The recent passage of the Fiscal Responsibility Bill by the Senate (it awaits passage by the House) and the National Extractive Industry Transparency Initiatives Bill (pending presidential signature) have contributed significantly to improvements in Nigeria's fiscal policy transparency, according to two International Monetary Fund (IMF) reports filed in 2007. In particular, the introduction of an oil-price based rule, restricting the government's use of oil revenues to cover its fiscal obligations, was applauded as a major step forward. However, major problems associated with Nigeria's federal system and its historic problems with public-sector corruption still remain. The reliability of fiscal data suffers from the lack of coordination in reporting across Nigeria's three tiers (federal, state, and local) of government, and from corrupt practices that are only now being addressed. The failure of the Nigerian government to publish key budget documents has earned it a 20% rating ("Scant or None") on the Open Budget Index assessment by E.C. Eboh, and the inadequacies of Nigeria's data compilation and analysis have made it ineligible for subscription to the IMF's Special Data Dissemination Standard, although Nigeria does participate in the less prescriptive General Data Dissemination Standard. In April of 2007 a new president, Umaru Yar'adua, took office. It remains to be seen whether the progress achieved during the tenure of previous president Olusegun Obasanjo since 2003 will be carried forward during the new president's tenure in office.

General Overview

According to a 2007 report by Revenue Watch Institute, three new bills are pending that would address transparency in fiscal policy and implementation. These are the Freedom of Information Bill and National Extractive Industries Transparency Initiative (NEITI) Bill, both still awaiting presidential signature, and the Fiscal Responsibility Bill (still awaiting passage by the House). Together, they make crucial provisions to improve public access to government spending data, coordinate the fiscal reporting process across all government agencies at all levels of government, and impose uniformity on the budget preparation and execution process, and impose an oil-price rule mechanism that would limit the government's ability to rely on oil-revenue windfalls to cover its expenditures.

In its 2007 report on Nigeria's Poverty Reduction Program, the International Monetary Fund (IMF) notes that Nigeria's fiscal policy fits within a medium-term framework known as the National Economic Empowerment and Development Strategy (NEEDS), first launched in 2004 in an attempt to rectify a number of serious economic challenges and reduce the high level of poverty in the nation. The NEEDS program has state-level counterparts (State Economic Empowerment Development Strategy, or SEEDS), and the priorities of both NEEDS and SEEDS programs must be accommodated in any fiscal planning at the federal and state levels. In addition to setting policy priorities, the NEEDS charter also imposes certain strategies aimed to enhance effective implementation. These include the strengthening of the budget planning process and its execution, and the implementation of the recently passed Fiscal Responsibility Bill (2005), both of which are designed to coordinate the fiscal activities and reporting of all three (federal, state, and local) levels of government. A significant aspect of the NEEDS program and the Fiscal Responsibility Bill is the introduction into the budget process of two specific enhancements: an oil-price-based fiscal rule (which limits the government's ability to rely on oil-based windfall revenues to cover its expenses), and the medium-term expenditure framework. Both the bill and the framework are designed to disengage the government from its historic dependency on oil-based revenues to cover expenditures, thus reducing its vulnerability to oil-price volatility. The IMF report notes that, since the passage of the Fiscal Responsibility Bill, Nigeria has achieved a notable increase in macroeconomic stability.

The IMF report adds that a 2006 benchmarking exercise regarding the NEEDS/SEEDS programs has nonetheless generated only mixed results. Particularly problematic was the performance of the states in the area of the budget and fiscal policy. Applying performance categories of "Excellent," "Very Good," "Good," "Fair," and "Weak," the IMF report awarded no states a rating higher than "Good," and only one state achieved that level of performance. Eight were judged to be "Fair" and 25 were recorded as "Weak" in this category (p. 26). The benchmarking exercise also looked at the issue of communications, referring to both intra-governmental information sharing and communication with the public about fiscal policy and performance. In this regard, three states were judged to be "Very Good," five were deemed "Good," 14 were scored as "Fair," and 12 were scored as "Weak."

The report specifically indicated several weaknesses in the budget process. At the state level, most governments failed to create "fiscal strategy documents" and none of them had created the medium-term expenditure framework required by the Fiscal Responsibility Bill. Such frameworks must include aggregate fiscal forecasts over three years, including the capital costs and accommodations to SEEDS strategies for each year. None of the states employed the tools required by the Bill to track their expenditures under the poverty-reduction program. The budgets prepared by most states were found to be unrealistic, based on inadequate or inappropriate estimations of state-generated revenues. Finally, many states failed to generate budget documents and financial statements on time. In most states, public contracts were not published, and the contracting process was not conducted in a transparent fashion. Most states failed to implement adequate anti-corruption practices, and few states attempted to provide public access to financial accounting statements or other such documents. The IMF report suggested that many of these weaknesses could be addressed through improved state/national collaboration by means of enhanced technical capabilities and staff training, and by ongoing monitoring of SEEDS and NEEDS program performance through recurrent benchmarking exercises at appropriate intervals.

In 2007, the IMF also released its "Third Review under the Policy Support Instrument." Recognizing the central role played by oil revenues in the fiscal policies of oil-producing states, the IMF report applauded Nigeria's recent passage of the NEITI Bill, which attempts to directly address many of the principal weaknesses in fiscal policy and budget planning experienced at both the federal and state levels of government. The report notes that, at present, the NEITI bill awaits harmonization with the provisions of the Fiscal Responsibility Bill.

In a 2004 "Selected Issues" report by the IMF, weaknesses were identified in the way that Nigerian authorities managed and coordinated macroeconomic policy. Significant among these was a failure to share data across ministries, agencies, and other entities, as well as a general lack of leadership and political will to ensure that fiscal, monetary, and exchange-rate policies were complementary. Fragmented, poor-quality data and significant reporting time-lags impede proper policy formulation, implementation, and subsequent analysis. The lack of proper fiscal reporting and analysis has also contributed to the general inability of authorities to properly respond to fiscal developments as they occurred. Revenues and expenditures were not properly monitored on a monthly basis, and information was not reported to the Accountant General in a timely manner. Reliance on manual reporting and accounting procedures, rather than on an automated system, further contributed to slow data reporting, hindering proper monitoring. Finally, the failure to generate fiscal reports on a regular basis significantly undermined transparency and has led to a lack of trust between the executive and legislative branches of the government. As a result of these deficiencies, Nigeria is ineligible to subscribe to the IMF's Special Data Dissemination Standard (SDDS). However, it is listed as participating in the less rigorous General Data Dissemination System (GDDS) on the IMF GDDS website.

Writing for the Open Budget Initiative's (OBI) International Budget Project, E. C. Eboh assigns to Nigeria a rating of 20%, or "Scant to None" regarding the transparency of its budget process. The OBI tracks seven categories of key budget documents in assessing a nation's budget transparency. Of these, Nigeria produces only three, and makes publicly available only two. The pre-budget statement and executive budget proposal are publicly available, but are minimally informative (providing only 13% of the information that the OBI considers necessary). While an auditor's report is generated, the public is not given access to its content. Not produced at all are in-year, mid-year, year-end, or citizen's budget reports, all of which the OBI considers crucial to a truly open budget process.

Beginning in 2001, Nigeria's federal government began to try to address the waste and corruption that undermined its ability to exercise control over expenditures, according to a 2003 report by the Organization for Economic Cooperation and Development (OECD). However, this effort was seriously hampered by the fact that the lower (regional and local) levels of government were uncooperative. The non-transparency of lower-level governmental fiscal activities, as well as the lack of genuine accountability, together combined to render federal-level anticorruption efforts less than effective. The NEITI Bill is the result of collaboration, first announced in the IMF's 2004 Semi-Annual Report Under Intensified Surveillance (published in 2005) with outside oil industry experts who were charged with developing a system for regular audits of oil revenues. This report noted that, anticipating the results of this collaboration, Nigeria had begun producing mid-year budget implementation reports, along with a reports on the distribution of oil revenues throughout the three tiers of government agencies and the revenue savings that had been achieved each month.

A number of structural improvements have been achieved in Nigeria, as reported by the IMF's 2007 Third Review under the Policy Support Instrument. For example, the potential for corruption within the Nigeria Customs Service (NCS) has been reduced through the implementation of reforms that call for competency assessments of customs staff, and a new SEEDS benchmarking exercise is underway. The Budget Office and the Office of the Accountant General are both undergoing technology upgrades, and the software systems used by the budget office, Accountant General, budget monitoring and price intelligence unit, and central bank are slated to be integrated in the near future. The authorities are working with a World Bank tech-support team to make certain that the integrated system slated to be used (the Accounting Transaction Recording and Reporting System) is consistent with the Integrated Financial Management System. Also, the Accountant General has developed and is now using a new Chart of Accounts. While the government has begun to compile quarterly reports on its debt-relief activities, this process is not yet integrated into the computerized system. Databases of the government's commitments to contractor and pensioner expenditures have been created, permitting progress in the clearance of arrearages in those areas.

The IMF report further notes that enhancing transparency and best practice in public procurement has also received attention. A new procurement manual has been drafted, as has a new Public Procurement Bill. Finalization and publication of the manual awaits the passage of the Bill. Within the civil service, some 30,000 redundant staff were laid off and certain core ministries have been restructured or merged to reduce duplication of missions. A new tax administration is being developed, along with a new tax policy unit in the Ministry of Finance that is intended to provide advice and expertise. The National Bureau of Statistics (NBS) is also undergoing reforms to address many of the weaknesses that have long rendered Nigeria's macroeconomic statistical data unreliable. The NBS is making progress toward the eventual goal of releasing GDP data on a quarterly basis, and has collaborated with the central bank in a broad-based survey of the nation's economy. An audit of the oil and gas sector was carried out, covering the years 1999-2004, and was made available to the public. The audit disclosed certain areas of weakness, including discrepancies in the reporting methodologies used by various agencies and companies in the sector. A standard reporting form is being designed. A report detailing the oil-revenue allocations to the various levels of government has been published. Stepped up arrests and prosecutions of corrupt public officials have occurred, and political candidates for office now undergo more in-dept screening by the Economic and Financial Crimes Commission (EFCC), which also is involved in monitoring the public procurement process for corruption. With the election in April 2007 of a new president, Umaru Yar'adua, it remains to be seen whether the progress achieved in Nigeria during the tenure of previous president Olusegun Obasanjo since 2003 will be carried forward.

The Principles

Clarity of roles and responsibilities.

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In 2004, Nigerian authorities established a Cash Management Committee (CMC) to assume monitoring and reconciliation responsibilities, and the 2004 IMF Article IV Consultation report credits the CMC with introducing greater fiscal restraint, transparency, and certainty in the handling of cash releases by the government. The adoption of the NEEDS and SEEDS frameworks was undertaken to more clearly demark the roles and responsibilities of these two levels (national and state) of fiscal responsibilities. The report credits the Ministry of Finance, with the cooperation of other agencies, with exerting leadership in the reformation of public expenditure management. The preparation of a fiscal strategy paper (first done for the 2004 budget) was also praised in the report for its specification of "priorities and realistic macroeconomic assumptions, which facilitated internal discussions on trade-offs and priorities" (p. 17). Other improvements cited include early consultation with the National Assembly during the budget formulation stage, the setting of capital budget ceilings for and the prioritization of public projects, and the executive economic team's regular (weekly) meeting on budget-related issues.

Open budget processes

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Writing for the Open Budget Initiative's (OBI) International Budget Project, E. C. Eboh assigns to Nigeria a rating of 20%, or "Scant to None" regarding the transparency of its budget process. The OBI tracks 7 categories of key budget documents in assessing a nation's budget transparency, of which Nigeria produces only three, and makes publicly available only two. The pre-budget statement and executive budget proposal are publicly available, but are minimally informative (providing only 13% of the information that the OBI considers necessary). While an auditor's report is generated, the public is not given access to its content. Not produced at all are in-year, mid-year, year-end, or citizen's budget reports, all of which the OBI considers crucial to a truly open budget process.

According to a 2007 report by Revenue Watch Institute, three new bills are pending that would address transparency in fiscal policy and implementation. These are the Freedom of Information Bill and the NEITI Bill, both still awaiting presidential signature, and the Fiscal Responsibility Bill (still awaiting passage by the House). Together, they make crucial provisions to improve public access to government spending data, coordinate the fiscal reporting process across all government agencies at all levels of government, and impose uniformity on the budget preparation and execution process, and impose an oil-price rule mechanism that would limit the government's ability to rely on oil-revenue windfalls to cover its expenditures (p. 6).

Public availability of information.

ID

Nigeria is not a subscriber to the IMF's SDDS, but rather participates in the less prescriptive GDDS, as evidenced on the IMF GDDS website. Writing for the Open Budget Initiative's (OBI) International Budget Project, E. C. Eboh assigns to Nigeria a rating of 20%, or "Scant to None" regarding the transparency of its budget process. The OBI tracks 7 categories of key budget documents in assessing a nation's budget transparency, of which Nigeria produces only three, and makes publicly available only two. The pre-budget statement and executive budget proposal are publicly available, but are minimally informative (providing only 13% of the information that the OBI considers necessary). While an auditor's report is generated, the public is not given access to its content. Not produced at all are in-year, mid-year, year-end, or citizen's budget reports, all of which the OBI considers crucial to a truly open budget process. Budget documents since 2004 (the most recent being 2006) are available to the public on the Ministry of Finance website, along with materials relating to fiscal policy, press releases, and other informational publications. However, as of September 2007, many of these links were inoperable.

According to a 2007 report by Revenue Watch Institute, three new bills are pending that would address transparency in fiscal policy and implementation. These are the Freedom of Information Bill and the NEITI Bill, both still awaiting presidential signature, and the Fiscal Responsibility Bill (still awaiting passage by the House). Together, they make crucial provisions to improve public access to government spending data, coordinate the fiscal reporting process across all government agencies at all levels of government, and impose uniformity on the budget preparation and execution process, and impose an oil-price rule mechanism that would limit the government's ability to rely on oil-revenue windfalls to cover its expenditures.

Independent assurances of integrity.

ID

The 2005 IMF Article IV Consultations report notes that the federal budget system remains inadequate with regard to enabling effective monitoring and tracking of revenues and expenditures. In the report, the staff identified a need to move forward more aggressively with modernization reforms, developing a more appropriate budget classification system, and institute a review of public investments. The staff also notes the desirability of establishing a unitary treasury account, which, in the words of the staff, "should strengthen cash control and improve budget transparency" (p. 21). The report cited the importance of passing the Fiscal Responsibility Bill (currently awaiting approval by the House), arguing that "the bill's passage and full implementation would markedly enhance fiscal transparency and accountability at all levels of government, introduce formal fiscal rules into the budget process, and lay the foundation for medium-term fiscal sustainability" (p. 28).

The IMF's 2004 "Selected Issues" report specifically cited concerns regarding Nigeria's capacity for fiscal management. The unsustainability of Nigeria's non-oil deficit renders the economy's public sector vulnerable to volatility in the oil sector, which in turn impacts negatively on effective public spending. The report acknowledged that capable people had been appointed to ministerial posts, but the technical support infrastructure is very weak. This was attributed, in part, to Nigeria's political history, wherein military-led regimes have led to the deterioration of professionalism among civil service personnel. In addition, the specific nature of Nigeria's federalism has undermined the national authority's ability to impose fiscal discipline from the top. In addition, the government decentralization, initiated in 1999, which parceled out control over oil revenues to the regional and local governments, was not accompanied by any general coordinating mechanism to permit information-sharing, and therefore undermined the ability of the federal government to exercise meaningful control over fiscal policy.

According to a 2007 report by Revenue Watch Institute, three new bills are pending that would address transparency in fiscal policy and implementation. These are the Freedom of Information Bill and NEITI Bill, both still awaiting presidential signature, and the Fiscal Responsibility Bill (still awaiting passage by the House). Together, they make crucial provisions to improve public access to government spending data, coordinate the fiscal reporting process across all government agencies at all levels of government, and impose uniformity on the budget preparation and execution process, and impose an oil-price rule mechanism that would limit the government's ability to rely on oil-revenue windfalls to cover its expenditures.