Nigeria’s recurrent expenditure has increased significantly since the country’s return to civil rule in 1999, as the nation has embarked on a spending spree to finance one of the world’s most expensive democracies.
The Federal Government’s recurrent (R) expenditure - the cost of running the government - has persistently exceeded Capital (C) expenditure since year 2000, according to data in a final report by the Federal Ministry of Finance (FMF) expenditure review committee, seen by BusinessDay.
The recurrent to capital expenditure ratio has fluctuated in the past decade, moving from a low of 47.44 (R): 52.56 (C) in 1999, to a peak of 80.29 (R): 19.71 (C) in 2003, after which it began a slow decline to 61.63 (R): 38.37 (C) by 2009.
The recurrent to capital expenditure ratio stood at an average of 65.2 (R): 35.8 (C) between 1999 and 2009.
The gradual reversal of the upwards trajectory of recurrent expenditure which began in 2003 coincided with the first tenure of Ngozi Okonjo-Iweala as Finance Minister.
“The government expects to reduce recurrent spending in 2013 to 68.8 percent from 77 percent in 2010,” Okonjo – Iweala, said at the NESG summit in Abuja this month.
The Federal Government plans to spend N4.92 trillion ($31.3 billion) next year, with the targeted recurrent spending for 2013 still higher than the average for the past decade.
The FMF report compared Nigeria’s political and Governmental structure with other nations with similar presidential system of government, such as Brazil and the United States.
The comparison shows that although Nigeria has the lowest population and economic size, it had the largest size of government and legislative structure.
For example, while the USA has a total of 100 Senators for a population of 313 million people and 20 Senate Committees, Nigeria has 109 Senators and 56 Senate Committees for a population of 155 million.
The overhead of the National Assembly as a percentage of the Federal Government budget has been rising steadily in the past four years.
In 2008 it was 14.19 percent and 19.87 percent for 2009.
The Central Bank governor Sanusi Lamido Sanusi in 2010 said that 25 percent of the overhead of the Federal Government went to the National Assembly.
According to Samir Gadio, an emerging markets strategist at Standard Bank, London, “the National Assembly typically tends to push higher the oil price benchmark and the aggregate amount of spending proposed by the government each fiscal year.”
The FMF report also highlighted the burden of the current fiscal stance on the nation’s revenue profile.
The findings showed that the ratio of FGN’s recurrent expenditure as a percentage of non-oil revenue was exceedingly high throughout the review period, from the lowest of 110.6 percent in 2001 to the highest of 200 percent in 1999.
“This implies that FGN is chronically obsessed with the culture of high recurrent expenditure and is fiscally insolvent in the absence of sustained boom in oil revenue earnings,” said the report.
Oil currently accounts for 70 percent of government revenue, and up to 90 percent of foreign exchange earnings for Nigeria.
The report recommended ways to move to a more balanced recurrent to capital expenditure mix, to include: pegging recurrent expenditure to gross domestic product (GDP) and non-oil revenue, adhering to the provision of maximum fiscal deficit of 3 percent of GDP in the Fiscal
Responsibility Act, providing incentives for growing non-oil revenue, and ensuring the effective take-off of the Sovereign Wealth Fund (SWF).