The Lagos Phantom Zero Deficit Budget - Musiliu Obanikoro

Beyond the glitz that characterised the presentation of the 2014 budget by the Lagos State government are fundamental questions that the people must seek answers to, writes Musiliu Obanikoro

The Lagos State Government budget 2014 was presented in the last week of October with gallant aura, especially with the declaration of the budget as a zero deficit budget.  In addition to the myriads of achievements of the budget 2013 and the proposed additional development projects of the government in the coming year, the governor announced that the moderate reduction in the total spending is as a result of the budget being the last his administration would be implementing.

PDP governorship candidate, Obanikoro

I did a critical review of the budget as presented vis-a-vis the last two years budget and consider it imperative to share my views on a number of salient issues worthy of the attention of Lagosians. I am particularly concerned about the definition of zero deficits financing as proposed in the current budget.

The wide variances between the budgets and actual bond issues in the last two years are another source of concern. The public accounting treatment of these issues considering the period of the year they were issued in 2012 and 2013 presents some dilemma that the government needs to provide an explanation to the good people of Lagos State.

Fashola, Lagos Governor

The government proposes an aggregate spending of N489.690 billion for the 2014 fiscal year, a 1.98% decrease from the N499.605 billion appropriations for the current year. A notable feature is the increased proportion of the recurrent expenditure portion of the budget to 48% from 42% in the current year. That translates to an increase of the N4.93 billion in recurrent expenditure in 2014.

The recurrent expenditure is the money the government spends on staff salaries and overheads as against capital expenditure that is used to finance infrastructure. We noticed that the increase in recurrent expenditure is not due to any increase in personnel costs, which includes staff salaries and related emoluments such as pension for the year.

Personnel costs are proposed to decline to N86.826 billion in 2014 from N88.958 billion in the current year. In other words, overhead spending, the amount budgeted for general administration such as vehicle maintenance, electricity bills, entertainment, insurance etc. is proposed to expand by over N7 billion in 2014 compared to 2013. 

It is instructive to note that capital expenditure- the proposed spending on infrastructure and other human development projects, is proposed to decline by 14.85 billion to N255.03 billion in 2014- a decline of 5.5% from the current year capital spending.

This resulted in the worst capital-recurrent expenditure ratio of 52:48 in 2014 compared to 58:42 in the current year and 53:47 in 2012. As earlier mentioned, the government's excuse for this decline in capital expenditure is that it is the last budget the current administration would be implementing. This reason is definitely not tenable because governance is a continuum.

Could budget 2014- a year to election 2015, be factoring in election spending? In this regard, we notice that an ongoing project of the government in 2014, that is likely to consume increased recurrent expenditure and perhaps related to electioneering, is the Resident’s Registration Exercise which seeks to register every individual who intends to live in Lagos for six (6) months and beyond irrespective of his/her state of origin in 2014.

The governor also issued an executive order to amend all the Lagos State Government official forms and processes to request the resident’s registration number assigned on registration to enable them access public services starting from December 1, 2013. That suggests an increase in the avoidable costs of consumables and by extension the overhead costs in the 2014 budget.

The multiplicity of process and abuse of oversight responsibilities over the state that this resident’s registration programme represents, considering that the State currently collates similar data via population census, tax registration, and vehicle related licenses, are worrisome.

A celebrated feature of the Lagos State Government budget 2014 is the ‘zero deficit financing requirement’ of the budget. Zero deficit budgets, in layman terms, implies that the government spends exactly or below how much it earns in income or revenue during the course of the year. It means that the government would not borrow to fund any part of its spending plan, including repaying its outstanding obligations.

It appears the Lagos State government is adopting the controversial term- zero deficit budget- created in 2011 by the Malawian Minister of Finance, Ken Kandodo, under the Bingu wa Mutharika administration, which eliminates deficits in one part of the budget (recurrent), but leaves the other (development/capital) unbalanced and still calls the whole plan deficit-free.

It is widely defined as economic financial budgeting for 'Least-Developed Developed Country' where the government aims to finance all the recurrent expenditures using its own domestic resources. It is a method that has never been tested or used anywhere before and remains controversial for economists.

A review of the Lagos State budget 2014 shows expected aggregate revenue or income of N466.5bn compared to the aggregate expenditure of N489.9 billion. The proposed deficit, therefore, is expected to fall from N42.86 billion in the current year’s budget to N23.4 billion. And more confounding, based on the recent analysis of the budget by BudgIT- a civic organisation that is dedicated to making Nigerian budgets and public data more understandable, accessible and transparent, is the proposed borrowing of N99.74 billion in 2014 which will be used to refinance existing debt.

This is in addition to the debt charges (interest payment) for internal loans of Lagos State of N22.42bnproposed in the budget. Again, the Governor announced the approval of the US$200m World Bank loan, which could not be accessed as a result of the delayed approval by the federal government that could be accessed in 2014. The question is: where is the zero deficit financing in this budget?

According to BudgIT, the Lagos State Budget 2014 contains projects with huge sums allocated to them and tagged “special” with no details to them. Notable among them are: Special Building/Strategic Project with an allocation of N3.0 billion; budget for special duties (Office of Chief of Staff) under the Ministry of Special Duties with an allocation of N7.27bn; and a “Special Expenditure” under the Ministry of Economic Planning and budget with an allocation of N5.0 billion. It is important that Lagosians demand the full details to which these expenditures are meant to serve.

Finally, the annual practice of concluding sub-national bond issues that are greater than the amount budget in December of 2012 and 2013 appears ominous. While we recognise the gap of the delayed N30 billion external loan (US$200m) in 2012 and felt it that it was filled by the additional N30 billion bond issue above budgeted amount, it is hard to explain the N87.5 billion actual bond issue compared to the budgeted amount of N30 billion for the current year.

Yet the Governor claimed that the delay in getting approval for the US$200m World Bank loan created a setback in government activities for the two years. The question again is: how did the government of Lagos State deploy the additional N30 billion and N52.5 billion in sub national bond issues in Decembers of 2012 and 2013?

I will expect the government of the state to rise to the occasion and provide a clearer picture of the state expenditure and debt profiles. The legislators also should ask the relevant questions before passing the 2014 budget into law and stem the tide of potential executive recklessness.

The Civil society needs to engage this government frontally by demanding credible explanations for not only the residents’ registration exercise and the ongoing wasteful spending on the project but also the potential human rights implications if not curbed.
-Obanikoro, a PDP governorship candidate in the last election and Nigeria’s former High Commissioner to Ghana