEF was almost silent on contingent liabilities but generally offered a definition of the term. It acknowledged that with increased involvement of government in public-private partnerships, the possibility that these liabilities are realised is quite real. However, the expectation is that the MTEF should contain information on the nature and quantum of existing contingent liabilities and the measures to be taken to ensure that they do not crystallise or how to deal with them when they crystallise.In conclusion, future MTEFs need to be prepared on time with adequate consultation of stakeholders. They should contain the necessary details stated in the law for the macroeconomic framework, fiscal strategy paper, consolidated debt statement and contingent liabilities. They should recognise the need to curtail recurrent expenditure in favour of increased capital spending. The legislature should prioritise the passage of the Petroleum Industry Bill and Nigeria should reconsider her inclination for continued borrowing.Onyekpere is the Lead Director, Centre for Social Justice. He can be reached at censoj@gmail.com or 08127235995
Click here to read full news..
