The Central Bank of Nigeria (CBN) yesterday said budget deficit and public debt could exert direct and negative consequences on fiscal sustainability, which are essential factors in assessing macroeconomic policies’ credibility.
CBN Director, Monetary Policy Department, Dr. Mahmud Hassan, made the remarks at the opening of the Regional Course on Medium-Term Budgetary Frameworks (MTBFS), organised by the West African Institute for Financial and Economic Management (WAIFEM), in Abuja.
He noted that current global economic crisis had impacted every policy area, including fiscal policy over the past two years, adding: that, “member countries have experienced a significant worsening in their fiscal balance and dramatic growth in their public debt, which have put them at risk of debt distress and, in some cases, even debt distress.”
Hassan, a member of the Technical Committee of the Board of Governors at WAIFEM, added that for many member countries, the growth prospect that contributes to a substantial reduction in the debt-to-GDP ratio and regaining fiscal equilibrium is not forthcoming.
He said: “In the meantime, our economies are preparing for post-pandemic recovery, adjusting to externally-induced inflationary pressures, and working toward achieving the United Nations Sustainable Development Goals (UN-SDG).
“However, we continue to face the challenge of revenues while the pressure for increased spending continues to build up.”
Hassan, represented by the Deputy Director, Monetary Policy Department, CBN, Dr. Yusuf Bulus, however, noted that the government budget’s significant influence on a country’s economy cannot be over-emphasised.
He said many developing countries, including WAIFEM members, have made concerted efforts over the past 15 years to reform their public financial management (PFM) systems, budget systems, and mechanisms to improve the effectiveness of public spending while preserving fiscal soundness and some degree of fiscal discipline and transparency.
Accordingly, he said member countries have adopted the medium-term budgetary frameworks (MTBFs) or the Medium-term Expenditure Frameworks (MTEFs) in some countries, including Nigeria.
He said the MTBF is a multi-year approach to budgeting that links expenditure plans to the government’s policy objectives based on a reliable estimate of available resources and with a singular focus on results over the medium term.
He noted that this approach was a significant departure from the conventional method of preparing an annual budget, which is iterative and overlooks the future potential costs and benefits of public programmes.
Hassan said: “research conducted by the World Bank has shown that these efforts have been insufficient to meet the standards of sound practice.
“Institutional and operational weaknesses are still embedded in the budgetary systems, most of which result from capacity constraints.”
…member countries have experienced a significant worsening in their fiscal balance and dramatic growth in their public debt, which have put them at risk of debt distress and, in some cases, even debt distress.
Objectives of training
Against this backdrop, Hassan said the training seeks to expose participants from WAIFEM member countries including Nigeria to international standards and country cases that will significantly assist in addressing the capacity issues.
He also said the capacity-building programme will make it possible for participants to implement fiscal policy strategically and forward-looking to realise its long-standing broader objectives.
These include achieving macro-economy stability and maximising public expenditures’ allocation and operational efficiency, to strengthen macroeconomic management and service delivery, and ensure fiscal transparency and accountability.
In his remarks, the Director-General, WAIFEM, Dr. Baba Yusuf Musa, said the course became inevitable against the backdrop of the immense macroeconomic and fiscal challenges facing member countries including Nigeria.
He said economic shocks arising from the COVID-19 pandemic, ongoing regional conflicts, and the resurgence of domestic health and security issues have complicated fiscal management by disrupting fiscal prioritisation, widening budget deficits, and sharply increasing the public debt of members. “These difficulties do not appear to be going away anytime soon,” he added.
Musa, represented by WAIFEM Director, Yakubu Aliyu, said while there was enormous pressure to increase discretionary and non-discretionary expenditures continuously, revenue growth was not keeping pace with even the anticipated moderate growth rates.
He said reclaiming the fiscal policy space by implementing a more strategic approach to the budgeting process through which government policies were implemented remained one way to begin addressing these challenges.
He said the course builds on existing efforts and aims to guide further improvements and provide participants with a platform for exploring and better understanding the numerous national, regional, global experiences and sound practices pertaining to MTBFs, in addition to the various options for reforming budget policy and financial management systems. (Thisday)