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Nigeria’s Escalating Cost of Governance: How states squander billions on overhead costs

As the controversy over the cost of governance in Nigeria rages, findings of a study show how states squander funds on overhead costs to the detriment of capital projects.

 

Case study is the 2019 fiscal year and study carried out by BudgIT. A statement on BudgIT website describes it as a civic organisation driven to make the Nigerian budget and public data more understandable and accessible across every literacy span. The statement adds: “BudgIT’s innovation within the public circle comes with a creative use of government data by either presenting these in simple tweets, interactive formats or infographic displays. Our primary goal is to use creative technology to intersect civic engagement and institutional reform”.

 

Findings of Study:

 

Executive Summary

 

The cumulative actual expenditure for all 36 states grew by 2.73% from N5.12 trillion to N5.26 trillion between 2018 and 2019 fiscal years.

 

Actual recurrent expenditure and loan repayments grew by 4.75% from N3.17 trillion to N3.33 trillion within the period.

 

The rising nature of Nigeria’s sub-national government expenditure is expected to yield economic growth, but over the years, analysis of states’ fiscal data has shown that growth in public spending has not translated meaningfully into economic performance as there’s still a high rate of unemployment, decaying infrastructure, and worsening poverty rate.

 

State governments’ recurrent costs have increased significantly over the years with only a small portion of collected revenue and loans dedicated to meet capital expenditure; 36.73% or N1.93trillion of the N5.26trillion total expenditure in 2019 was dedicated to capital expenditure while 63.27% or N3.33trillion went to recurrent expenditure and loan repayments.

 

Year on year, between 2018 and 2019, actual expenditure on capital projects for all 36 states reduced by – 0.57%, from N1.94 trillion to N1.93 trillion.

 

This is a worrying sign as Moody’s Investors Service estimates that Nigeria’s infrastructure, which is significantly behind those of emerging market peers, needs an estimated $3trillion over the next 30 years to close the gap; this is the equivalent of spending N38 trillion per year for the next 30 years at today’s Naira-Dollar exchange rate.

 

Of course, not all the funding to close Nigeria’s infrastructure gap will come from the state government; the Federal Government and even the private sector have roles to play, but clearly, state governments need to do better.

 

They need to restructure their spending, increase spending on capital projects, comparatively reduce recurrent expenditure to a sustainable level, and ensure the effectiveness of all expenditures.

 

It is not to say that spending on recurrent expenditure is unimportant because workers’ salaries and retirees’ pensions need to be paid but over time bloated overhead components of many states’ recurrent expenditure crowd out much-needed spending on infrastructure.

 

In 2019, 11 states spent more on overhead costs than on capital expenditure, worsening the infrastructure deficit in those states.

 

Nigeria’s desired economic growth can be achieved if the recurrent expenditure component is optimised while the spending component going to capital infrastructure especially in the economic and social sectors is prioritised.

 

According to 2019 state fiscal data, only 11 states actually spent over 50% of their budgeted capital expenditure in the fiscal year. Further analysis also shows that 8 states could not meet their recurrent expenditure with their available revenues which include IGR and Gross FAAC, thereby building up their public debt.

 

Furthermore, 31 states gave more attention to their recurrent expenditure than capital expenditure. This spending pattern is not sustainable as this has opened gaps in providing quality healthcare services and educational systems, thus slowing down social development as well as growth in other key areas of the economy.

 

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