A professor of Economics at Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella, speaks with Sami Olatunji on the causes and consequences of budget padding
what exactly is budget padding, why does it generally occur?
Budget padding is a situation in which a budget is made bigger than the original estimates through an increase in the value of items or the introduction of new items into the budget. It is sometimes used in budgets in the private sector or by businesses when submitting a budget proposal for consideration. This is done to give the project room to expand or cover unexpected costs. But it has found its way into public budgets through the inclusion of additional projects beyond what was originally submitted. The motive in most cases is corruption, but sometimes it could be genuinely done to assist a ministry in meeting fresh challenges that occurred after the submission of the original budget.
Actually, the goal of budget padding in the public sector is to get the legislature to grant an artificially high level of funding to some projects or approval for new projects that can be regarded as afterthoughts. It is also done to cater for some economic factors such as inflation, exchange rate fluctuation, or depreciation in the case of foreign-sponsored projects, or some unexpected situation that may lead to an increase in the initial quantity budgeted for. That is covering flexibility in budget implementation. It could also be done for fear of budget cuts.
The budget may be padded with the fear that it will be drastically reduced, rendering project implementation impossible or unattainable. These are considerations that face the public sector every year. However, in addition to the foregoing, if the budget is padded and there is over performance at implementation, the team can be viewed as achievers. This is, however, possible in the private sector.
Nigeria’s budget has kept increasing significantly each year. Do you think this is a result of budget padding?
It is partly so because we do hear accusations and counter-accusations of such things. But ordinarily, budgets do increase annually because of the type of budget run by most countries in the world. There are different types of budgeting; the basic or common ones include zero budgeting, fixed budgeting, and incremental budgeting. The one we adopted, like many other countries, is incremental budgeting, whereby the proposed budget for next year would be bigger or higher than the current year’s budget due to taking cognisance of the inflation rate on existing or ongoing projects that will span to the succeeding year, the expected value of a new project with expected inflation, and of course budget padding. The zero and fixed budgets do not leave room for padding.
Recently in the news, the Minister of Humanitarian Affairs, Disaster Management, and Social Development, Sadia Farouq, accused the Ministry of Finance, Budget, and Planning, headed by Dr Zainab Ahmed, of N206bn in budget padding. Why do you believe we have budget padding almost every year?
Ordinarily, I would not know why the Minister of Finance would pad the budget of any ministry. Given the level of corruption in the public sector, the padding could have been done anywhere, including the Ministry of Humanitarian Affairs, where it would be easier for people in that ministry to withdraw the money than someone in another ministry or even the legislature.
Of course, where would a minister have time to pad the budget of another ministry when he or she could have put the same amount in the ministry where she has authority? There is more to what is being fed to the public.
Nonetheless, practitioners defend budget padding, which many regard as unethical, on the basis of practicality. The main focus of budget padding in Nigeria is corruption. This is because of the way we are.
Although it is not always so, it happens in almost all democracies, and transparency is attached to it. There have been reports of some people padding the budget behind the backs of the budget owners, such as by adding projects or increasing the cost of projects/materials. It should not be carried out behind the backs of the budget owners or even by someone else. The suggestion to increase or add projects can be made for acceptance or rejection by those submitting the budget.
There are cases of some agencies not getting sufficient money from the federation to meet their budgetary demands. Is it possible that they may end up padding their budget to withstand revenue shortfalls?
A budget normally has two sides, namely revenue and expenditure, just as it has two components, namely recurrent and capital expenditure. Revenue is very key in budget implementation, but it is not often what people pad unless they know that the legislature that will approve the budget will also scrutinise their revenue to make sure it can carry the expenditure, and they want to show that it can. So, in most cases, padding is done on expenditures. However, the ministry that releases funds for budget implementation considers both sides of the budget. It is then that many agencies fail to get what they budgeted for.
So, if an agency or ministry pads expenditure, it will not get more than it can generate or a little above it. If capital expenditure is padded and the funds available are used to meet recurrent expenditure first, the ministry or agency is worse off. Because the budget is an estimate from which actual results are known ex post, ministries and agencies must exercise caution when padding their budgets, either on the revenue or expenditure side.The ministry of finance that disburses funds does so based on historical data or information available at a particular time of demand. In Nigeria, the Ministry of Finance, Budget, and Planning is often more concerned with implementing recurrent expenditure, which has to do with salaries and allowances for personnel. Thus, MDAs that pad their budget on the capital side are likely to suffer greatly. As a result, they must know what to pad in order to withstand revenue shortfalls.
What are the likely implications of budget padding on the Nigerian economy?
The major implication of budget padding is inflation caused by demand-pull, as it puts more money into the hands of the public without a corresponding supply of goods and services. It can lead to unrealistic projections and goals as the figures are unreal. That is why, in many cases, there are projects that have remained on paper for many years or have been abandoned. It promotes a culture of settlement or open corruption. We have found cases where ministers were involved in settling the legislature to get their budget passed.
What should be done to curb the trend?
Though we say it is unethical to pad the budget, it cannot be eradicated so long as we have problems with competing needs in the face of dwindling revenue. The wider the gap between revenue and expenditure, the greater the tendency to have budget padding, which is done to be able to get sufficient funds to meet project obligations. This implies that the country must strive to generate more revenue and curb revenue leakages and other forms of corruption.
Do you think officials found guilty of budget padding should be prosecuted?
If there are laws against padding, we can start implementing the punishment, which will serve as a deterrent to those who want to engage in it.
How sustainable is the 2023 expenditure budget?
It is not sustainable unless the government has found new sources of revenue that are also sustainable. Half of the budget is based on borrowing, and presently international financial institutions and agencies are afraid of lending the country money to the extent that we have to rely on the CBN for loans. Our oil output remains low, and crude oil theft remains intractable to some extent. The factories are dying because of foreign exchange constraints to buy raw materials, and so on. Thus, there will not be an improvement in revenue from the oil sector and excise taxes; income tax will continue to fall because unemployment will remain high. I cannot fathom the short-run solution to the problem except to ask the federal government to scale down the budget, from which a supplementary budget can be prepared later. The budget is fully padded from the factory, possibly out of pride or deceit.
What advice do you have for the government as regards budget preparation?
The government should be commended for the preparation and submission of the budget to the Executive for early presentation to the legislature for authorisation and early implementation. However, the time can be improved upon so that if there is padding from the legislature, there will be enough time to iron out the differences. They should gradually reduce the budget deficits and improve the ratio between capital and recurrent expenditures. That is, they should gradually increase the ratio going to capital expenditure, which has higher multiplier effects on economic growth. More importantly, as the budget is derived from the Medium-Term Expenditure Framework, the latter should also derive its strength or existence from a long-term national plan.
