With recurrent expenditures gulping the larger shares of yearly budgetary allocations, many fear that capital projects execution may for a long while continue to suffer; BENJAMIN UMUTEME takes a look at the development.
For several decades, Nigeria has continued to suffer from dearth of infrastructure occasioned partly by falling revenue and majorly from a lack of maintenance culture. And with governments preferring to spend more on recurrent expenditure than in fixing the country’s dilapidated infrastructure, the authorities are forced to go into borrowing from external sources to fund projects.
A report published by Moody Investors Services indicated that Nigeria would need to spend $3 trillion annually for the next 30 years to bridge her infrastructure gap.
However, as Nigerians grapple with the challenge of basic infrastructure, there are concerns over the disparity in proposed allocations for capital and recurrent expenditures in the country’s yearly budget.
Recurrent expenditures are those expenditures on goods and services which do not lead to creation or acquisition of fixed assets. Rather, it is mainly expenditures made for the day-to-day running of a firm or government establishments that cover ministries, departments and agencies (MDAs) as they are called in Nigeria. To this extent, recurrent expenditures include expenditures made for payment of overheads, salaries, interest payments, subsidies, transfers, pensions and gratuities among others.
From an estimated N2.13 trillion in 2009, the government recurrent expenditure in Nigeria rose to a staggering N3.33 trillion in 2012.
A look at budget estimates and allocations showed that recurrent funds have always had the better of capital projects. Between 2016 and 2021, figures gathered by Blueprint Weekend showed that in 2016, in a budget of N8.06 trillion, N2.65 trillion went to recurrent while capital got N1.59 trillion. Also, in 2017, the trend did not change as out of a total sum of N7.28 trillion, recurrent got N2.9 trillion and N2.24 trillion went to capital.
Between 2018 and 2021 where total expenditures were N9.1 trillion, N8.92 trillion, N10.59 trillion and N13.08 trillion respectively, recurrent expenditure was N2.99 trillion, N3.5 trillion, N4.49 trillion, and N4.88 trillion. Juxtapose this with capital allocation of N2.36 trillion, N2.8 trillion, N2.47 trillion, and N3.08 trillion, in the period under review and one would not fail to see why Nigeria’s infrastructure is the way they are.
Analysts have continued to question the imbalance in allocations between capital and recurrent expenditures. The imbalance was even worse under the immediate past administration of President Goodluck Jonathan.
They further noted that after the said amounts are allocated, actual releases become a challenge. This has been further exacerbated by falling revenue occasioned by OPEC+ production cuts, crude oil theft and Covid-19.
Further details gathered by this reporter showed that N3.1 trillion was spent on non-debt recurrent expenditure. A closer look would further reveal that of that amount personnel cost gulped N2.09 trillion.
Further analysis showed that the sum of N197.77 billion was spent on pension and gratuities between January and December 2018. Similarly, the sum of N218.8 billion was spent on overheads between January and December 2018, out of the budgeted amount of N246.49 billion, while service wide votes had a total spending of N237.6 billion allocated for that expenditure sub-head in 2018.
For the presidential amnesty programme, the federal government released N59.64 billion out of the budgeted sum of N65 billion while a special intervention programme and power sector reform programme had N271.79 billion and N27.62 billion out of the budgeted amount of N350 billion and N193.34 billion, respectively.
Question marks, experts’ views
The nation’s ever-increasing government recurrent expenditures have attracted lots of complaints and criticisms from the populace who argued that the government was wasteful and that the much they spent on servicing recurrent components of the government should have been channelled to capital projects.
Expressing concerns over increasing recurrent expenditure, the director-general, Budge Office of the Federation, Ben Akabuaze, admitted that the cost of governance was becoming unsustainable.
“The cost of governance has generally been on the rise; actual MDA recurrent spending rose sharply from N3.61 trillion in 2015 to N5.26 trillion in 2018 and N7.91 trillion in 2020.
“This excludes the costs of government-owned enterprises and transfers to the National Assembly, National Assembly and the National Judicial Council. Recurrent spending accounted for more than 75 per cent of actual MDA expenditures between 2011 and 2020,” he said.
Interestingly, experts have not ceased to point to high recurrent expenditure as being responsible for the country’s current debt.
In a chat with this reporter, a political economist and development researcher Adefolarin Olamilekan, said the failures in making greater provision for capital expenditure by fiscal authorities caused the current excess loans and borrowing spree by the administration of President Muhammadu Buhari.
He said,“Interestingly, the government recurrent expenditure in Nigeria is seen to a greater obstacle to capital projects realisations. The reason is that there is no correspondent between what is on ground at the moment and what is budgeted. Again, recurrent expenditure had not impacted positively on economic growth in Nigeria as expected. Meanwhile, the efficiency of the public sector, particularly compared to the private sector cannot be over-emphasised. In Nigeria public institution in Nigeria provides superfluous services, wasting personnel and capital, which could be directed to production that provides well-being and benefit to individuals in the economy.
“Fundamentally, capital expenditure on infrastructures and productive activities is expected to contribute positively to economic growth, while recurrent expenditure in our climes remains government consumption spending that retard growth in infrastructural investment. Expectedly, government in Nigeria supposed to controls the economy through the use of capital public expenditure. This instrument of government control promotes economic growth in the sense that attracts public investment in contributing to economic growth and business expansion that generate employment, wealth and better opportunity and revenue for the government.”
For economist Pat Utomi, the role of inflation and Naira devaluation in the rise in the recurrent expenditures should not be underestimated.
“I think it is important to bear in mind that the real value of our currency has been ebbing away and inflation has been significant for the last couple of seasons.
“So, in reality, if you look at that amount of money today compared to the real value of the naira in 2016, it is not the same amount. Basically, more naira is needed to get the same thing done today than in 2016,” he said.
Also, a senior lecturer in the Department of Economics, School of Management and Social Sciences, Pan-Atlantic University, Dr. Olalekan Aworinde, linked the development to rising salaries and possibly the upcoming elections to the huge recurrent expenditure.
He said, “The increase may suggest that the government wants to employ more people and need to pay these people with those huge funds allocated for payments of salary.
Breaking the circle
Olamilekan believes the way forward is for the government to revisit the recommendations of the Oronsaye report on civil service reform as a way of breaking the vicious circle.
He told this reporter that for the government to get productivity matrix right it has to look at way of “allocating more funds for capital projects at this point of our national life.”
“As a means that opens the gate for increased infrastructure development that will fundamentally transform the well-being of Nigeria. For me, the failure of in making greater provision for our capital expenditure is the bane of the current excess loans and borrowing spree of the APC Buhari administration today.”
He suggested that to achieve a balance, the government must “first, focus on eliminating redundant and duplicated agencies’ functions through merger.”
“Secondly, we must consider greatly role of the civil and public servants in national development, and especially to justify its structure, function, overhead cost and payroll and service delivery.
“Thirdly, we have to define the role of the state government and local governments in managing the national development process in regards to capital project.
“Lastly, it is imperative that Buhari administration and future governments should acknowledge the urgency of cleansing the Aegean stable of the rots in our public service as a model to achieve of an inefficient government business mechanism.”