CBN: Budget Deficit, Public Debt Hamper Fiscal Sustainability

James Emejo

The Central Bank of Nigeria (CBN) yesterday said budget deficit and public debt could exert direct and negative consequences on fiscal sustainability, adding that these remained 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 the ongoing turmoil in the global economy had impacted every policy area, including fiscal policy over the past two years, pointing out 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 of the West African Institute for Financial and Economic Management (WAIFEM), added that for most member nations of WAIFEM, the prospect of growth that would contribute to a substantial reduction in the debt-to-GDP ratio and regaining fiscal equilibrium is not immediately on the horizon.

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.”

Represented by the CBN Deputy Director, Monetary Policy Department, Dr. Yusuf Bulus, Hassan, however, pointed out that the government budget’s significant influence on a country’s economy cannot be over-emphasised.

He noted that several developing countries, including WAIFEM member countries 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 at least some degree of fiscal discipline and transparency.

He said, in the process, the member countries have adopted the medium-term budgetary frameworks known as the MTBFs as well as the Medium-term Expenditure Frameworks (MTEFs) in some countries.

According to him, the MTBF is a multi-year approach to budgeting that links expenditure plans to the policy objectives of the government based on a reliable estimate of available resources and with a singular focus on results over the medium term.

He said 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, nonetheless, noted that, “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.”

However, he 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.

Among other things, he said the capacity-building programme will also make it possible for participants to implement fiscal policy strategically and forward-looking in order to realise its long-standing broader objectives, including achieving macro-economy stability and maximising public expenditures’ allocative and operational efficiency, to strengthen macroeconomic management and service delivery and ensure fiscal transparency and accountability.

Also, 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 had complicated fiscal management by disrupting fiscal prioritisation, widening budget deficits, and sharply increasing the public debt of members, adding that, “These difficulties do not appear to be going away anytime soon.”

Represented by WAIFEM Director, Mr. Yakubu Aliyu, Musa 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.