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Wages of budgetary indiscipline By PERHAPS the most fundamental plank for the failure and eventual fall of the Shagari regime (1979-83) was its inability to exercise budgetary control on their spendings during the windfall period of the administration. At the earliest indication of revenue decline, and because it had not saved for the rainy day, the government was faced with a severe management crisis for which it was neither prepared nor equipped to handle. By the time the soldiers had built up enough alibi to strike on December 31, 1983, imports of essential commodities could not be paid for while workers were owed salaries for upward of seven to 12 months. The Shagari government had become so unpopular that it was impossible to realise the stupidity of our actions when we trooped out to celebrate the arrival of the soldiers that New Year eve morning. Shagari himself, ever so meek and humble, admitted in a recent interview that his greatest regret as president of Nigeria was the failure of his administration to save for the rainy day.
Anyone who has held even a junior management position in a well-structured organisation would recognise that the most basic, and yet the most fundamental tool of management planning is the budget. Because a proper budget meticulously plans the organisation's expenditure profile based on a realistic estimate of the revenue projections, a good manner ensures continuous adherence to budgetary provisions in order to avoid distortions to his cash flow situation.
More importantly, every year the organisation strives to build up a healthy reserve base in order to be able to cope with any unanticipated market shocks. No serious organisation distributes 100 per cent of her profits to shareholders as dividends. Part of it is compulsorily transferred to the reserve account to cater for the raining day. In the circumstance, staff salaries are never owed except where the organisation is technically insolvent and is ready for liquidation. Even where there is a shortfall in revenue, creditor's obligations are sure to be met as adjustments in further spending are made. In severe cases, recourse is made to the reserves to make up for the revenue shortfall.
Unfortunately, most of the people we have elected and appointed to run our affairs have neither the training nor the exposure to prudent and efficient management of men, materials and money. Guided by a bureaucracy that has grossly squandered her time-tested adherence to budgetary control through several decades of military dictatorship and financial recklessness, governance all three levels, from the local to the federal level, has largely become a dance of the deaf to the music of the blind!
When the Federal Government gleefully announced a new minimum wage to a crowd of cheering labour leaders on May 1 last year, no one in the Budget Office had even computed the actual financial burden imposed by the simple announcement. Thus it took almost six months of readjustments, supplementary budgets and parades for ghost workers before government was ready to pay the new wages. Needless to say that the real saving grace was the windfall revenue derived from higher crude oil prices and volumes. Even now, government has not been able to, and cannot pay the 25 per cent annual wage increases it promised. The reasons are not far-fetched. Those pronouncements were products of arbitrariness and had no budgetary backing. Their implementation could, therefore, only be by the grace of God.
Fortunately, and this is extremely refreshing, the Federal Government has, in her wisdom, consummated a marriage with the I.M.F to help her institute and imbibe the basic principles of budgeting and budgetary control as a fundamental planning tool. She has even authorised the IMF to publish a quarterly audit report for all to see. This single step at instituting prudence, due process and transparency is probably the only spectre of hope yet that civilised governance will someday return to these shores.
But the same optimism cannot be expressed about the 36 states (needless to mention local councils). In spite of the quantum leap in their revenues since the advent of democracy in 1999, most of the states have been unable to match their expenditure profile with their revenues, leading to the old distortions that were the hallmark of the Second Republic. On the average, state revenues have increased five-fold between 1997 and 2000. With rich states like Delta and Rivers, revenues have increased eight-fold over the same period. This is all due to increased allocations from the Federation Account as a result of more transparent sharing of the funds, plus of course, increased oil earnings. Correspondingly, with higher wages, new herrings and more frivolous spending (dividends of democracy), recurrent expenditure has also increased five to eight-fold in almost all the states, while internally generated revenue has either remained statics or only marginally increased. Thus what we have today is a situation where, with the exception of Lagos State, other states do not even generated enough revenue to cover one-third of their personnel and overhead cost! And even in this deficit situation, they still find enough funds to sponsor frivolous trips for legislators, wives of local government chairmen and sundry government officials, all in the name of democracy dividends.
To make matters worse, most of the states embarked on reckless borrowings either from the bond market or from commercial banks with interests and fees running to 30 per cent, under the pretext of embarking on accelerated infrastructural development. Brimming with this false sense of affluence, most state governments embarked on a spending spree that was not backed by any budgetary provisions.
Now the chicken has come home to roost. Creditors and contractors are knocking on government house doors and, as usual, the first victims are the teachers in our secondary schools and the doctors in our hospitals. As this essay is being written, a number of states owe workers upward of three months salaries. Primary school teachers would have been worst off if their salaries were not deducted at source from the local council allocations. All the cry by local councils about "zero allocation" simply means that after deducting teachers' salaries at source, they have no money left to pay council workers, let alone build markets or health centres. Now, if this is happening when the state and local councils are receiving federal allocations based on crude oil price of $20 per barrel, it becomes frightening to imagine what would happen if oil prices dropped to $16 per barrel.
And this is the kernel of the heated debate about whether or not excess crude revenue should be shared. Those who have squandered their jumbo revenues due to budgetary indiscipline now want to squander our hard-earned democracy by wiping off our savings while the going is still rosy! With the recession that is inevitably creeping into the U.S. Economy, it takes little conjecture to realise that oil prices will, sooner than later, slide back into the $16-20 per barrel range at current production levels, especially with Russia pumping increasingly higher volumes into the market. If we build up enough reserves now, we can sustain a constant budget price of $20 per barrel when the inevitable price drop occurs by dipping into the reserves to make up for the difference. That way, the economy (and the populace) would not experience the discomforting shocks of such a shortfall in revenue.
Avuru is an oil analyst in Lagos December 2001 |