States Fiscal Transparency, Accountability and Sustainability (SFTAS) - OGUN STATE
Program-for-Results (PforR) Project for Ogun State, Nigeria is to strengthen the fiscal transparency, accountability, and sustainability.
SFTAS PROGRAM DESCRIPTION
The government program supported by SFTAS focuses on strengthening the fiscal sustainability, transparency and accountability of Nigerian states. The government program comprised of:
- The Fiscal Sustainability Plan (FSP) actions to be implemented by state governments; and
- The Nigerian OGP National Action Plan (NAP) actions at the state-level.
While both programs had initial time-frames for states to implement the actions, most of the actions are meant to be implemented in a sustained/ongoing manner. It is well recognized by stakeholders that to fully implement the FSP and OGP program across all states will take at least 4-5 years. See Annex 1 for details on the government program.
The government program is a key strategy of the governance pillar of the ERGP. The ERGP is underpinned by a focus on effective governance, viewing it as crucial to the successful implementation of the other ERGP strategies.
The ERGP seeks to improve governance through four priority areas:
- Fighting corruption and enhancing transparency in the use of public resources;
- Reinforcing public safety and security by combating terrorism and insurgency in the North East and militancy in the Niger Delta;
- Reform the public service by reducing the cost of governance and raising productivity across all FGN agencies, and
- Strengthening sub-national coordination.
The implementation of the FSP by states is one of the key strategies in the area of strengthening sub-national coordination.
The Fiscal Sustainability Plan (FSP) consists of 22 actions grouped under five objectives:
- Improve Accountability and Transparency
- Increase Public Revenue
- Rationalize Public Expenditure
- Improve Public Financial Management and
- Sustainable Debt Management.
Out of the 22 actions, 19 are to be implemented by the state governments (some with federal support) and 3 are measures to be undertaken by the federal government. The FSP accompanied the BSF. While the BSF was originally planned to end by May 2017, the intention was for states to continue and sustain the reforms contained in the FSP. The monthly BSF disbursements to each state were supposed to be conditional on the state’s progress on implementing the FSP. In practice, BSF funds were disbursed to states even if they made less than expected progress in implementing the FSP, given the severe fiscal pressures.
While all states have made at least partial progress, implementation of the FSP by the states is incomplete. The FMoF and Nigeria Governors Forum (NGF) have conducted assessments of the implementation of FSP across states which show that while all states have made progress, in particular in improving regular state debt reporting to DMO, Treasury Single Account (TSA) implementation, use of biometrics in tackling payroll fraud, and increase in IGR collection, implementation of the FSP actions remain incomplete.
Several factors contributed to the incomplete implementation of the FSP by the states:
- Weak capacity in some of the states, coupled with the lack of capacity building support accompanying the FSP;
- Absence of strong political will at the executive level in some of the states;
- Lack of strong incentives as the FGN was unable to enforce the implementation of the FSP as conditions for the disbursement of funds to the states.
The government seeks to further enhance the transparency and accountability in the use of public resources through the implementation of the OGP. Nigeria joined the OGP in July 2016 and has formulated a national OGP action plan.
The plan consists of fourteen commitments under four areas:
- Fiscal Transparency;
- Access to Information; and
- Citizen Engagement.
The FGN has established a Nigerian OGP Secretariat within the Ministry of Justice to coordinate the implementation of the action plan at the federal and state level. Several states have already signed agreements to implement the seven of the fourteen OGP commitments applicable at the state level and several more are in the process of doing so. Implementation of the OGP commitments is at the initial stages at the state-level due to weak incentives for states to adhere to the OGP action points, as well as lack of capacity.
The FMoF requested the Bank’s support to strengthen the implementation of the government program by states and FCT. The government program at the state-level is implemented by a number of state government institutions. Specifically, the state-level FSP and the fiscal transparency actions in the OGP NAP is implemented by state government institutions responsible for financial and fiscal (including debt) management, in particular: state ministries of finance (including treasury, state debt departments), state ministries of budget and planning, state boards of internal revenues, and state office of accountant generals. The FSP and the fiscal transparency actions in the OGP NAP cover the full scope of core functions and activities of these institutions. Implementation of the government program primarily requires staff time, consultants, workshops and training. Extensive consultations carried out with key stakeholders at the federal and state levels as well as academia and civil society showed wide agreement that the FSP represents a national consensus on common standards for state fiscal management and its full and sustained implementation should be supported, alongside the state-level OGP commitments.
There is strong federal and state-level government buy-in and ownership of the proposed SFTAS Program. For the federal government, the main benefits of SFTAS are in reducing the fiscal risks posed by the states and in encouraging a common set of fiscal behaviors. The FMoF is now enforcing more strongly compliance with the FSP implementation for disbursements of the BSF since June 2017. The IDA supported Program can strongly further reinforce the linkage between financial assistance and implementation and achievement of results. The FMoF’s decision to ‘on grant’ the PforR financing to states significantly increases the incentives that the Program provides to the states (noting that the financial assistance packages from FGN to date are all loans to the states). States welcome not just the PforR financing but also the capacity building support that was not available when the FSP was launched. The Federal Minister of Finance presented the Program to the National Economic Council (NEC, comprised of the state governors of all 36 states and chaired by the Vice President) on 22 March 2018 and the Program was formally approved by NEC. As of 15 May 2018, 32 states have submitted formal expressions of interest to FMoF to participate in the Program, signed by the state governors and commissioners of finance.
SFTAS PROGRAM DEVELOPMENT OBJECTIVE, RESULTS AREAS AND RESULTS CHAIN
The PDO is to strengthen the fiscal transparency, accountability and sustainability in participating Nigerian states. Strengthening fiscal transparency will help build trust in government, enhance the monitoring of fiscal risks and facilitate accountability in public resource management. Stronger accountability reduces the opportunities for corruption and misuse of public resources, thereby increasing the efficiency of public expenditures. Strengthening fiscal sustainability through increased efficiency in spending, strengthened revenue mobilization and debt sustainability, helps prevent further fiscal crises, and increase the fiscal space for productive spending to support growth and public service delivery.
To achieve the PDO, the Program is expected to significantly improve outcomes in the states participating in the Program under each of the four key result areas (KRAs). The Program supports a series of key interventions (at the input and output levels) which contribute to intermediate outcomes, and which in turn contribute to outcomes. The Program’s DLIs also directly incentivize the achievement of the intermediate outcomes under each of the four KRAs.
- KRA#1: Increase Fiscal Transparency and Accountability. Under this results area, the PforR will support states to: (1) increase the quality (compliance with international standards), timeliness and transparency of the annual budget, budget implementation reports, and audited financial statements; (2) increase citizens’ participation in the budget process; and (3) improve budget credibility by reducing deviation in total state expenditure outturn.
- KRA#2: Strengthen Domestic Revenue Mobilization. Under this results area, the PforR will support states to: (1) increase IGR collection while providing more transparency and certainty to taxpayers; and (2) reduce revenue leakages by implementing the TSA at the state-level.
- KRA#3: Increase Efficiency in Public Expenditure. Under this results area, the PforR will support states to: (1) to reduce payroll fraud through the use of biometric and bank verification number (BVN); and (2) improve the transparency and value for money of public procurement through the implementation of e-procurement systems in MDAs, including those delivering education and health public services, and open contracting standards.
- KRA#4: Strengthen Debt Sustainability. Under this results area, the PforR will support states to: (1) strengthen the legal framework for debt management and fiscal responsibility, improve state debt reporting and debt sustainability analyses; (2) reduce the stock of domestic expenditure arrears; and (3) strengthen debt sustainability ratios.