Tech-Session-5a-Budgeting-for-Infra-Development.pptx

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1. Budgeting for Infrastructure Development 24 March 2021 Presented by: Dayo. O. Alao, Public Investment Management Lead

2. Capital investment is an essential enabler of economic growth. A sound capital budgeting framework ensures the alignment of the budget with national strategic priorities in a cost-effective and coherent manner Economies need investments if they are to grow: much of this has to come from the private sector -, investment in public projects is also essential; The challenge of meeting these goals has become more difficult and has been exacerbated by the COVID-19 pandemic. In today’s reality, governments must plan and budget appropriately to make efficient use of scarce resources in delivering the outcomes the citizenry expect from leaders. Why Plan and Budget for Infrastructure?

3. The budget is more than a statement of government revenue projections and planned expenditures it is a key fiscal policy tool for driving economic development in a country The FGN has a constitutional obligation to develop a budget every fiscal year The budget is the culmination of government’s strategic economic and fiscal policies, plans and priorities for actualising its development agenda in a fiscal year Budgeting also helps the sequencing of spending and priorities must be placed on key expenditure items The Federal Budget – What it is….

4. Developing the Federal Budget – The Process Source: Budget Office of the Federation

5. Public investment levels are at historic lows. Infrastructure planning and delivery in Nigeria is disjointed and influenced by political priorities rather than strategic priorities linked to a clearly articulated National development plan The capital budget is blocked and cluttered, with over 6,000 separate project budget lines and a backlog of old projects— characterised by: Little or no linkages to national plans Poor planning and prioritisation of projects & proper costing Low budget execution rates & delays in implementation with projects repeatedly renegotiated, many of which will, if ever completed, make little if any contribution to achieving national goals. New administrations attempt, to squeeze in ever more new projects into it pushing back completion dates Increased costs as contractors demobilise, the country littered with half-built infrastructure crucial infrastructure initiatives not receiving adequate funding Cash rationing and insufficient disbursements Capital Budget Implementation in Nigeria

6. The Fiscal Situation…… *Source: Budget Office of the Federation and PWC **2020 Amended Budget Report, Federal Ministry of Budget & National Plannin g *2 Source IMF April 2020 country report The situation is critical, federal capital expenditure is being squeezed as never before with shrinking fiscal headroom, oil prices are unstable and non oil revenue is too low to impact revenue: As at 2018, the federal government's total debt stock stood at N20.5 trillion, a 12% increase from N18.4 billion in 2017 2020 Total Debt servicing charge is circa N1.56 tn , - 94.94% of revenue**. Debt-to-GDP rose to 29% from 27% in 2017 and back to 29 percent of GDP in 2019 COVID-19 pandemic has further exacerbated the vulnerabilities leading to a further contraction in real GDP growth and to large external and fiscal financing needs. * 2 FG deficit rose to 4.8 percent of GDP in 2019 and 6.8 percent of GDP in 2020

7. Actual versus Budgeted Revenue *Source: Budget Office of the Federation and PWC From 2011 – 2018, revenue projections for both oil and non-oil revenue were not achieved leading to borrowing to close the growing deficit.

8. FGN Budget Expenditure Profile (2009-2020) *Source: Budget Office of the Federation and PWC

9. Personnel, Overhead and Capital Expenditure (2008-2020) *Source: Budget Office of the Federation and PWC

10. Capital planning that involves first identifying desired project outcomes (in the public sector, the particular focus would be on benefits to citizens) and then allocating the capital budget based on these priorities is now mandatory with previous aggressive targets from the ERGP now seemingly unattainable The country must now not only develop new national plans, but it must ensure that every Naira spent is linked to these development plans and represents value for money A tailored approach to project selection and prioritization and how projects are funded is a must A strategic focus is now required as private finance is required to close the capital investment deficit Budgeting for infrastructure needs to transition from initial capex to whole-life costing of infrastructure Budgets must be adequately monitored, and ultimately, budget performance evaluated This Approach will no longer suffice.

11. Leading Practice Principles Establish Goals to Guide Government Decision Making The government should have broad goals that provide overall direction for the government and serve as a basis for decision making .” Approach….The How? A government should have specific policies, plans, programs, and management strategies to define how it will achieve its long-term goals Develop a Budget Consistent with Approaches to Achieve Goals A financial plan and budget that moves toward achievement of goals, within the constraints of available resources, should be prepared and adopted. Evaluate Performance and Make Adjustments Program and financial performance should be continually evaluated, and adjustments made, to encourage progress toward achieving goals. Value For Money should be evaluated regularly Enabled by single source of truths Automated budget process - supported by common business terminology. Enabled by single view for all stakeholders & a robust data management framework. Sustained by the right governance model Set leadership and direction for budgeting. Communicate this early to all stakeholders. Preferably have a time-table that all stakeholders know , set KPIs and hold them accountable through regular performance reviews . 1 2 3 4 5 6

12. From Vision to Project Implementation FMFBNP works with MDAs to track KPIs and submit performance reports on projects FMFBNP develops Key performance indicators (KPIs) for all projects in the budget FMFBNP works with MDAs to prioritize projects based on citizen outcomes FGN/ FMFBNP Leadership develops a medium-term vision for capital projects that considers the peoples needs (citizen outcomes) Agency Creates a medium-term strategic plan in line with leadership vision Agencies create medium term capital plans based on National plans and priorities Agencies incorporate KPIs into projects Agencies monitor projects and submit regular reports on KPIs to FMFBNP Vision Capital Priorities KPIs (Capital and General) Reviews

13. Create a SMART strategic vision to guide investment—one in which projects are primarily prioritized based on citizen outcomes. Create key performance indicators (KPIs) to track progress toward that vision, and ensure that all agencies are in alignment with overall objectives. Develop policy to ensure provision of funds for maintaining and rehabilitating existing infrastructure - these projects do not attract as much interest or political support as new construction. The vision should include fostering collaboration between agencies to create action plans that align with the leadership’s vision as infrastructure projects by nature involve many agencies and stakeholders. Setting the vision……

14. Identify and develop capital infrastructure priorities based on outcomes identified in the vision Define relevant, adequate criteria for project prioritisation linked to the vision and plan of the day. Indicative categories Policy and strategic alignment with the vision and plans (national, sub-national) Fiscal & Institutional alignment (Ongoing projects, operating costs included, COBA, ERR) Environmental & social impact assessment (Risk identification and mitigation measures, community impact – resettlement, erosion, etc) Social development outcomes (Gender impact, jobs created per unit of currency, number of beneficiaries per unit of currency spent) Climate change (Adaptation, mitigation, NDC themes) Also review here the ideal financing strategy for the project (public/private) Developing Capital Infrastructure Priorities

15. Identify and develop KPIs for monitoring and evaluation. Indicative categories: Cost Effectiveness Total Revenue No of people impacted Number of jobs created (indirect versus direct) Poverty, social and gender impact KPIs Climate change Developing KPIs

16. Develop the right monitoring and evaluation framework and governance model for project/ performance reviews : indicative dimensions include: Efficiency, impact, outcomes Governance/ review & reporting frequency framework Technology & Data management, dashboard reporting Loop back process for future project/ program planning Benchmarking framework Reviewing Budget Performance

17. Budgets are tight and constraints are real, so only a few will receive the necessary investment. Develop a “gold standard” tailored process for making resource-allocation decisions across the portfolio Focus on outcomes for the people when planning Articulation of long term infrastructure priorities that support the national development agenda (e.g. NIIMP) Link annual capital investment programmes to the medium and long term infrastructure priorities Evaluate resource allocation to maximize project outcomes Consider alternative financing mechanisms and instruments and balance between traditional procurement and PPP Costing should be all inclusive (total life) Develop a rigorous and systematic approach for cost estimation (CBA, MCA, CE) Build capacity across all MDAs to prioritize, cost, assess and implement projects Build a continuous-learning loop to improve future project planning and implementation Key Considerations & Critical Success Factors…

18. Federal budget processes need to be better equipped to prioritise project selection against growth objectives, In addition a sound budget should have M&E capability to track implementation progress of approved projects prior to release of capital allocations. Key considerations need to be made for how and which projects are selected and prioritised, which are funded by government allocation, which are made available for private financing To improve capital planning, public-sector agencies need to review entrenched systems for setting priorities, evaluating projects, allocating portfolio investments, and learning from past projects. Through this transformation, agencies may discover untapped potential for savings and better ways to deliver the outcomes that matter most for citizens. Conclusion

19. Conclusion Thank You