Budget padding in Nigeria and how to tackle it

Budget padding is a common practice, especially in business and politics. There are times when it is necessary and other times when it is just plain corrupt and wicked. Often, corruption outweighs necessity, which is why budget padding is generally frowned upon anywhere in the world.

In Nigeria, budget padding is considered “normal” among Nigerian politicians in various political positions. Budget padding is considered normal levels among wives or other primary financial accountants in households.

However, what is budget padding? What are the effects, and when is it considered necessary? All these will be answered in this article.

Table of Content hide 1What is budget padding? 2Effects of budget padding 2.1Breeds corruption 2.2Increases inflation rates 2.3Takes a toll on the nation’s economy 2.4Waste of resources 3Budget padding vs budgetary slack 4When is it ok to pad your budget? 5How to tackle budget padding in Nigeria

What is budget padding?

Bizfluent defines budget padding as artificially inflating a proposed budget to give the project room to expand or cover unexpected costs. It is a strategy to make the budget proposal higher than the actual expenses. Budget padding is generally considered to be unethical. However, many practitioners defend it as a necessity in terms of inflation rates.

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Effects of budget padding

Breeds corruption

It doesn’t take rocket science to know that budget padding breeds corruption. Practitioners often use budget padding as an excuse to enrich their pockets. Projects with extra funds in the budget often mean that those funds can go unaccounted for. For instance, the Nigerian National Assembly is known for padding the federal budget. The 2016 Appropriation Bill remains controversial following the controversial padding of the bill. The scandal culminated in the public declaration by the then Speaker of the House of Representatives, Hon. Yakubu Dogara that budget padding is not a crime known to law.

Politicians may defend padding their budgets in the name of their constituencies and wards. Yet, Nigerian infrastructures remain largely underdeveloped. So where did all those funds go? Corruption.

Increases inflation rates

Inflation is the general increase in prices and a fall in money’s purchasing value. Inflation typically results from an increase in production costs or demand for products and services. When budgets are continuously padded, it leads to increased prices of goods and services. Since there is so much money circulating due to the padding, practitioners don’t mind spending more than necessary to get what they want. The more they spend, the more it trickles down to an ordinary citizen. Thus, increase in the inflation rate in the country.

Takes a toll on the nation’s economy

Speaking of inflation, it harms a country’s economy. An increase in production costs of goods and services usually means that there are fewer products to be sold in the market. As a result, the demand for these products and services will be high. Producers and service providers often can’t keep up with the demand, and that will negatively affect a country’s economy. Part of Nigeria’s present economic woes is a result of inflation caused by corruption which can also be traced to budget padding by political officials.

Waste of resources

When you have more money than what you can do with it, then it means that resources can be wasted. Often times, projects that have extra money tend to use it even when it’s not necessary. If there was no padding, the money that would have been wasted on these projects would have been used for other beneficial projects. Go around Nigeria, and you’ll see some purchased resources for certain projects abandoned and wasted away because they’re not actually needed.

Budget padding vs budgetary slack

As previously stated, budget padding has to do with deliberately making the budget proposal larger than the actual estimates for the project. It means intentionally underestimating revenues or overestimating costs. 

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On the other hand, budget slack is intentionally overestimating revenues and underestimating costs. It can either take two forms – underestimating the amount of revenue or income to be generated or overestimating the number of expenses to be incurred.

The essence of budgetary slack is to force workers to outperform the budget. As in, managers prefer to take up projects with limited resources and expect to meet their targets with those limited resources. While budget padding usually means more money than needed for a project, budgetary slack means fewer resources to cater for a project.

Like budget padding, budgetary slack is generally considered unethical. Most of the reason is that managers care more about making their numbers to keep their positions than helping to drive their organisations to the fullest potential. They don’t care about thinking outside the box since there is little or no resources to take care of them. They’re fine if they meet their target, no matter how average. According to Investopedia, underestimating revenues could also reduce expenses, such as employee payroll or advertising expenses, which might actually be needed to grow the company.

When is it ok to pad your budget?

• Padding your budget allows you to prepare for unexpected events. With few extra resources at your disposal, you’ll be able to get through tough moments.
• Budgeting padding will help you cope well when you underestimate expenses because you have refused to face reality. For instance, if you have been buying 6kg gas for N3000 before, padding your budget by adding an extra N2000 will help you cope with the rising cost of gas.
• Padding your budget enables you to make your bills and have some fun even if your income unexpectedly shrinks.

How to tackle budget padding in Nigeria

Nigeria’s Executive and Legislative arms have always been at loggerheads regarding budgeting for the next fiscal year. President Muhammadu Buhari has complained several times about how the federal budget approved by the legislative is always different from the budget he submitted.

To prove the President’s complaints, the Independent Corrupt Practices and Other Related Offences Commission (ICPC) revealed that a total of N400 billion was inserted into the federal government’s budgets for the 2021 and 2022 fiscal years. According to ICPC, civil servants in the various MDAs padded the 2021 budget, totalling N13.59 trillion, with duplicated projects worth N300 billion. About N100 billion was also smuggled into the N17.12 trillion 2022 budget by some MDAs.

From the revelation above, budget padding is a huge problem that affects Nigeria’s development. To tackle this prevalent issue, here are some suggestions:

• Relevant agencies like the ICPC and EFCC should step up efforts to track budget padding by MDAs and legislature members.
• Names of the MDAs involved in project duplications running into intercepted billions of naira and fictitious payrolls should be exposed. Those who have been implicated in budget padding should not be spared.
• There should be a constitutional review of the confers of the powers of appropriation on the NASS and the executive. NASS has no absolute powers of appropriation, and so has no right to introduce new projects into budget proposals, especially projects that have not undergone environmental impact assessment.
• Finally, the Supreme Court should be consulted to interpret the constitution on budgeting.

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