Recently, the Kaduna State House of Assembly approved the Medium Term Expenditure Framework (MTEF) from 2022 to 2024. What are the details of this MTEF?
The MTEF is a planning tool. It’s usually the first document that introduces any budget process and it is very critical and important because within the MTEF, there are three other documents and these are: the Economic Fiscal Update; the Fiscal Strategy Paper and the Budget Policy Statement.
These three together combined make up the Medium Term Expenditure Framework (MTEF) and we have used it very effectively in Kaduna state. The Economic and Fiscal Update looks at what is happening in the global economy. What is the outlook for the next year and sometimes even in the year after that? It considers analysis from critical economic and financial bodies like the World Bank, the IMF and other expert groups, the Organization for Economic Co-operation and Development (OECD) and the rest of them. For example, it also looks at what will affect the African continent, Nigeria and Kaduna state.
These things are very critical; MTEF looks at indices ranging from the global crude oil prices and any shock that is likely to affect it positively or negatively. It also analyzes and predicts what the impact of pandemics like the Covid-19 is likely to have on global production and therefore the demand for developing countries’ products, the impact on travels and all other macro economic indicators. It then dovetails into how these affect us as a country. So, the Economic Fiscal Update is critical in terms of analyzing from global to local, to understand the workings of the economy and how to plan for our annual budgets.
The second part of the document, like I mentioned, is the Fiscal Strategy Paper. It looks critically at various financial indicators to determine what will be available to finance government’s growth and poverty reduction programmes. So, within that Fiscal Update, it is to look at the economy of Kaduna state, the economy of Nigeria and to see how or what will affect the Federation Account for example, what will affect IGR, what does our recurrent expenditure look like, what does our overhead statement look like. So, all of these will have critical bearing on how we are able to forecast and come up with an accurate budget.
The third and last part of the MTEF is the Budget Policy Statement. The Budget Policy Statement is what applies, knowing the global and knowing the local indices. It addresses the question of what are we as Kaduna state, going to focus on for the next two – three years? And so, it outlines issues around our commitment on education. For example, we have committed 25% of our budget year in year out on education for the past five years, we have committed 15% on healthcare, we have committed to spend minimum 60% of our budget on infrastructure and a maximum of 40% on recurrent expenditure. So, all these things are encapsulated in the Budget Policy Statement. It also clarifies our intentions, for example, for next year, to say that we are going to spend our money in ensuring that we are finishing projects that we have started. We also want to diversify the economy of our state and we also want to spend significantly on security to support the federal government’s agencies.
Now, these three documents together as I said, make up the Medium Term Expenditure Framework and we took that document the State Executive Council earlier in this quarter, council deliberated extensively and approved the MTEF for use in guiding the budget. That document was then taken to the State House of Assembly where we had a session with the legislators and the civil society, to ensure that whatever we discussed, will also be deliberated upon by those groups.
How different is the Medium Term Expenditure Framework from a Rolling Plan?
The Medium Term Expenditure Framework differs from a Rolling Plan in that MTEF sets out the multi–year fiscal planning tool, whereas the Rolling Plan sets out the grand plan of government over certain time period. The MTEF then actualizes it with expenditure. It brings it together to say, look; after setting out this Rolling Plan and outlining these priorities, this is then how your spending is going to achieve this Rolling Plan priorities and that’s the key difference. So, they are very jointly linked together but the Rolling Plan is the action goal and the MTEF comes in to provide guidance for the budget and then the budget now lays them out in actual budget items and then go into the financing of that plan. So, that’s how it flows. It’s mainly because the country as a whole has dislodged its planning tool, that’s why these things have not been utilized as much. In reality, you start off with that broad Rolling Plan and then you come to look at it in terms of expenditure via the MTEF and you then come back to the formulation of the budget and then you start the implementation of that budget.
From your explanation, the Economic Fiscal Update and the Fiscal Strategy Paper components of the Medium Term Expenditure Framework were drawn up from macro-economic indices of world financial institutions. Did the Budget Policy Statement aspect have the people’s input before it was submitted to the House of Assembly?
Of course, you know the government of Malam Nasir El-Rufai, right from the beginning in 2015, has prioritized citizens’ input into the budget process. We do this through several ways and we continue to engage people through radio; we capture everything, especially when people call during live media chats and tell the governor their priorities. We discuss the fiscal implications. The governor also goes round and sees the people, he sits with various groups, have stakeholders meetings; we capture all of that and then the budget process starts.
This year for example, while a town hall meeting was not held by the executive, however, it was quickly countered by a very detailed and deep public hearing by the State House of Assembly. We were there as members of the executive together with the legislative branch, to really listen to the voice of citizens. So, we had the opportunity to sit with them and that has helped in reflecting the voice of the people in the budget, that we hope will be passed in the next couple of days. It has captured the input of various citizen groups that have looked at it sectorally; education, healthcare, infrastructure and various issues. Therefore, because of the citizens’ input, things that have not been hitherto captured, are now imbedded in the budget and that’s the hallmark of citizens’ budgeting.
We have not only done that, we have through the Economic Planning Board which I chair, mandated all the Local Government Councils to go back and in their budget process, ensure that they do town hall meetings. We are very happy to report that all the 23 local governments have held some form of engagement with their citizens for input because that grassroots budget is even more impactful on the people than even the state budget. So, we now have the first draft of the local governments budgets which is going to be submitted to the State House of Assembly by the Commissioner for Local Government and the governor, hopefully sometime next week.
So, we are hoping that this will then be passed by the State House of Assembly, if not this year, then the beginning of next year; then we will start up the budget implementation for state and the local governments.
Why was the 2022 budget estimate of N233 billion less than that of 2021 budget with about N4 billion? Is it because of Covid-19 or is due to the dwindling statutory allocation that has been coming to the state?
Well, there was reduction. However, I know that with our continuous work with the House of Assembly, that budget is likely to go up mainly because of the citizens’ input and some legislative discussions that have taken place. So, we are likely to see a slightly larger budget based on all these inputs but usually, as you know, when we do budget, we try to look at the MTEF which will guide us on what is happening globally; the revenue projection for Africa as a region, Nigeria as a nation and then as Kaduna state. These indices that affect our FAAC, our VAT or Custom Excise Duty etc.
For example, the major issue that is about to affect our fiscal situation is whether petroleum subsidy will remain or not. That is going to be a key factor. If the subsidy remains, of course the FAAC allocation will be less; so these are key decisions that will happen in the coming year and in fact, the Petroleum Industry Act as passed by the National Assembly, already removes petroleum subsidy. So, likely it will be taken off next year, so we have considered that but beyond that, we also look at the capacity of the state to internally generate revenue. So, all of these things were looked at and there are some corrections that have been made to the draft submission and this will be unveiled as soon as the house passes it.
Can the size of the budget be increased by the State House of Assembly after the executive has presented the draft budget?
Well, this has been a contentious issue in Nigeria. In fact, I wrote my Masters’ Thesis on this topic and yes, the Nigerian legislature can actually vary size of the budget but they cannot initiate a budget item. I think section 83 of the constitution allows only the executive to lay a budget before the assembly but once the executive does that, the legislature has the liberty to increase or decrease but what they do not have liberty to do is to introduce new items into the budget. There are a few things that still need clarification but the long and short of it is that, Nigeria does have one of the constitutions where the National Assembly and State Houses of Assembly can vary the size of the budget.
-The Medium Term Expenditure Framework (MTEF)has three components– the Economic Fiscal Update; the Fiscal Strategy Paper and the Budget Policy Statement;
-The Economic and Fiscal Update looks at what is happening in the global economy;
- It considers analyses from critical economic and financial bodies like the World Bank, the IMF and other expert groups, the Organization for Economic Co-operation and Development (OECD) etc;
-The Fiscal Strategy Paper looks at various financial indicators to determine what will be available to finance government’s growth and poverty reduction programmes;
-The Budget Policy Statement addresses what Kaduna state is going to focus on in the next two to three years;
- For example, government has committed to spend minimum 60% of its budget on infrastructure and a maximum of 40% on recurrent expenditure.