Public Finance Management Reforms

• Public funds are managed by the government in trust for the people's benefit.
• Public finance management impacts a country's economic stability, growth, and exchange rate.
• Sound Federal Government Financial (FGF) reforms are critical for a thriving economy, especially in developing countries where the government drives the economy.
• The International Federation of Accountants (IFAC) stated governments should prioritize establishing greater trust with their constituents.
• FGF reforms encompass revenue mobilization, fund allocation, expenditure, and accounting.

What is a Reform?

• Reform involves readjusting or repositioning an organization to meet the dynamics and challenges of its operations effectively.
• Reform requires moving from an unfavorable state through strategic and institutional changes toward improvements in performance.
• Reform involves major changes in policy, systems, or practices, impacting people, processes, and policy.

FGF Reforms

• In 1999, Nigeria faced challenges like external debt, poor infrastructure, corruption, and low accountability.
• The economy was volatile with loose fiscal policy and poor resource management.
• In December 2004, the Federal Government of Nigeria signed a reform program with the World Bank called Economic Reforms and Governance Project (ERGP).
• The objectives of ERGP were to strengthen governance and accountability, reduce corruption, and deliver services more effectively.
• Specific issues addressed included deficiencies in planning and budgeting, wage bill issues, low capital spending, transparency, revenue tracking, internal controls, accounting deficiencies, ICT infrastructure, high governance costs, and poor cash management.

Federal Government Financial Reforms

• These are some of the FGF reforms:
  • Integrated Personnel and Payroll Information System (IPPIS)
  • Treasury Single Account (TSA)
  • Government Integrated Financial and Management Information System (GIFMIS)
  • Electronic Payment
  • Cashless Policy

Integrated Personnel and Payroll Information System (IPPIS)

• Approved by the Federal Executive Council in 2006 to address personnel administration, wage bills, and ghost workers.
• The pilot phase was financed by the World Bank and went live in April 2007 with seven MDAs.
• Objectives included centralizing payment, facilitating staff remuneration, storing personnel records, aiding manpower planning, ascertaining employee emolument, facilitating planning, and ensuring database integrity.

Treasury Single Account (TSA)

• A banking arrangement for consolidating government financial resources, TSA became operational in April 2012.
• In 2012, 93 pilot MDAs accessed allocations directly from the Consolidated Revenue Fund Account.
• Following a 2015 presidential directive, the TSA was extended to all MDAs and autonomous agencies.

Government Integrated Financial and Management Information System (GIFMIS)

• GIFMIS is an ICT tool for Public Financial Management, covering core functions like forecasting, budgeting, payments, receipts, procurement, accounting, and reporting.
• Objectives included enabling central expenditure control, facilitating access to financial information, strengthening internal controls, facilitating timely reporting, enhancing efficiency, supporting medium-term planning, analyzing activity costs, and demonstrating accountability.

Electronic Payment

• Electronic Payment involves using electronic platforms for financial transactions.
• E-payment was introduced in October 2008 and implemented on January 1, 2009.
• The reform involved using electronic payment systems for government payments to enhance efficiency and minimize corruption.
• The reform led to the abolition of checks by MDAs.

Cashless Policy

• The Central Bank of Nigeria (CBN)'s Cashless Policy (CP) was introduced primarily to improve monetary policy effectiveness.
• The CP also was meant to modernize Nigeria's payment system, reduce banking costs, and drive financial inclusion.
• The policy was first applied in Lagos State in January 2012.
• The CP was implemented nationwide by January 31, 2023, and within three weeks, old Naira notes became scarce.
• Withdrawals were fixed at set amounts for individuals and corporate bodies, with charges for exceeding limits.
• Ministries, Departments, and Agencies (MDAs) were granted exemptions for revenue collections.
• A Supreme Court judgment in March 2023 set aside the cashless policy and permitted the use of both old and new Naira notes.

Benefits of FGF Reforms

• Enables access to information on government cash resources and financing gaps.
• MDAs’ accounts unknown to the Treasury have been brought into TSA net.
• Cash planning is now the basis for issuing Warrants and Authority to Incur Expenditure (AIE).
• Instills fiscal discipline.
• Eliminates cash backing for MDAs and accounts with commercial banks.
• Provides immediate access to funds for MDAs via the GIFMIS platform.
• Creates economies of scale through the use of one platform (GIFMIS).
• Reduces CBN's average monthly ways and means advances.
• Provides timely reconciliation of accounts on the GIFMIS platform.
• Eliminates commercial banks' ability to use public funds for treasury bills and bonds.
• Eliminates corruption associated with MDAs' banking relationships.
• Reduces the number of government bank accounts outside the CBN.
• Fast tracks MDAs' compliance with e-payment and cashless policy.
• Improves CBN’s monetary policy management.

Challenges of FGF Reforms

• Inadequate political support
• Capacity constraints
• Resistance to change
• Funding
• Inadequate ICT infrastructure
• Fiscal constraints
• Inadequate sanctions