Poor budget implementation which has become a refrain in the country in recent years continued in the first half of this year with the capital budget performance scoring 43 per cent.
Out of N200 billion released to ministries and parastatals in the period, only N86 billion was utilised. Incidentally, the release was N25 billion in excess of N175 billion projected.
On a pro-rata basis, the capital implementation ratio as at end of June is 49 per cent and 25 per cent of the full year appropriation.
And the Ministry of Finance, which anchors budgetary matters, has given thumbs down for the budgetary performance in the period.
According to the rating of the ministry, after an interactive sessions held by the Cash Management Committee, led by the Finance Minister, Dr. Ngozi Okonjo-Iweala, with the representatives of six priority ministries, comprising Works, Power and Steel, Agriculture, Education, Health and Water, the slow implementation of the capital budget was influenced by six factors.
In a report on the assessment of the performance of the capital budget, which was obtained by our correspondent in Abuja on Wednesday, it named the factors to include late submission of the 2004 budget and passing of appropriation bill, limited knowledge of the guidelines for due process certification, delays by supervising ministries, thin spread of capital allocation, exchange rate fluctuations, and lack of confidence in the system due to past disappointments.
According to the ministry, only about N3 billion was drawn for capital projects during the first quarter as most ministries and agencies delayed any commitment to project implementation even though they had the possibility under the law to engage in some spending.
"A related factor was the fact that the Appropriation bill shifted money among budget priorities in a way that jeopardized implementation of many projects. The money appropriated was some times half the amount needed, and this complicated implementation.
"Secondly, executive capacity is weak in several agencies. The procedure for obtaining due process certification is not yet quite understood by some of the ministries and agencies although others indicated that they were quite comfortable with the process. Poor project conception, planning and costing also contributed to the problems.
"In some cases where the cost of the project is large, for example, road construction and power projects, the amount of funds appropriated was too small, and the amount released per tranche is sometimes too small to have a noticeable impact on the project. This leads to a situation where projects are slow to take off," the ministry stated.
On the implications of the slow pace of capital budget implementation in the first half, the finance ministry noted that this could bring about lumpy pattern of expenditure towards the end of the fiscal year, thereby affecting exchange and inflation rates stability.
"Typically, when line ministries are slow in project spending and withdrawals from their capital allocations, there is a high chance that they would try to catch up later in the year in order not to forfeit their allocations, or even get a lower allocation in the following fiscal year,� it said.
"In terms of macroeconomic policy, such expenditure behaviour implies a sudden injection of liquidity into the system later in the fiscal year over and above the average rate perhaps following a period of low liquidity.
"If the rate of liquidity injection is more than the system can handle, this will introduce volatility into the macroeconomy, with all the negative effects on the exchange rate and inflation via the channel of aggregate demand. This could result in increase in demand for imports, broad money for growth rate and inflationary pressures," the ministry explained.
