Opinion

WHY FISCAL RESPONSIBILITY COMMISSION IS RELEVANT TO FISCAL FEDERALISM
BY OFEM UKET

Fiscal Federalism is the understanding of what functions and instruments are allocated across different parts of administration, and the important part of this is the transfer of payments from the central government to lower governments as well as Ministries Departments and Agencies.

The Fiscal Responsibility Act of 2007 became necessary to provide for the prudent management of the Nation’s resources and ensure long term macroeconomic stability, including the security of accountability and transparency to fiscal operations.

However, the bill for the establishment of the commission sponsored by Hon. Owan Eno then Chairman House of Representatives Committee on Finance, and currently Chairman House Committee on Appropriation was carefully crafted within a medium term fiscal policy framework and ensure the promotion and enforcement of the nation’s economic objectives.

The Finance and Appropriation Committee members of both chambers of the National Assembly had born the midnight oil to debates, parliamentary proceedings and resolutions to conclude that Nigeria needed a commission like this to complement government efforts to checkmate economic and financial transactions in public institutions.

The trust to the fact that the commission has lived up to its mandate is subject to debate by experts in the finance sector, but to say its functions duplicates that of the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) is contradictory.

There is a legal process to pass a bill into law for the establishment of a functional government agency and if during the long periods of debates and public hearings conducted at the National Assembly up to the presidency accent to inaugurate the Fiscal Responsibility Commission, contrary views as to why the commission should be set up are not raised by individuals corporate organizations then we would be flogging a dead horse to succumb to any form of recommendations to scrap the agency.  

It was the then Vice President Atiku Abubakar that first persuaded the National Economic Council to approve a fiscal management framework for the federation in 2001, along the lines adopted by the Brazilian Federation. The Fiscal Responsibility Bill was thereafter initiated by the Obasanjo Economic Team (2003-2007) to ensure the coordination of national economic policy between various tiers of government, and enable monitoring of agencies that are ‘off-budget’ but whose activities have significant impact on fiscal policies. 

The FRA in itself is a laudable legislation if it is implemented to the letter as conceived by the Economic Team. However, five years since the establishment of the commission, are there any achievements to show for it or is it just another drainpipe for the nation’s resources? Is the current administration enabling the commission to fulfill its obligations or is it a stumbling block to its overall productivity? Is the FRC an agency that is necessary or is it just another institution with substantially overlapping functions of another in existence?

In clear terms, the FRC is responsible for monitoring budget implementation in the various MDAs at both the Federal and State levels to avoid mismanagement of public funds. The commission is also responsible for ensuring that annual budgets are derived from the Medium Term Expenditure Framework (MTEF) prepared by the Ministry of Finance for a period of three financial years, and approved by the National Assembly. 

According to the FRA, every government corporation is required to establish a general reserve fund where 20% of its operating surplus is allocated annually while the balance is to be paid into the Federal Government’s Consolidated Revenue Fund. The commission is also required to publish, on a quarterly basis, a list of each of the tiers of governments in the federation that have exceeded the limits of consolidated debt, indicating the amount by which the limit is exceeded.

Though poorly funded over the years, the commission has through its statutory mandate recovered about N200 Billion from MDAs since inception and remitted to the National Treasury and concerted operations are in place to make more recovery.

In 2013, the minister of finance and coordinating minister of the economy, Dr. Ngozi Okonjo-Iweala warned that economic activities may be shut down and that the Federal Government may be unable to pay its workforce by September if government failed to resolve the lingering problems with the 2013 Appropriation Act.
 The fact that there are consistent delays in the passage of yearly appropriations is indicative of weak fiscal practices and management at all levels of government, but instructive to draw the attention of relevant agencies to the damage late passage of national budget can do to the economy.

Several countries such as India and Brazil have enacted Fiscal Responsibility laws to strengthen their fiscal institutions and establish a broad framework of fiscal planning successfully. In India, the union government passed the Fiscal Responsibility and Budget Management Act in 2003, a year later, all 28 states replicated the Act. Brazil passed a Fiscal Responsibility Law in 2000 which applies uniformly to the federal, states and municipal governments. The Brazilian law set out borrowing criteria and penalties for default of this rule. It placed limits on public spending, the size of the fiscal deficit, and public debt, and disallows debt refinancing between the state and central governments. It was the Brazilian success that Nigeria sought to learn from.
Ironically, two years ago, the federal government set-up a committee headed by then Head of Service of the Federation, Steve Orosanye, to restructure and rationalize the public service. One of the expected outcomes was the reduction of the cost of governance by reducing the duplicity and overlapping functions inherent in the current structure of the Public Service of the federation.

According to the Orosanye report, there exists about 541 government agencies and parastatals which have huge financial implications for the nation especially when their productivity does not measure up to their running costs. Some of the recommendations of the report included merging, reversing and abolishing certain Ministries, Departments and Agencies (MDAs). It is opined that if the recommendations of the Orosanye report are implemented to the letter, it would potentially save the country N862bn by 2015, nearly a fifth of the annual federal budget.

However, reports that are retrogressive to economic development and human capita are usually presented at the end of every panel, but left to the presidency to look at variables as a nation to make far reaching consultations as to the danger the implementation of such reports potent.
END.

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