Envelope Budgeting System and Its Discontents

BY OBINNA CHIMA 

One issue that has continued to resonate since the commencement of the defense of the 2025 federal government’s appropriation bill by Ministries, Departments and Agencies (MDAs) is the criticism of the country’s envelope budgeting system.

Almost all heads of MDAs that have appeared before the lawmakers have voiced their opposition to this budgeting system which most of them have described as an opaque system that results in the capping of funds notwithstanding the needs of the MDA.
Interestingly, some National Assembly members also share the same sentiment.  
The envelope budgeting system started in Nigeria in 2006 and has not been reviewed since then. It is a system that focuses on the allocation of the amount of money available for a specific purpose in a given financial year. It replaced the Zero-budgeting method which was being used previously.

President Bola Ahmed Tinubu last December presented a N49.7 trillion budget proposal for the 2025 fiscal year before a joint session of the National Assembly in Abuja, with defense and security sectors getting the highest allocation of N4.91 trillion. In the proposed fiscal plan, the Defence and Security were closely followed by infrastructure with the sum of N4.06 trillion, while the sum of N2.48 trillion was allocated for the health sector and N3.52 trillion budgeted for the education sector.

 According to the President, the 2025 budget proposal again reinforced his administration’s roadmap to secure peace, prosperity, and hope for a greater future for our beloved nation.

Tinubu, in the budget presentation noted that the budget christened, “Budget of Restoration: Securing Peace, Rebuilding Prosperity,” was at the very core of his Renewed Hope Agenda and demonstrated his government’s commitment to stabilising the economy, improving lives, and repositioning the country for greater performance.
A national budget is a key instrument for the execution of the government’s economic policies. It is an important tool for the allocation of resources, as well as for influencing economic activities in the country.

In Nigeria, the budget defense is seen as an annual ritual and a fun-fair whose outcome has little or no impact on the majority of the citizens as poor budget implementation remains one of the major issues that have plagued Nigeria over the years. The country ranks low in terms of budget transparency because it provides its citizens with insufficient budget information making it difficult for taxpayers to understand how public resources are utilised.

In addition, the country’s budget process takes very little feedback from the public, and the final budget document does not reveal how the meagre feedbacks are used. The delays in the release of essential budget documents is also a major challenge with public sector budget in the country.
Some of these defects have been partly attributed to the envelope budgeting system with most MDAs seeking to opt out of the system.

Whereas countries have discarded the envelope method of budgeting in place of the performance-based budgeting system, Nigeria continues to adopt this budget practice.
To the Senate Appropriations Committee, the envelope system undermines effective budget planning and development. They argue that it gives room for duplication and inflation of expenditure heads by MDAs, alleging that it allows public officers to exploit its inadequacies to mismanage public funds which is not good for the economy.

Furthermore, they noted that the current national budgeting system makes the legislature less involved and at best reactive as they have to rely solely on the information provided by the executive arm of government.
Under the current arrangement, federal lawmakers say there is an absence of a coherent and systematic means of exerting legislative control over fiscal decisions and priorities of the federal government.

They also argue that it makes resources allocated to MDAs to be thinly spread over a large number of projects, resulting in the non-performance of successive budgets.
Likewise, some heads of MDAs have equally called for this scrapping of the budgeting system, saying it leads to a reduction of their annual appropriations and impedes operational efficiency.

But federal government sees this system as a way to help it manage its lean resources.
According to the Director General of the Budget Office of the Federation, Tanimu Yakubu, the envelope system of funding the annual budget will continue unless there is an improvement in revenue generation in the country.
The director general said there is nothing the Budget Office could do than to manage available resources.

“For the four months I have been in office, I have been working with the system I met on the ground, which is the envelope system. Even though I don’t like the system, we have been talking to ourselves on how to review the system of budgeting and have done much to improve what I met on the ground.

“We apply the envelope system in all MDAs and I have not seen any agency that is okay with what it is given. The complaint has been the same across. We shouldn’t be seen to be throwing money at projects that have no bearing,” he explained.

Considering the hordes of complaints that have trailed the envelop budgeting system, the federal government needs to consider jettisoning it and adopt the performance-based budgeting system that some of its peers in the region, such as South Africa, Kenya, Uganda and Mozambique have embraced to ensure efficiency in the operation of the national budget.

The performance-based budgeting system is an approach where funding decisions are based on achieving specific, measurable performance goals and outcomes. It links budget allocations to the achievement of predetermined performance targets and sets clear performance indicators for MDAs.

In addition, the performance-based budgeting system holds government officials accountable for the use of public funds and requires them to demonstrate that they are using resources effectively and efficiently to achieve desired results.

It also relates funds allocated to measurable results.
“Performance budgeting aims to improve the effectiveness and efficiency of public expenditure by linking the funding of public sector organisations to the results they deliver. It uses systematic performance information (indicators, evaluations, programme costings etc) to make this link. The impact of performance budgeting may be felt in improved prioritisation of  expenditure, and in improved service effectiveness and/or efficiency.    

 “Performance-based budgeting usually also emphasises giving government agencies and their managers greater flexibility in the use of resources than they would typically have under traditional tightly-controlled public management systems. A key element of this is greater flexibility in the choice of the mix of inputs which are to be used to deliver services,” a report by the Centers for Learning on Evaluation stated.

The increased international interest in performance budgeting has been prompted in part by a  recognition that it is all too easy in the government to lose sight of the fundamental objective of  delivering positive outcomes to the citizens.

Ultimately, the goal of any budget system should be to serve the public interest.  This requires not only efficient allocation of resources but also the assurance that the resources are being used responsibly and effectively.  The current debate surrounding the envelope budget system provides an opportunity to re-evaluate our approach and ensure that we are prioritising transparency, shunning budget padding, ensuring accountability, and ultimately, good governance.

The public deserves to know how their money is being spent, and it is our collective responsibility to demand nothing less.