Concerns over uncontrolled spending by the Federal Government, especially on areas like recurrent expenditure which add nothing to the growth and development of the economy, rose yesterday, after it emerged that so far this year, the government has taken out two hundred and fifty billion naira (N250 billion) from the Excess Crude Account.
The growing cases of misdirected spending by the Federal Government is magnified by disclosures that whereas the government has recorded a staggering 99 per cent in the disbursement of the recurrent vote for this year, performance in the area of capital expenditure is at a miserly 34 per cent by the end of the first half of 2011.
This unbridled appetite for huge spending, analysts said, has heated up the economy, forcing the Central Bank of Nigeria (CBN) to raise the monetary policy rate on four consecutive occasions this year, to rein in inflation and maintain exchange rate stability.
The CBN in achieving this recently raised the MPR to 8.75 percent, a decision which also raised the cost of borrowing money by banks from the apex bank and consequently, the cost of borrowing by the private sector.
One analyst spoken to by BusinessDay says “it seems the profligacy of the Federal Government knows no bounds and sets a bad example for the states, posing serious and fundamental threat to macroeconomic stability.”
The analyst said spending was bound to rise further, especially given that the Federal Government would now have to fund the new minimum wage which becomes effective at the end of this month. The Federal Government alone may be spending additional N11 billion on the new wage.
John Chukwu, managing director, Cowry Asset Management, underscoring the rising concern on the recurrent reckless expenditure, said that the impact of government profligacy on the economy is the persistent inflationary pressure. He reckoned that this has lead to the increase of benchmark interest rate from a low of 6.25% at the beginning of the year to the current level of 8.75%. This has in turn, made it costly for private sector operators to borrow money from banks and engage in productive activities.
“The lack of private sector driven productive activities is the main reason for the high rate of unemployment and high rate of crime in the society. In effect, government’s reckless spending is a major contributory factor to the nation’s economic woes. The persistent pressure of the Naira exchange rate is also direct fallout of government’s profligate spending,” Chukwu told BusinessDay.
“It should be stated that if the government expenditures were channelled towards the production of capital goods, that is infrastructure, their impact would have been a boost in economic activities, higher level of employment and growth in the nation’s economy.”
Leading economist and chief executive officer, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, told BusinessDay that the concern really is on what the monies are spent on.
“What should bother us is the quality of expenditure and not the quantity”, he said. “They are spending, but not on critical areas like health and education”, Rewane added.
Cliff Osuji, insurance consultant, stated that the spending extravaganza would continue, as long as corruption remains unabated.
“The present government has not shown much seriousness in the fight against corruption, so spending spree would continue”, he stated.
Wale Abe, chief executive officer of Financial Market Dealers Association of Nigeria (FMDA), said the spending is much, but it is driven by the budget.
“You will recall that the budget is mostly recurrent and so you do not expect any real development from that kind of spending. Because the spending is mostly on consumption, what you will get is increase in inflation and higher interest rate”.
According to him, because of this development, credit has gone out of the reach of the private sector and individual.
Abiola Rasaq, an analyst with Vetiva Capital said: “While this is not a standard public policy concept, it is often used to refer to government spending on less priority areas and high recurrent expenditure.
“For instance, the cost of celebrating Nigeria ’s golden jubilee may be seen to be wasteful if the cost outweighs the benefits. So, it is a cost-benefit analysis opinion and the priority of the nation,” he added.
Wale Abe further said “the spending is much, but it is driven by the budget. You will recall that the budget is mostly recurrent and so you do not expect any real development from that kind of spending”, adding “because the spending is mostly on consumption, what you will get is increase in inflation and higher interest rate”.
According to him, because of this development credit has gone out of the reach of the private sector and individual.