Sunday, 3 December 2017

BUDGET 101 according to Messrs Princewill Odidi & Ceejay Ojong.

Efio-Ita Nyok|3 December 2017 

The duo of Mr Princewill Odidi, a development economist and Ceejay Ojong, a public financial management expert have aired their minds on issues bordering on budgeting especially in contribution to the ongoing debates sparked by the N1.3 trillion appropriation bill titled Budget of Kinetic Crystallization presented by the leadership of a sub-national entity in Nigeria, the Governor of Cross River State, Sen. Prof. Ben Ayade. 

Odidi, in his recent 'Understanding Budget', has distinguished between two types of budgets —static and flexible, for him, the resort to either types by public officers isn't a crime; whereas, Ojong in reply to Odidi has observed that highfalutin budgetary figures will only result to an elaborate fiscal facade with increasing transaction costs on the masses implying that the budget will be unimplementable and unlikely to deliver any meaningful results to the advantage of the taxpayer. 

Excerpt :

*Understanding Budgets —by Princewill Odidi

'A budget is an estimation of revenue and expenses over a specified future period of time; it is compiled and re-evaluated on a periodic basis. There are two major types of budgets: static budgets and flexible budgets. A static budget remains unchanged over the life of the budget. Regardless of changes that occur during the budgeting period, all accounts and figures remain the same as they were originally calculated. Alternatively, a flexible budget has a relational value to certain variables. The naira amounts listed on a flexible budget change based on sales levels, production levels or other external economic factors. (invest guide).

'Some may be wondering why some state governments have very high budgets? The reason is simple. Most states employ flexible budgets because they cannot really predict their proposed revenue for the year due to many unstable factors affecting revenue flow, ranging from oil price fluctuations to proposed or anticipated loans. Second and more important, it is for proposed lending reasons. When a governor has initiated a proposal to borrow some money from outside sources or from foreign governments, most governors capture the figures in their proposed budgets as proposed income streams. Some leaders would prefer to capture the loans on future budgets after funds have been remitted to state accounts, while some would prefer to capture it upfront without any concrete commitment that the funds will be made available. 

"A balanced budget (particularly that of a government) refers to a budget in which revenues are equal to expenditures. Thus, neither a budget deficit nor a budget surplus exists (the accounts "balance"). More generally, it refers to a budget that has no budget deficit, but could possibly have a budget surplus. A cyclically balanced budget is a budget that is not necessarily balanced year-to-year, but is balanced over the economic cycle, running a surplus in boom years and running a deficit in lean years, with these offsetting over time".(Wikipedia)

'The greatest advantage that a flexible budget has over a static budget is its adaptability. In the real world, change is real and it is constant. A flexible budget can handle that reality and better position a company for the challenges of the marketplace. In a static budget, the government would not have the ability to tweak the budget to manage the changes if that large client contract doesn't materialize or if sales grow faster than anticipated. Governments could, and most likely would, adapt to those changes, but at year-end there would be large budget variances that do not provide any analytical value to better plan for the following year.

'Although it is easier to manipulate revenue and expenses in a flexible budget and it gives room for corruption especially in societies were budgetary discipline is not adhered. But what is most important to know, either budget types a government uses, whether static that gives us fixed figures and outlines definite income and specific expenditure or whether they apply flexible budgets that gives room for changes down the line, it is all within the law, no crime has been committed'.

*Ojong's : 
'First, the government or public sector hardly speaks of annual budgets in terms of flexible and fixed budgets. It is either about the traditional line item/incremental budgeting or the more progressive programme based budgeting or zero based budgeting. Flexible and fixed budgets are more amenable to the private sector that is interested in knowing how its costs will increase or vary or even remain unchanged over different levels or volume of activities for a defined range.                                                            
'Second, the existing macroeconomic fundamentals supply the baseline assumptions for preparing the budgets and making macro-fiscal projections including simulations, sensitivity analysis and forecasts to unravel what the alternative scenarios would be if there is a change in one or more of the fundamentals such as oil price and output shocks, exchange rate, inflation or change in the general price level, interest rates and macroeconomic policy stance, etc.                                                           

'Thirdly, doesn't matter the initial budget approved, there are provisions to submit supplementary budgets to the legislature for fresh approval if the conditions or budget performance vary considerably from what was anticipated. There is also the opportunity for virement of redundant resources allocated for certain budget heads into other budget heads requiring immediate resources.                                                      

'Finally, budgets ought to be very realistic that is reflecting as much as possible the true and fair view of the state of affairs of the revenues and expenditures included in the budget estimates. Loans can be captured into the budget as potential financial flows only if the agreements have been signed, commitments made and the draw-down has commenced or just about commencing. Prudence, cautious optimism, value for money, transparency and public accountability should be the watchwords for productive budgets. Otherwise any highfalutin budget figures will only amount to an elaborate fiscal facade with high transaction costs on taxpayers money - meaning the budget will be unimplementable and unlikely to deliver any meaningful results to benefit citizens. I hope this helps!'

Do you find Odidi's and Ojong's submissions interesting? I personally do. 

Efio-Ita Nyok
Is a Blogger, the Editor-in-Chief & Publisher of NegroidHaven 

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