Full Project - EFFECT OF BUDGET IMPLEMENTATION ON THE ECONOMIC GROWTH OF NIGERIA

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Full Project – EFFECT OF BUDGET IMPLEMENTATION ON THE ECONOMIC GROWTH OF NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

A budget is a framework for revenue and expenditure outlays over a specified period usually one year (Olurankise 2012). The role of budget in an economy cannot be overemphasized Olomola (2009). It is an essential factor for economy in facilitating and realizing the vision of government in a given fiscal year. Olomola (2009) opined that the budget process has always been coming with unending faults. The most visible bottlenecks are associated with budget implementation. Frequently the compliant is about non-release, partial release and delay in releasing approved funds for budgeted expenditure. It has been well observed that a quarter to which funds are related may end before the related funds are made available. Clearly, this has negative implications for institutional planning and management as well as the overall impact of the budget on development and welfare of the people.

It is about five decades since Nigeria has been involved in annual budgeting as an independent state. A look at the performance of Nigeria’s previous and current budgetary estimates shows that they have not helped the state achieve or maintain a better economic climate. The country’s successive budgets have been in most cases recording deficits. Even when they were expected to be balanced or surplus budget, they end up disappointing their operators and economic observers by recording deficits. This contributes immensely in worsening the socio-economic problems in Nigeria. Such problems include high inflation, poverty, unemployment, income inequality, adverse balance of payments, low standard of living etc. Although, it should be noted that at times deficit financing is deliberately undertaken by any government, so as to stimulate economic activities in the country which it controls, establish more industries to absorb those who are unemployed, provide more social amenities to the people and in fact, improve the general well being of the populace. But in Nigeria, instead of the afore-stated being the case, the reverse occurs. As a matter of fact, it causes more harm than good to Nigerians.

Budgeting and its process in Nigeria remain problematic both in the areas of preparation and implementation, hence, the need for adequate control aimed at improving effective resources utilization at the budget implementation stage. Fiscal policy is a fundamental instrument that can be used to lessen short-run fluctuations in output and employment. Meanwhile, in macroeconomic issues such as high unemployment, inadequate national savings, excessive budget deficits, and large public debt burdens, fiscal policy has been acknowledged to hold centre stage in policy debate in both developed and developing economies. During the global economic recession of the 1930s, the government sectors of both developed and developing economies played a vital role in stimulating economic growth and development. In situations like that, every economy attempts to promote its economic growth through increasing government expenditures and reducing taxes. Public expenditure is a fundamental instrument that influences the sustainability of public finances via effects on fiscal balances and government debt. Budget is traditionally generally seen from the phenomenon of shrink the target income, in contrast to the tendency to raise the expenditure budget target. This phenomenon helps to explain that the target revenue would be diminished if the area shows achievement in its realization.

In Nigeria, before ministries and spending agencies of the government can incur an obligation to make expenditures, they must secure spending authorization from the Ministry of Finance through the use of warrants. This warrant will authorize officers controlling votes to incur expenditure in accordance with the approved estimates subject to any reserved items. If the Appropriation Act has not come into operation at the beginning of the year, a provisional General Warrant may be issued to ensure continuity of the services of government at a level not exceeding those of the previous year. During the phase of budget implementation, there are many possibilities for interventions and manipulations in view of the fact that officials have a great amount of discretionary power to decide which spending ministry or agency will be granted spending authorization. In spite of the specific nature of appropriation laws, the commitment phase of the expenditure process is a fertile ground for corrupt activities. This study will however examine the effect of budget implementation on the economic growth of Nigeria.

1.2 Statement of the Problem

Government efforts toward the economic development and growth have gained much attention particularly in area of expenditure and its impact on economic growth. Al- shatti (2014) revealed that Nigeria’s recurrent expenditure exceeded capital expenditure hence, capital expenditure increases growth rate. This simply means that, the challenge of economic growth and development in Nigeria is linked to expenditure process as a result of excessive spending by the government on a yearly basis and the performance of the economy remain below target (Tukur and Sabi’u cited Soludo, 2007). That is to say Nigeria expenditure management has been uninspiring (Akpan, 2006). The 2016 budget showed that more of the allocation are on recurrent expenditure than capital expenditure with only the infrastructure sector having more allocation for capital expenditure of 87% and recurrent expenditure 12.2%, other sectors are; Social sector capital expenditure 11.4% and recurrent expenditure 88.6%, economic sector capital expenditure 40.1% and recurrent expenditure 59.9%, Security sector capital expenditure 23.3% and recurrent expenditure 76.7%, administration sector capital expenditure 26.1% and recurrent expenditure 73.9% respectively (budget, 2016).

This could be the reason why Nigeria is generally considered to be rich and on the other hand, her citizens are extremely poor in terms of per capita income. This shows that something is wrong somewhere, for a country rich and endowed with both human and natural resources yet many of her citizens are living in abject poverty. Otherwise, the increase in budget every year and the growth in government expenditure experienced in the times past should have positive significance effect on the level of poverty, economic growth and development of the country. This however resulted to disaggregation of government expenditure in which the economic growth of the country are disaggregated giving way to interference of economic performance in relation to widespread corruption; therefore the root of the problem will be traced to empirical research and not by mere discussion alone in order to find out the effect of budget implementation on the economic growth of Nigeria.

1.3 Research Objectives

The general objective or main objective of this study is to investigate the effect of budget implementation on the economic growth of Nigeria. The specific objectives are:

i) To determine the relationship between government expenditure and economic growth

ii) To identify the impact of recurrent expenditure on economic growth in Nigeria

iii) To study the effect of capital expenditure on economic growth in Nigeria

1.4 Research Questions

The following are some of the questions which this study intends to answer:

i) What is the relationship between government expenditure and economic growth?

ii) What are the impacts of recurrent expenditure on economic growth in Nigeria?

iii) What are the effects of capital expenditure on economic growth in Nigeria?

1.5 Research Hypotheses

The following hypotheses were postulated to guide the conduct of this study;

i) There is a significant relationship between Government recurrent expenditure and economic growth in Nigeria

ii) There is no significant correlation between Government capital expenditure and economic growth in Nigeria

iii) There is no significant relationship between government expenditure and economic growth

1.6 Significance o the Study

This research work tries to identify those factors that causes budget negligence and tries to proffer administrative solutions. This will greatly help government to rectify its short comings, reach its desired goals and maximize its productivity and proficiency. Again, it tries to extemporise the invaluable nature of budgeting and its impact both on meritious and consequential courses when judiciously or ill implemented respectively.

1.7 Scope of the Study

By scope we mean an area of coverage and this research work covers the ministry of works and housing in Nigeria, members of all staff of all cadres. In the same way, all units or sections of the ministry participated in the study. Descriptive analysis was in the study.

1.8 Definition of Terms

The following terms were used in the course of this study:

Budget: a financial plan for a defined period of time, usually a year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows.

Capital receipt: are a non-recurring incoming cash flow into your business, which leads to the creation of a liability (a debt to be paid in the future) and a decrease in company assets (resources that lead to capital gain).

Public expenditure: It is the action on the practice of laying out public money presumably in pursuit of public goals.

Recurrent expenditure: on goods and services is expenditure, which does not result in the creation or acquisition of fixed assets (new or second-hand). It consists mainly of expenditure on wages, salaries and supplements, purchases of goods and services and consumption of fixed capital (depreciation).

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Full Project – EFFECT OF BUDGET IMPLEMENTATION ON THE ECONOMIC GROWTH OF NIGERIA

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