SANUSI-HOUSE OF REPS FACE-OFF: THE UNTOLD STORY

Sanusi
The pronouncement by the Central Bank of Nigeria Governor, Sanusi Lamido Sanusi, to the effect that the country allocated 25 percent of its total overhead costs to the National Assembly in 2010 made headlines in the media. The CBN governor made the statement at the Eighth convocation lecture of the Igbinedion University, Okada, Edo State, where he was guest lecturer, on November 26, 2010.

The two chambers of the National Assembly responded to Sanusi's claims by conducting public hearings on the matter. Four committees of the Senate held a public hearing on Wednesday, December 1, while the House of Representatives held its own hearing on December 7. At the Senate hearing, the CBN governor made a 17-slide presentation justifying his statement that 25 percent of government's total overhead in 2010 was taken up by the National Assembly. He repeated his Senate presentation during the public hearing conducted by the House of Representatives.

However, at the House of Representatives' public hearing, the CBN governor was given some posers. First, he was asked if is it possible that there are other reasons other than the amount spent in maintaining the National Assembly for the sorry state of the economy. This question came about because Sanusi had said, at the lecture, that the sorry state of the economy was due, largely, to government spending more on recurrent expenditure and less on capital expenditure. He said that government was borrowing for consumption instead of investment in physical infrastructure. This trend, he said, was bound to cause inflation.

The CBN governor said that experience over the years had shown that successive governments placed more emphasis on overhead expenditure, which caused persistent rising recurrent expenditure far and above capital expenditure each year.

Sanusi had said that recurrent expenditure is not properly utilised. In his response to one of the posers raised at the House public hearing, he said: 'We appropriate capital expenditure but unable to spend it. Why? At the same time we are able to spend recurrent expenditure 100%.'

The question the CBN governor answered here is that the capital budget is not properly utilised. Funds are given to government's ministries, departments and agencies (MDAs) to execute capital projects but at the end of the year unspent funds are returned to the government's coffers. In 2007, N450 billion was returned to the treasury as unspent funds. This was huge and unprecedented in the history of appropriation. In 2008, about N350 billion was returned by MDAs. This discovery led to such questions: 'What happened to the unspent funds of previous years and where are they?

Sanusi had said, at the lecture, that the country's annual budget promises so much but at the end of the day, delivers so little because money that should have been used to improve the welfare of the people get spent on things that add nothing to the standard of living of the people.

Another poser the House of Representatives put across to Sanusi was: What percentage of overheads should the CBN governor recommend for National Assembly? To use Sanusi's figure, for the purpose of argument, what happens to remaining 75 percent, after the 25 percent spent on National Assembly? In other developing countries, capital expenditure is usually higher than recurrent expenditure. With the abysmal degeneration of basic infrastructure across the country, the global assessment of Nigeria as one of the poorest in the world can be directly linked to her inability to invest in physical infrastructure that impact on the lives of her people, despite the huge provisions often made for such purpose. A cursory look at the history of budgeting in the country, since 1960, shows that the successive administrations have failed to implement up to 70 per cent of budgets meant for any given financial year, a development that has affected the financing of development projects.

In the 2010 budget, provision was made for N200 million for the rehabilitation and furnishing of the houses of 10 principal officers of the Presidency and an additional N100million for information technology installations in the president's office.

Analysts say what Sanusi's lecture was canvassing is that there is a need for a paradigm shift in the way government conducts its business if the country must develop. Unfortunately, he appears to be have been misunderstood.

Yet another poser is: 'Does the CBN governor regret the turn of events?' Sanusi had said: 'I regret the turn of events because I never mentioned 25 percent of total budget; 25 percent of GDP, 25 percent of recurrent expenditure.'

He also said that he has no motive to malign the National Assembly. 'I have no reason to do that,' he added, adding that he made a reference to the 25 percent overhead expenditure during his lecture not because he wanted to malign the National Assembly.

Sanusi added that his statement was not, in any way, aimed at ridiculing the National Assembly, as his lecture involved all other sectors of the economy.

He told the committee members that the media blew the matter out of proportion by harping on the National Assembly overhead, thereby making the real focus of his lecture secondary.

While admitting that his comment had caused unnecessary controversy, Sanusi described the incident as 'unfortunate', while maintaining, 'a modern economy needs an independent CBN, which must be allowed to express its views.'

Yet another poser: 'What would it profit Nigeria to destroy and malign the National Assembly? The CBN governor admitted that disagreements between the National Assembly and the CBN are not in the interest of the two institutions and Nigerians in general. According to him, the CBN cannot afford to have confrontation with National Assembly. He noted that since his assumption of office, he had worked harmoniously with the National Assembly, which has made the implementation of the various reforms in the banking sector possible.

In Sanusi's lecture, entitled: 'Growth Prospects for the Nigerian Economy,' he talked about issues undermining Nigeria's economic growth. He spoke on the structure of government finance, in terms of capital versus recurrent expenditure and the dangers of borrowing to finance consumption rather than investment in physical infrastructure. He was particularly against the high level of waste in government.

Among other things the CBN governor dwelt on was the structure of public spending, the petroleum subsidy, pervasive corruption, wasteful spending in banking sector reforms and underperformance of the national economy. He stressed that given our considerable resource endowments, our economic underperformance is unacceptable.

On the structure of public spending, the CBN governor drew attention to what many analysts and experts have always condemned: the Federal Government has, over the years, allocated about two-thirds of its aggregate spending (recurrent non-debt expenditure plus capital expenditure) to recurrent expenditure, leaving only about one-third to capital expenditure required to fund critical infrastructure.

Sanusi warned that the high proportion of aggregate expenditure devoted to recurrent expenditure was capable of undermining the country's growth prospects in the light of our decaying national infrastructure and increased borrowing.

He said: 'The major factors responsible for the relative decline of the country's economic fortunes are easily identifiable as political instability, lack of focused and visionary leadership, economic mismanagement and corruption. Prolonged period of military rule stifled economic and social progress, particularly in the three decades of 1970s to 1990s. During these years, resources were plundered, social values were debased, and unemployment rose astronomically with concomitant increase in crime rate. Living standards fell so low, to the extent that some of the best brains with the requisite skills to drive the developmental process left in droves for other nations, and are now making substantial contributions to the economic success of their host countries.'

The CBN governor added that Nigeria planned to spend 25 percent of its overhead costs on the National Assembly in 2010. He put the total overhead costs of the FGN in 2010 as N536.27billion. He also stated that total overhead costs of the National Assembly in 2010 to be N136.2billion representing 25.4 percent of FG's overhead costs that he put at N536.27billion.

What the media reported
The media had differing views about the CBN governor's pronouncement. They picked what they wanted to report from the 35-page lecture, each reporting it from its own understanding of the issues. While most said it is 25 percent of recurrent budget, others said it was 25 percent of GDP. Some that got it right reported that it is 25 percent of Federal Government overheads.

Misinterpretations
Sanusi maintained, in a letter dated December 2, 2010 and addressed to the chairman, Senate Committee on Appropriation, Senator Iyiola Omisore, that he never said that the National Assembly was allocated 25 percent of recurrent expenditure or total budget or total funds, as reported in some newspapers. What he said, he insisted, was that 25 percent of Federal Government overhead costs was allocated to the National Assembly in 2010.

'There's need to reduce the overheads, to reduce the nation's recurrent expenditure,' Sanusi advised

The real issues
Several inferences can be drawn from an analysis of the structure of federal public spending in our country. A recent effort by Professor I.O. Taiwo and Dr. Hakeem Mobolaji, both of the University of Ilorin, is insightful. The study covered the 2001 to 2008, the most recent year for which reliable data were available. The major observed trends in the structure of federal public spending included the following:

• Recurrent expenditure averaged 70 percent of Federal Government's aggregate expenditure in the period 2001-2010, with an average of 30 percent of actual budget going to capital expenditure. This is undesirable given critical infrastructure deficits in the country.

• FG's independent revenue averaged 5.8 percent of its total revenue between 2001 and 2008. The highest percentage share of federal independent revenue in FG's actual revenue between 2001 and 2008 was in 2003 when it was 9.4 percent, but recorded the lowest proportion of 1.1 percent in 2005. The percentage dropped from 8.0 percent in 2007 to 2.2 percent in 2008. This violent fluctuation of Federal Government's independent revenue is undesirable and merits the attention of policy makers and other stakeholders alike. It means that the FG is overdependent on Federation Account allocations to fund its operations.

• In the eight years ending December 2008, the civil service accounted for an average of 47.6 percent of federal wages and salaries. The Nigeria Police came second with 20.8 percent closely followed by the Armed Forces (19.8 percent). The relative shares of other categories of agencies in wages and salaries from 2001-2008 were: parastatals (7.9 percent), judiciary (2.1 percent) and political office holders (1.8 percent). In other words, political office holders accounted for the lowest percentage share of federal wages and salaries among categories of agencies.

• Personnel cost (salaries and wage plus pension and gratuity) averaged 28.1 percent of aggregate expenditure of the FG in the eight years, ending 2008. This is considered high, given that only a few people are in the employ of the FGN.

• Similarly, overhead costs averaged 11.2 percent during the period while statutory transfer averaged 30.7 percent of aggregate expenditure. It is clear that these trends evident in the structure of public spending by the FG are worrisome and merit the attention of policy makers.

Significance of the alarm
Conclusively, it is observed that Sanusi was right in pointing out that the Federal Government devotes a disproportionately high percentage of its annual budget (an average of 70 percent) to recurrent expenditure relative to capital expenditure for two main reasons. High recurrent expenditure is not advisable in a country that is still grappling with poor infrastructure, for example, electricity, roads, educational and healthcare facilities.