Public Financial Management & Budgeting Reform as a Panacea for Enhancing Cross River State Prosperity by Cijeyu Ojong

Public Financial Management & Budgeting Reform as a Panacea for Enhancing Cross River State Prosperity by Cijeyu Ojong

January 06
07:02 2021

Cijeyu Ojong BSc, MSc, MBA, MNIM, LIFA, ACA

Independent Public Financial Management Consultant

GSM: +234-8079372231 Email: ceejayojong@yahoo.com

 

 

Executive Summary

Effective public financial management (PFM) systems inclusive of sound budgeting framework are at the core of the development process as they ensure optimal allocation of scarce resources to the strategic priorities and social expenditure programmes of government. Such systems guarantee efficient delivery of basic social services; promote fiscal discipline, value-for-money social spending, and accountability over the use of public funds; as well as assisting to enhance the achievement of inclusive growth, poverty reduction and sustainable development.

The World Bank Public Expenditure Management Handbook 1998 long identified the failure to link policy, planning and budgeting as the single most important cause of poor budgeting outcomes in developing countries. This seems to speak directly to the current case with Nigeria and indeed Cross River State. The absence of clearly defined performance action plans with concrete milestones and measurable performance indicators that are tied to a robust monitoring and evaluation mechanism have tended to largely limit the efficiency and effectiveness of budget outcomes in the State. Yet, it has been noted elsewhere that how governors spend money is their most powerful lever to prioritize, make performance consequential and move agencies and stakeholders from frustration to innovation in the context of democratic governance.

 

The imperative therefore is for Cross River State Government to undertake deep and far-reaching reform that can streamline and overhaul the PFM systems and budgeting processes for maximum efficiency and effectiveness towards realizing the desirable goals of sustainable development, inclusive economic growth and shared prosperity and efficient public service delivery, as well as human capital development and rapid scale-up of public infrastructure in the coming years.

 Preamble

The suggested topic “Adopting Fiscal policies that will Enhance Prosperity for Cross River State” in the request to contribute a chapter in ‘THE FUTURE NOW: CROSS RIVER STATE IN THE NEXT 50 YEARS’ has been rechristened to: ”Public Financial Management & Budgeting Reform as a Panacea for Enhancing Cross River State Prosperity’ in exercise of the choice granted me to tweak the suggested topic to suit my unique experience and expertise. This was done for the obvious reason that core fiscal policy objectives and targets are more in the domain of the central government rather than sub-national governments. Nonetheless, the fiscal actions of sub-national governments bear significant impact not only on their immediate environments but also on the overall fiscal outcomes of the country.

Essentially, fiscal policy instruments are employed by the central government towards achieving the goals of macroeconomic management.  The key instruments here are government revenues and expenditures. Government revenues are derived from taxation, borrowing, returns from investments in income-yielding assets and sale of government assets; whereas government expenditures involving both capital and recurrent expenditure are funded from the revenues over a defined time period usually one year. Its correlate monetary policy is conducted by the apex monetary authority – Central Bank. Monetary policy usually involves managing inflation, interest rates, exchange rates, external reserves, and money supply to achieve the over-arching goal of price stability in the economy.

The brief exposition above should have clearly highlighted the limitation faced by sub-national governments in terms of the flexibility of using core fiscal policy instruments to achieve their desired objectives. However, the Annual Budgets and public financial management systems underline the framework for sub-national governments to operationalize fiscal policy and undertake fiscal actions that support efficient public service delivery and sustainable development.

Current Situation & Existing Challenges

Although there has been some effort towards implementing of PFM and Budget Reforms in Cross River since the advent of democratic governance from May 1999, a plethora of issues ranging from administrative, institutional, capacity building, procedural and legislative issues still exists. These issues have tended to continually impede the efficiency and effectiveness of PFM and Budgeting systems in the State. Highlighted below are some of the observed PFM and budgeting process challenges:

Inherent inadequacies in Budget Formulation, Implementation and Reporting. This situation in addition to other related weak PFM arrangements tend to induce poor budget performance and outcomes. Some of the key challenges and issues here include but not limited to the following:

  • Lack of feasible plans and proper costing of sectoral expenditures from MDAs at the budget initiation stage. This often brings about consistent discrepancies between approved budgets and actual releases of funds. Uncertainty in the predictability of budgetary funding can hardly provide an incentive for MDAs to close the gap between budget demands and available resources.
  • Gaps in budget implementation monitoring and reporting mechanisms in terms of the quality and timeliness of published annual public accounts.
  • Off-Budget Spending. There is incidence of large government spending that remains off-budget with serious implications for transparency and accountability, as well as efficiency of budget spending.
  • High incidence of Recurrent Expenditure over Capital Expenditure. The current trend does not augur well for the more development-orientated capital expenditures and requires a deliberate re-arrangement of government spending priorities.
  • Revenue Leakages and Efficiency of Budget Spending. Such leakages can be found in unrealistically high values for procurement of contracts, projects and services; as well as non-remittance or partial remittances of internally-generated revenues by revenue generating agencies of the State Government, etc. This calls for improving the efficiency of budget expenditure and public procurement to achieve cost-effectiveness and value-for-money.
  • Incremental Line-Item Budgeting. The current practice of marking-up or increasing each line item of budget expenditures by an arbitrary percentage every budget year without proper justification on the need for the expenditure and/or the increase is out of tune with best practices. Programme Budgeting (PPBS) or Zero-Based Budgeting (ZBB) have become the standard norm for efficient and effective budgeting. There is need for a deliberate move towards implementing programme budgeting that reinforces fiscal discipline and encourages efficiency of public spending, strategic prioritization and overall value-for-money in public expenditure.
  • Budget Classification and Government Financial Management Information System. There are existing challenges with the provision of an Electronic platform and clear definition of government business processes, as well as training of MDAs to understand its structure to support full roll-out and optimal functioning. Similarly, Chart of accounts and Programme classification, as well as full transitioning from cash basis accounting to modified cash basis and finally to accrual basis as approved for implementation under the Integrated Public Sector Accounting Standards (IPSAS) are yet to be fully adopted and implemented. A comprehensive Integrated Personnel Payroll Information System for the State is also yet to be fully developed and implemented.
  • Unexplainable delays in full delivery of Budgets and release of capital warrants. This tends to delay execution of projects and public service delivery.
  • Unrealistic Budgeting. Annual Budget estimates are usually jacked up arbitrarily without any realistic underlying assumptions for funding the budget or recourse to prior year budget performance as a guiding benchmark for making realistic projections of revenues, etc.

Lack of coherent Medium Term Planning. There is insufficient linkage between the State’s strategic priorities and public spending. No overall standard long-term Strategy Document or Development Plan, and MDAs do not currently prepare medium term sector strategies (MTSS) that should be linked to the State’s medium term expenditure framework (MTEF) and to the annual budgets. Other noticeable weaknesses  here include:

  • Existent data challenges.
  • Non-alignment of annual budget to the long-term development agenda.
  • No service-wide capacity building on MTSS/MTEF for prime officers from all MDAs for effective service delivery.
  • Non-regularity in revision of MTSS Guidelines, as well as building and strengthening capacity for sector costing and appropriate costing of budget estimates, etc.

No Consistent Legislative Framework for PFM. A coherent and consistent legislative framework for PFM in the form of an organic budget law is non-existent. To provide an effective legislative framework for PFM, there is need for a review and update of extant finance laws to include Fiscal Responsibility, Public Procurement, Revenues and Audit laws, etc.

Loose Legislative Scrutiny. The quality and depth of legislative scrutiny of the annual budgets need to be improved and strengthened to curtail potential budget over-runs and evaluate budget estimates on a strictly value-for-money criteria. There is also need for more effective legislative oversight function of budget implementation and reporting by relevant MDAs to ensure public accountability and efficient service delivery.

Weak Monitoring & Evaluation Framework. Service delivery targets are not developed and tracked in a systematic way across MDAs. The relatively weak M & E framework among MDAs is also reflected in the fact that there is no integrated database of all on-going State projects that should aid the monitoring and evaluation of the projects. There is also no strong emphasis within the existing legal and administrative framework relating to the role of accounting officers, timely fiscal reporting and annual accounts, as well as mandating follow-up on audit findings and denial of cash releases to MDAs that do not comply with reporting requirements.

Weak Organizational structure and Institutional Capacity. Current institutional capacity for PFM service delivery in the State is weak. Structural issues also exists such as considerable overlap in functions and responsibilities of different MDAs. Consequently, government services are spread over a multitude of MDAs performing too many duplicated functions with inefficient service delivery and improper tracking of results achieved with public spending. Neglecting the critical role of institutional and capacity considerations in PFM reform and Budget including FSP/MTEF projections will introduce elaborate facades of fiscal reform at high transaction costs without improving budgetary outcomes. This is especially so given the deficit of skills and lack of capacity to fully utilize capital budgets.

Human Resource challenges. Ensuring adequate levels of qualified technical staff in key PFM institutions is a pre-requisite for sustaining process reform and efficient service delivery. Challenges exist across almost all of the key PFM institutions with regards to well-trained staff with adequate skills and capacity that are fit for purpose.

Weak debt management framework and strategy. This is reflected in lack of institutional arrangements and appropriate strategies for effective debt management even when the State currently ranks among the most indebted States in the country. There is also no borrowing guidelines and annual borrowing plans, as well as a good debt database that shows clear indications or projections for State government total pension liabilities, contractor debts, contingent liabilities, bridging finance, and total debts owed every other body or person. This should ordinarily form an integral part of any robust MTEF and fiscal strategy.

Suggested Interventions & Way Forward

As way forward in seeking to right-track the State’s PFM and budgeting processes, the following strategic reform interventions should prove useful towards overcoming the most of the earlier enumerated challenges:

  • PFM Reform Roadmap and Stronger reform commitment. The State’s political leadership has to show strong commitment towards initiating and implementing a holistic PFM reform roadmap for the State. This should be complemented by the recruitment of a highly knowledgeable, competent and visionary leadership and economic management team to effectively drive the reform process.
  • Programme based budgeting (PPBS). Commitment has to be made towards forging an appropriate approach and a clear implementation strategy for bringing on board PPBS in State Budgeting. There should be a preliminary strategic review to assess key Programmatic Budgeting (PB) roll-out prerequisites including: PB strategic approach; scoping the existing capacity and skills (budget, procurement and accounting) in MDAs; and possible technical assistance (TA) requirements in MDAs.
  • Operational budget reform. Development of a more detailed operational budget reform strategy especially around the upstream budget formulation activities and also mainstream budget execution arrangements, as well as supporting improvements to budget monitoring and reporting systems including gender monitoring for purposes of equity and realization of rights.
  • Strengthening macro-fiscal projections. Strengthening systems and technical processes for producing sound macro fiscal projections that feeds into the budget and MTEF/MTSS on a timely and consistent basis. Such Units will assist in providing sound technical analysis to assist in the prioritization of capital projects from MDAs, improving budgetary outcomes and enhancing service delivery.
  • Enhancement of the MTEF and MTSS as part of the medium term planning toolkit. This could be achieved through eliciting appropriate technical support in respect of:
  • Building systems and capacity to develop improved Medium Term Sector Strategies that are fully aligned with the broader budget process and realistic medium term budget ceilings for all major sectors.
  • Establishment of ‘virtual’ MTSS units and creation of virtual teams within MDAs to better align MTSS with appropriated annual budgets and to maintain awareness of the MTSS through ongoing training and capacity building, as well as working on strategies to communicate and mainstream MTSSs to key stakeholders and groups within key individual MDAs, etc.
  • Strengthening the institutional framework and organizational capacity. Building more robust PFM and budgeting systems and processes, as well as building the capacity of staff for effective service delivery through PFM training and mentorship.
  • Eliminating or minimizing revenue leakages. This will involve ensuring the strengthening of internal controls and public accountability mechanisms, as well as enhancing the mechanisms for better legislative collaborations and stronger scrutiny of PFM issues and enactment of appropriate PFM laws.
  • Single Treasury Account. There is need to strengthen the cash management framework by installing a Single Treasury Account (STA) in the State. The STA would ensure that the government knows its cash position real-time on a daily basis. All MDAs could be required to deposit public revenue receipts into, and make all major payments from, jointly designated government account(s) with the an approved Bank with direct linkage to the relevant CBN Branch Office. This will provide an easy audit trail on payments by different agencies from government coffers, ascertain aggregate cash availability and minimize the incidence of banks frauds relating to public funds.

Other PFM and budget reform issues would include:

  • Consistent Legislative Framework for PFM and revenue laws.
  • Stronger legislative oversight.
  • Sound debt management framework with robust debt database and debt sustainability strategy.
  • Ensuring realistic budgeting.
  • Development of a sound revenue framework in collaboration with relevant revenue generating State Government MDAs.
  • Automation of revenue collection and payment systems in the State.
  • Tackling of poor record keeping in MDAs and development of PFM database.
  • Dealing with problem of poor Predictability of government funding and timeliness.
  • Multi-stakeholders consultations in the processes of governance.
  • Enhancing the fluidity of collaborations between relevant MDAs and the State Assembly in the budget cycle, etc.

Conclusion

Overall, incurring high transaction costs in governance without improving budgetary outcomes and efficiently delivering desired public services, as well as proper tracking of the results achieved with public spending only indicates the existence of an elaborate fiscal facade. The economy as a result becomes constrained from growing and developing at its full capacity and potential. This could lower human development indices, arrest poverty-reduction, and increase rent-seeking activities, unemployment and insecurity as well as generating and sustaining a sense of dissatisfaction and distrust towards governance by the citizenry. The urgent need for PFM and budgeting reform cannot therefore be over-emphasized if Cross River State is to enter into its glorious destiny and enjoy eternal prosperity going into the future.

 

Cijeyu Ojong BSc, MSc, MBA, MNIM, LIFA, ACA

Independent Public Financial Management Consultant

Abuja – Nigeria.

Phone: +234-8079372231 Email: ceejayojong@yahoo.com

 

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kammonke

kammonke

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