FISCAL RESPONSIBILITY ACT: WHAT GOOD?

There has been considerable publicity before, during and after the Fiscal Responsibility Act (FRA) was passed into law last May. Before this bill finally became law, many articles were written, talks were held and international economic magazines and pundits never failed to mention the FSA whenever the Nigerian economy was being discussed. It was widely praised, widely acknowledged and seen as a right step in the right direction world over.

The question however is, what is fiscal responsibility? What does the passing into law of the FSA means to ordinary Nigerians? How will it affect their lives and what are the effects of this Act on the economy? These are mind-boggling questions ordinary Nigerians are asking. In recent times, fiscal responsibility has become a statement commonly used by politicians especially in developed countries. In developed economies, fiscal responsibility is very important to voters, the general public and forms part of some political parties’ ideologies. Managing money is a matter of public trust, and a charge that should not be taken lightly. My definition involves three components; wisely managing resources, preparing for the future and avoiding debt. Fiscal responsibility entails the prudent and wise management of public funds and resources. Economists around the world concede that Nigeria has the potential to become the economic hub of Africa and indeed among the top 20 economies in the world. Laudable as it may seem, attaining the feat might be a mirage if the country is not sincere in tackling corruption. The FRA has the wherewithal to put an end to financial recklessness and rascality. The FRA is meant to redirect governments at all levels to imbibe a fiscal behaviour that will promote prudence and sound financial management in the system. Fiscal responsibility means different things to different governments but ultimately with the same goal; prudent and honest management of public funds. In the province of Alberta, Canada where yours truly resides, the government sees fiscal responsibility according to the following guidelines:

  • Budgets will be balanced
  • Debt will be repaid
  • Revenue forecast will be affordable
  • Spending plans will be affordable
  • The government will be open and accountable to the people

Over the years, successive governments have engaged in fiscal profligacy which has culminated in adverse macroeconomic consequences for our country. Fiscal vulnerability has been on the rise, thanks to the combination of debt sustainability problems compounded in some cases by fiscal decentralization and fragile domestic banking system in the context of unprecedented external liberalization. Not surprisingly, during the nineties a number of countries suffered debt crisis, often in tandem with banking crisis and currency crisis. Although, hitting primarily emerging markets in Latin America, Asia, post socialist Europe, parts of Africa, such crisis did not spare some advanced economies. Inspired by New Zealand’s FSA of 1994, an increasing number of countries faced with these problems have adopted the rules-based Fiscal Responsibility Framework (FRF) to tackle these problems of financial recklessness. Formally, the FRF can be enshrined in various types of statutes. A constitutional provision or high level legislation (Brazil and Venezuela), Ordinary Legislation (Nigeria, India, Argentina and New Zealand), International treaty (Euro area), policy guideline and legislation (Chile and Sweden). From these it could easily be deduced that Brazil and Venezuela has the strictest FRF having been enshrined in their constitution. Nigeria’s introduction, passing and the signing into law of the FRA is commendable, and kudos should be given to Mrs. Ngozi Okonjo-Iweala for initiating this framework in 2004. Mrs. Okonjo-Iweala is one of the finest examples of Africa intellectualism and competence. As head of the Economic team, she supervised the overhaul of the Ministry of Finance, the Budget office, creation of the Debt Management Office (DMO), the creation of the Due Process mechanism and spearheaded the crafting of the FSA.She was also instrumental in helping Nigeria obtain its first ever Sovereign Credit rating of BB minus from international rating agencies Fitch and Standard & Poor’s. Over the years, billions of dollars of Nigeria’s revenue has been wasted and unaccounted for, due to financial rascality by our leaders. NONE of our leaders, at all levels of governance is exempted from this financial recklessness of public funds and resources. Contracts have been awarded and are still being awarded without due process, ministries, departments and their agencies procure goods and services without recourse to transparency. Refurbished materials and equipment have been supplied as against the brand new ones paid for. Payments are fully made to contractors without executing the contracts. With a fully executed FSA all these will be curbed and reduced to a barest minimum. Without mincing words, the passage and signing into law of the FRA and the Public procurement bill represent a take off point for instituting transparency, responsiveness in the management of contracts. Most importanatly, Part xii section 58 subsection (1) states that:

any natural person not being a public officer who contravenes any of the provision of the Act commits an offence and is liable on conviction to a term of imprisonment not less than five calendar years without option of fine. Any offence in contravention of the Act shall be tried by a Federal high court.

The following shall constitute an offence under the Act: entering or attempting to enter into a collusive agreement , whether enforceable or not, with a supplier, contractor or consultant where the price quoted in their respective tenders , proposal or quotations are or would be higher than would have been the case has there not been collusion between the persons concerned , conducting or attempting to conduct procurement fraud by means of fraudulent and corrupt acts, unlawful influence , undue interests , favour, agreement , bribery or corruption, directly or indirectly or attempting to influence in any manner the procurement process to obtain an unfair advantage in the award of procurement contract. Splitting of tenders to enable the evasion of monetary thresholds set, bid rigging, altering any procurement document with intent to influence the outcome of tender proceeding , altering or using fake documents or encouraging their use, and wilful refusal to allow the bureau or its officers to have access o any procurement records.
During the life of the past administration, Nigeria embraced fiscal reforms including the passing into law of the Bureau for Public Procurement Act and initiating the FSA. Nigeria is also one of the few oil producing countries that have signed up to the Extractive Industry Transparency Initiatives as a way to help improve corporate governance in the oil sector. It established the Nigeria Extractive Industry Transparency Initiative (NEITI) to monitor the consistency of oil revenue to production quotas. The worry however, is not with the law and all these fiscal reforms but with the execution of these laws. Will the ministries, departments and their agencies begin to follow due process in the management of public funds? Will the states as envisaged fast track the enactment of this Act in their respective states? It is my belief that these laws will be meaningless if the executive does not retrace its steps and begin to take punitive measures against corrupt public officials. In general, the experience of the countries where the FRF has been enacted into law confirms the truism that a rules-based FRF alone, without the political will to enforce it, is doomed to fail. Perhaps this is best illustrated in the case of Argentina where enactment of fiscal responsibility legislation was not sufficient by itself to prevent fiscal indulgence and thus avert the crisis of 2001. Stated differently, the FRF can be regarded as a formal expression of the political will to maintain fiscal discipline. In sum, the FRF statute is not a magic wand that guarantees fiscal responsibility. Last year, President Yar’adua reached a consensus with the state governments for the enactment of fiscal responsibility legislation at the state level, latest by last December. Whether the call is heeded or not, no one knows. If this is heeded and the FSA is replicated at the state and local government levels with committed and honest execution of the Act, Nigeria might be on its way to a fiscal federalism.

@jideolutuyi

Calgary,AB
Feb. 26, 2008

About Olajide Olutuyi

Entrepreneur Social Entrepreneur. Calgary Flames fan. Calgary Stampeders fan. Supports conscious capitalism.Progressive conservative( supports sin taxes, low taxes and laissez-faire economy). Former rap fan. Now listens to gospel and country. Believes in volunteering and community service as agents of developmental change. A lot of my time goes into community service, reading, encouraging people and most importantly God’s business. Loves culture , business start-ups and politics of both my home and adopted countries. This is my blog. The opinions and thoughts in my article are mine and I make no mistakes for having them. You may also find articles, news or opinions of others that I agree with or love to keep. More information about my professional background and interests available on my LinkedIn page.
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