Fiscal Responsibility Commision - The Federal Republic of Nigeria
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Fiscal Responsibility Commission

Comments on the Budget Implementation Report
for the Second Quarter of 2009
By a letter, No. BD/MDD/3000/FOIR/S.412B/10 of 13 October, 2009, the Honourable Minister of Finance, Dr. Mansur Muhtar forwarded to this Commission a copy of the Budget Implementation Report (BIR) for the Second Quarter of 2009 in accordance with the provisions of Section 30(1) of the Fiscal Responsibility Act (FRA), 2007. Section 30(1) of the FRA provides that:
The Minister of Finance, though the Budget Office of the Federation,
shall monitor and evaluate the implementation of the Annual Budget,
assess the attainment of fiscal targets and report there upon on a
quarterly basis to the Fiscal Responsibility Commission (FRC) and the
Joint Finance Committee of the National Assembly (NASS)
2.   The FRC has read the BIR, and based on the strength of the powers and functions conferred on it under Sections 2 and 3 of FRA as well as the preamble to the Act, the Commission comments on the report as below:

Timeliness of the Report:
3.   The Second quarter of the 2009 ended on 30 June, 2009. At the latest, the report should have reached the FRC in July, 2009; but it came in October, 2009, when the third quarter report is almost certainly overdue. The essence of timeliness is to ensure that if the implementation of the budget is deviating from the set targets, remedial actions are taken in the following quarter to bring the budget on course. With report coming too late, whatever deviations that may have occurred will be carried forward on cumulative basis and prevent the attainment of the set targets.

Second Quarter or Half Year Report:
4.   Throughout the BIR for the second quarter of 2009, the focus is more on the half year of 2009, that is, the period between January and June more than the period between April and June, 2009. This greater focus on half year than on the second quarter tends to either overstate or under play the budget performance in the second quarter. For example, compare Appendix I on capital project performance for the first quarter with Appendix I on capital performance as at 30 June, 2009 below:
Table 1: Capital Performance for MDAs as at 31 March, 2009



Amount Cashbacked N


Utilization N


Performance %









Table II: 2009 Capital Performance for MDAs as at 30 June, 2009



Amount Cashbacked N


Utilization N


Performance %









Table III: 2009 Capital Performance for MDAs (Second Quarter)



Amount Cashbacked N


Utilization N


Performance %









5.   From Table I – III above, it is observed that capital performance was 20.68% in the first quarter, 42.92% in the half year and 55.29% in the second quarter. In effect, focusing on half year or cumulative performance has drowned the performance in the second quarter. Similar exercise can be done in respect of revenue and recurrent expenditure. This observation underlines the need to separate current status report from cumulative report.

Compare Actual with Target
6.   Throughout the BIR, particularly in the area of capital projects, actual expenditure (utilization) is compared with amount of releases that are cashbacked. The amount that is cashbacked is not the same as the target in the budget. For examples, while the annual capital budget for 2009 is N1,062.55billion, the half-year’s budget on pro rata basis is N531.27billion, what was released and cashbacked for the half year is N449.88billion. Actual capital expenditure or utilization of N193.08billion was compared with the cashbacked amount of N449.88billion to obtain 42.92% level of performance. If the actual expenditure of N193.08billion was compared with the half-year’s budget target of N531.27billion, the performance attained would have been lower at 36.34%.
7.   In future, actual capital expenditure or utilization should be compared with the budget target; not the amount released or cashbacked.

Excess Crude Account
8.   The position of the excess crude account (ECA) is reported as hereunder:

    Table IV: Actual Flow into ECA






Crude Oil Sales
Petroleum Profit Tax (PPT)




Half Year (Jan – Jun)       N’bn


Half Year (Jan – Jun)       N’bn








9.   To say the least, the report on the ECA is most empty. One would have liked to know the balance in the account as at the end of the first quarter, how much was withdrawn and for what purpose. The authority for withdrawal should have been indicated and statement made as to whether withdrawals were in line with the provisions of Section 35 of the FRA. Of course, information on the inflow from April – June, 2009, as well as investments made from the ECA should have been disclosed. The newspapers are screaming everyday with headlines on frequent withdrawals from the ECA. There is need for the BIR to dwell more on the ECA.

Expenditure Developments
10.  There is no systematic control of expenditure. While recurrent (non-debt) expenditure amounted to 104.59% of the budget target, recurrent (debt) and capital expenditures stood at 70.54% and 42.92%, respectively. Recurrent (non-debt) expenditure was allowed to exceed the budget. it should have been tied to the rate of revenue inflow of some 70.00%. In the area of statutory transfers, which is also recurrent (non-debt) expenditures, the budget was overshut by 16.12%. The major problem occurred in National Judicial Council which received 150% of its pro rata allocation.

Public Debt Management
11.  In the second quarter, domestic debt increased from N2,320.31billion to N2,487.83billion while the external debt increased from US$3,627.5million to N3,719.24million. while the increase in domestic debt was due to new issues of bonds and treasury bills, the increase in external debt was due to draw down on existing loans.
12.  There is no explanation of the purposes for which the new domestic loans were raised and whether they complied with the provisions of the FRA on public debt management. These missing gaps should be filled in future reports and a statement made as to whether or not the sustainable debt limits are not threatened.

Deficit Financing
13.  A budget deficit of N836.58billion was approved for the 2009 financial year. This amounts to quarterly deficit of N209.16billion. In the second quarter, the sum of N263.00billion was sourced through domestic borrowing (FGN Bond).For that period, there was an overfunding of 25.74%. It is instructive to observe that the amount of N221.43billion was sourced in the first quarter from the unspent balance brought from the previous financial year, indicating 5.86% overfunding.
14.  In the report, as observed earlier, the project for which the domestic loan was utilized is not disclosed. It is pertinent to remark that the FRA provides that loans should be used for only capital and human development. In the future, the BIR should state clearly the amounts and sources of loans taken or drawn down, the purposes of such loans and whether they complied with the FRA.

Revenue Performance
15.  A total revenue of N2,265.20billion was budgeted for the FGN. This reduces to quarterly and half-yearly budgets of N566.30billion and N1,132.60billion respectively. At the end of the second quarter, a total revenue realized is N769.17billion or 67.91%. This involves a shortfall of N363.43 billion. Revenue drop of N363.43billion, if added to a budget deficit of N836.58billion leads to a total deficit of N1,200.01billion. This may increase to N1,563.44billion at the end of the year. Something needs to be done to restrict expenditure.
16.  Oil revenue constitutes 42.78% of the total revenue and its performance is 80.55%, while non-oil makes up 38.97% and only 53.50% has been collected. The independent revenue of N305.97billion constitutes 13.50% of the total revenue and its performance rating so far is 35.48%. The implication of this, is that the Federal Government’s revenue is very precarious. The FGN still relies heavily on the oil revenue. This scenario tends to be contrary to the economic policy on diversification out of the oil revenue. Stronger policy actions should be taken to intensify collection from non-oil revenue, of course not to the neglect of the oil revenue. In fact, what is required is a concentric diversification policy in which both oil and non-oil revenue will grow together.

Budget Deliverables
17.  At page 1 of the BIR, is a statement that:
The central theme of the 2009 Budget was on the actual deliverables
that Ministries, Departments and Agencies (MDAs) of Government
were expected to complete.
17A. Also at page 24 of the BIR, it is stated that”
In this process, a number of measurable deliverables by which the
MDAs’ performance will be measured in 2009 are outlined in Table 8 below.

18.  The said Table 8 highlighted 8 MDAs and their related targets/deliverables in the 2009 fiscal year. The introduction of deliverables into the budget is commendable. It is the first step towards the implementation of the Performance Budgeting which is becoming the standard international good practice.
19.  However, the Budget Office (BOF) inadvertently avoided monitoring, evaluating and reporting on the targets and deliverables well set out at page 25 of the report. The BOF should have monitored the MDAs’ performance in the implementation of the deliverables.

Capital Project Implementation
20.  Chapter 4 of the BIR is devoted to the monitoring, evaluation and reporting on capital project execution. “ The objective of the BOF was to compare the achievements of the MDAs with their deliverables as at the end of the first half of 2009” (Why not in the second quarter?). The exercise was carried out from 2nd to 12th August, 2009 (a month and half the end of the Second Quarter). The evaluation covered the six geopolitical zones and Federal Capital Territory (FCT). The criteria for selecting a particular project for monitoring were not disclosed. If is it because of their deliverables, the Ministries of Police Affairs and defence (internal Security) and the Ministry of Niger Delta Affairs which were set down as some of the MDAs with deliverables were not monitored.
12.  In all, 6 MDAs, namely; Agriculture and Water Resources, Education, FTC Administration, Health, Power and Works and 133 projects were covered. These are:



No of Projects


Ministry of Agriculture & Water Resources



Ministry of Education






Ministry of Health



Ministry of Power



Ministry of Works, Housing & Urban Development






Finding on Capital Project Execution
22.  The monitoring exercise found as follows:-
i)   Low capital utilization occurred partly became some MDAs attempted to implement a large number of new and on-going projects which were often not completed until after a series of extensions and contract variations. This practice had limited the beneficial effects of bulk release of capital expenditure;
ii)   Some MDAs were in the practice of overloading some contractors with more contracts than they could handle. This was largely responsible for the slow pace of project execution;
iii)   Some MDAs were observed to finance execution of their capital projects from their Internally Generated Revenue without compliance with the relevant regulations in that respect.
iv)   There were a few discrepancies between some reports obtained from some MDAs on the one hand and physical evaluation or information obtained from personnel at project site on the other. These issues are being investigated (by who?)
v)   A cursory/comparative analysis of the 1st and 2nd Quarter BIR(s) in respect of Ministry of Works and Urban Development revealed that a number of projects at various stages of completion reported in the 1st Quarter BIR have not been captured in the 2nd Quarter BIR i.e. no reports on them, hence their status is unknown. These include the following:




Contract Sum
N Billion

Status 1st Quarter


Nasarawa – Abuja Road – NS

Bulletine Construction Ltd




Reh./Construction of Ijebu Igbo-Avaroumi-Ife Sekona Road Section 2

Kopec Construction Ltd.




Rehabilitation of Funtua – Yashi – Dayi, Kano State.

MotherCat Ltd




Construction/Rehabilitation of Mubi-Gella Road, Adamawa State.

Roads Nig. Ltd




Rehabilitation of Kaura Namo-Shinkaffi Sabon Birni Road, Zamfara state.

MotherCat Ltd




Construction of Kano Western Bye-pass

Dantata & Sawoe Construction Company Ltd.




Rehabilitation of Obiazara-Uburu Ishaigu Road, Ebonyi State

Setraco Nig. Ltd




Abuja-Abaji Road, Section 1 – Sheda Village Junction

Dantata & Sawoe




Abuja – Abaji Road Section II, Sheda Village Section – Abaji

R.C.C Nig. Ltd




Kano – Maiduguri Road Section I – Kano – Wudil – Shuarin.

Dantata & Sawoe




Kano – Maiduguri Road, Section II Shuarin – Azare

Setraco Nig. Ltd




Kano – Maiduguri Road Section III, Azare – Potiskum

MotherCat Ltd



It is my considered view that the 2nd Quarter BIR should have captured them even for the sake of consistency. As it is, it is not clear as to whether they are ongoing, abandoned or revoked.

vi).  The 2nd Quarter BIR did not give any progress report on the Gurara Water/Irrigation projects being handled by the Federal Ministry of Agriculture and Water Resources for which the sum of N1.75 billion was spent on Lots A&B of the projects even though the 1st Quarter BIR revealed a cumulative 97% and 99% completion level.
vii.  In the case of the construction of a Roundabout, 2 Flyover Bridges and Associated Works at Isex/Road C I – AYA Junction which projects is owned by the Federal Capital Territory Administration, the 2nd Quarter BIR did not give a progress report on it either.
23.  It is not enough to catalogue the findings. The BOF should sponsor a memorandum on its findings to the Federal Executive Council (FEC) including recommendations cutting down or limiting the number of contracts a contractor should have at any point in time, releasing funds on the basis of budget performance and reconciling conflicting project performance claims between the MDAs and the personnel at project sites.

Conflicting Units of Measurement
24.  Throughout the report, amounts of money are written in naira and dollar without clearly stating the rate of conversion or equivalents. Similarly, budget figures are stated in trillion, billion and million naira or dollar. This practice makes the understanding and interpretation of the budget implementation report more difficult and clumsy than it ought to be. Matters should be simplified by writing all the figures in naira with dollar equivalent put in brackets. For example, two million naira may be written as N2,000,000.00 (US$13,333.33).

Macroeconomic Developments and Analysis
25.  Chapter 3 of the BIR, at pages 20-23, deals with the monetary and fiscal policies implemented to influence the behavior of the national economy and the outcome of such policy actions. Nigeria has two major or macroeconomic problems, namely; the external value of its currency which affects its balance of payment and the internal balance which is concerned with the level of unemployment.

26.  To project the balance of payment, the external value of the naira and its internal value (controlling inflation) the Central Bank adjusts the monetary policy rate, bank lending rates and open market operation as well as the sale or purchase of the foreign exchange. As reported at pages 20-21, the Central Bank of Nigeria (CBN) is tinkering too frequently with the monetary instruments such as the monetary policy rate, the supply of broad money or M2, land rates, bank rates and foreign exchange.
27.  Despite the frequent changes in these instruments the foreign reserve has continuously declined from N62billion in 2008 to N43billion in 2009, the value of the naira has declined from N130 to N152 per dollar, foreign direct investments, foreign portflow investments, home remittances from Nigerians in diasporas as well as foreign earnings from oil have all declined. Even the behaviours of core inflation, headline inflation and food inflation exhibited fluctuating tendencies throughout the reporting period.

28.  The CBN should realize that investments, the balance of payment and price level do not depend largely on the short-term movements in the monetary policy instruments. As found out after the World War II by Lord Keynes, it is “the animal spirit in man” that moves investment. This animal spirit in man is “expectation”. As long as man expects that the existing global economic crisis will continue, short term manipulation of monetary policy instruments will not help. The only way to make the Nigerian economy attractive and keep the price level at an even keel is to effectively and efficiently manage the Excess Crude Account as provided by the FRA and maintain stable interest and foreign exchange rates.

29.  The Ministry of Finance seems to be on the right track by embarking on deficit budgeting since 2009 when the rate of unemployment became uncontrollable. This approach will work well provided that the budget deficit is below 3% of the Gross Domestic product (GDP) and Government borrowing does not crowd out private sector borrowing. But the BIR informs us that the rate of public borrowing is growing at 5.7% while that of the private sector is 0.6%. Again, learning that Government is overspending on the recurrent budget (104%) and underspending on the capital budget (42.92%) will not help issues. There is the probability that Government borrowing is spent on recurrent items contrary to the provisions of the FRA which stipulate that borrowing should be only for capital and human expenditure.

30.  The BIR says that the GDP is growing at the rate of 6.1% to 7.2%. This is encouraging. But note that the World Bank and IMF think that the GDP growth is not more than 4.6%. For our GDP to grow at above 6%, we must spend more on capital projects such as human capital, power, transport, agriculture and the like.
31.  While concluding the BIR, the Minister observed that “two key points” were constraining the achievement of the objectives of the 2009 Budget. the key points are low revenue performance (about 70%) and poor capital project execution (about 42.92%).
32.  The problem of low performance in the area of capital project execution should not be blamed on the shortage of funds at all. After all, out of the about of N449,880,632,313.58 released and cashbacked, only N193,080,321,917.90 or 42.92% was spent. With the balance of N256,800,311,395.68 lying idle, the plea of shortfall in revenue becomes untenable. If, in fact, fund is in short supply, why did the recurrent expenditure overshoot the budget limit?
33.  The findings by the BOF’s monitoring exercise on capital projects execution which have to do with weak executive capacity should be addressed. The problem of revenue shortfall may ease with the stoppage of hostilities in the oil producing areas, recovery of the world price of oil and recovery from global economic crisis. Meanwhile, revenue agencies should intensify their revenue collection and remittance efforts.
34.  To control the rising level of deficit, the Minister should restrict further expenditure commitments as provided under Section 28 of the FRA to that effect:
(i) Where by the end of three months, after the enactment of the Appropriation
Act, the Minister determines that the targeted revenues may be insufficient to
fund the heads of expenditure in the Appropriation Act, the Minister shall, within
the next 30 days of such determination, take appropriate measures to restrict
further commitments and financial operations according to the criteria set in the
Fiscal Risk Appendix.
(2) Where the targeted revenue are re-established, either in part or in full, the
Appropriations for which further commitments were restricted shall be restored
(3) The provisions of subsections (1) and (2) of this Section shall not apply to
statutory or constitutional expenditure.

35.  Finally, the CBN and Ministry of Finance should work together and ensure that the Monetary policies and fiscal policies are reconciled and work together in achieving long term macroeconomic stability.

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Fiscal Responsibility Commision - The Federal Republic of Nigeria