If the resource gap includes recurrent expenditure, sales of national assets will be inapproprite —Prof Ajakaiye

Professor Olu Ajakaiye is the Executive Chairman, African Centre for Shared Development and Capacity Building. In this interview with ‘WALE OLAPADE, at the Wednesday Club monthly forum in Ibadan recently, he spoke on understanding zero-base budgeting, the dynamics of Nigeria budgeting system, resource gap, fears of the proposed plans to sell some national assets, among other sundry issues.

What is the size, structure and currency composition of a country’s resource gap?

These should be determined in the context of an underlying national medium-term development plan with capital projects of all MDAs in all arms of government and at all levels of government properly screened, selected and prioritised.  Unfortunately, such a plan is not yet available to the public.  The highly publicised MTEF and similar basically financial programming tools do not contain specific screened, selected and prioritised projects and programmes to which Nigerian can relate.  Resource gap determined from such tools can be dangerously misdirecting and can create unnecessary panic.  Sale of assets in a panic situation as was carelessly done during the late 1980s should not be repeated.

What are the options for financing the gap?

If the resource gap includes recurrent expenditure (paying salaries and meeting some overhead costs obligations), sales of assets to close such gap will be inappropriate, because this is tantamount to consuming capital and that will be irresponsible.  Moreover, what happens when the proceeds of the sales are exhausted?  What are we going to sell to pay the next salary? For example, If the resource gap is exclusively due to bonafide capital projects that have been properly screened, selected and ranked in order of priority based on their direct and indirect contributions to national development goals (e.g, decent employment generation, diversification of productive base of the economy, export diversification, technology development, income growth) alternative financing options should be carefully considered.

So what steps do you suggest in reducing excesses in government expenditure?

The first step is to surgically consider cutting excesses and illegitimate as well as unreasonable components of recurrent expenditure.

In that regard, the personnel cost component should be cleaned up by sustaining and generalising the on-going application of technology (IPPIS, GIFMIS) to eliminate all forms of impurities in the system including ghost workers.  No attempt should be made to retrench workers as this will be inconsistent with the goal of reducing unemployment and legitimately reflating the economy.  However, salaries and allowances of political and public office holders should be drastically reviewed downwards.  For example, the gap between the salaries and allowances of political and public office holders and the directors in the public service should be drastically reduced by reducing those of the political and public office holders. This is consistent with the slogan of Change Begins with Me (CBWM).  Change should begin with those at the top.  The RMFAC should quickly propose such reductions so as to make it mandatory.  Very few political and public office holders followed the examples of the President and Vice because it is optional.

“Overhead cost components of all MDAs in the executive, legislative and judiciary arms of government including the cloudy security votes, should be drastically reviewed downwards. These can be reviewed upwards when good times return .

Other innovative approaches like the diaspora bond, utilization of pension funds and Public and Private Partnership should be considered for specific capital projects like was done in Ethiopia for their legacy dam and in Kenya for their power projects.

By the time these steps are taken, we shall know the remaining resource gap to be closed.  If the remaining gap is required to finance bonafide capital projects, all we need to do is roll them over to the next plan/budget.  So, in an environment of proper developmental planning, there is no need to panic and get stampeded to careless sales of national assets and compromise the resources flows to finance future development programmes to run our society.

What is your fear on the proposed plan to sell some of the country’s national assets? 

It should be noted that proceeds of the sale of these national assets (if ever sold) will have to go to the federation account to be shared.  So only a portion of the money will be available to FG and it may be insufficient to close the resource gap at that level of government, if and when determined. The portion going to state and local government run the risk of being spent on recurrent expenditure including security vote which will be irresponsible.

Those eyeing forex proceeds from such assets should also realise that only the naira equivalent will be passed to federation account.  The dollar will be frittered away under the on-going forex management strategy.  Any stability in the exchange rate will be temporary.

I, therefore, do not see the need for sale of national assets. Government at all levels should simply return to proper planning.  It is the lack of planning that is giving room for proposals that appear attractive on the surface, but not so attractive when examined carefully in an environment of proper development planning.

When should a country concede to the use of zero base budgeting?

Once adopted, it should be a regular feature of the budget process.  It can be particularly useful tool for orderly re-assessment of policies and programmes of a previous administration by a new government.

What are the factors that can help the effective implementation of zero base budgeting system at a short and long term?

The existence of a medium term plan and importantly, the existence of competent, motivated and meritocratic civil service that can drive the process, because ZBB can be skill intensive at the coordinating ministry like MBNP and Finance, as well as in each MDA.

Considering countries that have tested it, especially the USA, was it a landmark measure for their economy?

ZBB was applied during the tenure of President Carter but it has since been technically abandoned. However, the logic of ZBB which is to interrogate each expenditure line item to ascertain relevance, efficacy and efficiency continues to subsist

Do you think Nigeria is ripe for zero base budgeting system at this point in time?

Yes, but there is need for massive capacity building and retooling of civil servants in all MDAs.

With the current recession in Nigeria, do you think there are structures or enabling environment for the ZBB to work at the short run to help the present economy of Nigeria?

Indeed, ZBB in its modified form is imperative now as government at all levels need to interrogate all expenditure line items for efficacy, efficiency and relevant given the precarious financial situation of all levels of government.

For a mono-product economy like Nigeria, is there hope with the operating budget system use by the FG?

Yes. In that case, part of the screening criteria should be the extent to which the line item contributes to economic diversification.

With the high rate of forex and inflation experienced at present what model of economic policies do you recommend for the government?

Government should remain focused on rebuilding the dilapidated infrastructure, especially power investment in the people including the school feeding programme and encourage more co-ordination between monetary and fiscal policy. The current forex management strategy should be evaluated against expected benefits and effect necessary changes once evidence suggests that the intended effects are not forthcoming.  Similarly, the monetary policy thrusts should be subject to a careful impact assessment by independent organisations that are not subject to conflict of interest to provide a basis for appropriate review in ways that will promote complementary between monetary and fiscal policy,