2.1 Government Expenditure in Nigeria - Concept
Spending by the government is a crucial tool for regulating the economy. No matter how established or underdeveloped an economy is, it is crucial to its operation. Public spending originated from revenue allocation, which is the redistribution of financial resources among the several governmental tiers or the division of duties among them. Recurrent and capital expenses were typically the two primary categories used to describe government spending. The term "capital expenditure" refers to investment opportunities that boost the state's assets, whereas the term "recurrent expenditure" refers to financial outlays required for the ongoing operation of government operations (Ezeabasili and Egbunike, 2014).
But these classifications weren't exclusive of one another; they were connected. In most cases, capital expenditure led to recurrent expenditure through the operational and maintenance costs of finished capital projects, although the amount available for investment depended on both the quantity of revenue and the amount invested each year in maintaining the government (Ezeabasili and Egbunike, 2014).
Recurrent and capital expenses can be broadly categorized as public expenditures. Recurrent expenditures are those made by the government on a regular basis throughout the year. If the government's functions are to be maintained, they must be made frequently. They include the regular pay of all personnel, funds used to maintain infrastructure or conduct important services, as well as funds used for administration. On the other hand, capital expenditures are the sums that the government pays for the purchase of long-lasting items. They include all capital project expenses, including those for constructing buildings, roads, bridges, and other long-term assets and infrastructure. These frequently entail enormous sums of money and serve as the cornerstone of a nation's physical growth (Paiko, 2012).
Different political regimes in Nigeria have contributed significantly to the supply of public (utilities) goods like roads, communication, power, education, and health, as well as to the improvement of the overall economic development of the nation. Spending on products and services that is ongoing but does not result in the production or acquisition of fixed assets is referred to as recurrent spending (new or second-hand). It primarily comprises of spending on wages, salaries, and supplemental compensation, procurement of products and services, and depreciation on fixed assets (Adedeji and Adegboye, 2013).
2.2 Trends of Government Expenditure in Nigeria
In addition, government spending increased by 87.3% between 1981 and 1985, averaged at 11,188.42 billion (CBN, 2017). Furthermore, despite numerous attempts by the government to cut spending, particularly through the 1986 structural adjustment program (SAP), which was centered on short- and medium-term policy measures to structurally adjust the economy, public expenditures continued to rise. From 1986 to 1991, public spending remained on an upward and stable trend. In 1986, total government spending was $11.413 billion; by 1990, it had climbed slightly to $66.584 billion, or 10%. (CBN, 2017). This development may be ascribed to the unstable government revenue base and significant budgetary deficits, which led to a reduction in government spending. According to Aregbeyen and Akpan (2013), rigorous regulations were put in place to reduce government spending following the implementation of SAP, which established the post-liberalization era in 1986. This includes lowering worker costs, cutting back on government subsidies, restricting or postponing investment initiatives, and privatizing/commercializing. The expenditure pattern has in fact reflected this, with the growth rate of government spending averaged 31.1% between 1986 and 1991 compared to a growth rate of 87% between 1981 and 1985.
However, between 1991 and 1995, the government tried to lower inflation by avoiding significant budget deficits, which made spending more economically sensible and in line with available resources. In actuality, government spending decreased from $191,228.90 billion in 1993 to $160,893.20 billion in 1994, reflecting a 15.9% growth rate (CBN, 2017).
And last, from 2000 to 2017, government spending has been steadily rising. The amount spent by the government remained on the rise over the course of the time. Between 2000 and 2016, public spending totaled 701,059.40 billion and then skyrocketed to 4,813,380.00 billion. Between 2001 and 2010, the average growth rate of governmental spending was 19.2%. (CBN, 2017). Due to the increased demand for socioeconomic services brought on by population growth, the increased flow of revenue from the production and sale of crude oil as a result of its high price on the international market, expenditures for elections, and the desire of policymakers and political leaders to fulfill election promises, public spending has been steadily rising in this time.
Table 1
Trends of Total Government Expenditure in Nigeria from 1981–2018
Year
|
TGE (₦ Billion)
|
1981–1985
|
11.19
|
1986–1990
|
33.46
|
1991–1995
|
152.05
|
1996–2000
|
580.26
|
2001–2005
|
1,302.09
|
2006–2010
|
3,055.46
|
2011–2015
|
4,815.80
|
2016–2018
|
6,709.67
|
Source: Author’s Computation from CBN statistical bulletin (CBN, 2018) |
2.3 Trends of Government Expenditure on Education in Nigeria
Table 2and Fig. 2 below shows the trends of government expenditure on education in Nigeria. Between the period of 1981 and 1985, government expenditure on educational sector was ₦0.20 billion. The figure rose heavily to ₦1.47 billion between the period of 1986 and 1990. There was a high increase in growth again between the year 1991 and 1995 as the value increased to ₦5.51 billion. Between 1996 and 2000, government expenditure on education increased to ₦28.30 billion and ₦68.90 billion between 2001 and 2005. Government expenditure to education sector reduced between year 2006–2010 and rose 2011–2015 as the value was to ₦14.83 billion and ₦34.87 billion respectively. Between 2016 and 2018, the growth rose to ₦40.29 billion.
Table 2
Trends of Government Expenditure on Education in Nigeria from 1981–2018
Year
|
GeE (₦ Billion)
|
1981–1985
|
0.20
|
1986–1990
|
1.47
|
1991–1995
|
5.51
|
1996–2000
|
28.30
|
2001–2005
|
68.90
|
2006–2010
|
14.83
|
2011–2015
|
34.87
|
2016–2018
|
40.29
|
Source: Author’s Computation from CBN statistical bulletin (CBN, 2018) |
2.4 Trends of Government’s Health Expenditure in Nigeria from 1981–2018
Table 3 and Fig. 3below shows the trends of health expenditure in Nigeria from 1981 to 2018 in Nigeria. The Value of government expenditure on health in Nigeria stood at ₦0.10 billion between 1981 and 1985. Between 1986 and 1990, the value of health expenditure rose to ₦0.34 billion and to ₦2.01 billion between 1991 and 1995. The value of health expenditure in Nigeria increased again to ₦8.69 billion between 1996–2006 and to ₦37.66 billion between 2001–2005. The value increased again to ₦86.34 billion between 2006 and 2010 but fell to ₦21.28 billion between 2011 and 2015. Between 2016 and 2018, health expenditure in Nigeria rose to ₦24.73 billion.
Table 3
Trends of Government Expenditure on Health in Nigeria from 1981–2018
Year
|
GeH (₦ Billion)
|
1981–1985
|
0.10
|
1986–1990
|
0.34
|
1991–1995
|
2.01
|
1996–2000
|
8.69
|
2001–2005
|
37.66
|
2006–2010
|
86.34
|
2011–2015
|
21.28
|
2016–2018
|
24.73
|
Source: Author’s Computation from CBN statistical bulletin (CBN, 2018) |
2.5 Trends of Government Expenditure on Agriculture in Nigeria
Table 4 and Fig. 4below shows the trends of government expenditure on agriculture in Nigeria from 1981–2018. The value of agriculture expenditure in Nigeria stood at ₦0.02 billion between the years 1981–1985. Between 1986 and 1990, the value of agricultural expenditure increased to ₦0.11 billion and to ₦1.03 billion between 1991–1995. Again between 1996 and 2000, the value of agricultural expenditure rose heavily to ₦14.44 billion. The country witnessed a high reduction in agricultural expenditure between 2001 and 2005 as the value of agricultural expenditure fell to ₦10.44 billion. The value increased again between the periods of 2006 and 2010 as the rate rose to ₦33.28 billion. Agricultural expenditure between 2011 and 2015 increased to ₦38.38 billion and to ₦46.87 billion between 2016 and 2018.
Table 4
Trends of Government’s Expenditure on Agriculture in Nigeria from 1981–2018
Year
|
GeA (₦ Billion)
|
1981–1985
|
0.02
|
1986–1990
|
0.11
|
1991–1995
|
1.03
|
1996–2000
|
14.44
|
2001–2005
|
10.44
|
2006–2010
|
33.28
|
2011–2015
|
38.38
|
2016–2018
|
46.87
|
Source: Author’s Computation from CBN statistical bulletin (CBN, 2018) |
2.6 The Keynesian Theory
With its seemingly opposing perspective on this relationship, the Keynesian Theory (as proposed by John Maynard Keynes), which explored the relationship between public expenditures and economic growth, was among the most notable. According to Keynes, government spending is an exogenous factor that can be used as a tool for policy to encourage economic growth. According to Keynesian theory, government spending can promote economic expansion. Therefore, through multiplier effects on aggregate demand, an increase in government consumption is expected to result in increases in profitability, investment, and employment. Government spending thereby boosts overall demand, which in turn causes a rise in output depending on expenditure multipliers. Contrary to Keynes, the classical school, which Adam Smith pioneered, opposes government intervention in economic matters, arguing that there should be laissez-faire and that private persons should conduct economic activities to promote overall economic progress. According to the neo-classical growth model, fiscal policy adopted by the government has no bearing on the expansion of the country's output.
The theoretical foundation for this study is provided by the Keynesian idea of economic stimulus. The hypothesis is based on the premise that after an economic shock, households lack the ability to maintain their consumption patterns, which results in an excess supply. In the new circumstance, companies are compelled to cut production, further reducing output growth (more recession). Therefore, Keynes (1936) contends that by putting more money in the hands of the populace, government may spend its way out of a recession. The claim is that increasing government expenditure stimulates private spending, which boosts output growth and increases production. Keynes believed that as long as spending generates income and employment, it doesn't matter how the money is used. However, opponents of the theory argue that because Keynesian government spending is paid for by taxes or borrowing, it cannot spur economic development. Taxation only redistributes already-earned money; it does not result in the creation of new purchasing power. Additionally, it deters output and revenue. While overseas borrowing affects the balance of payments, domestic borrowing lowers output and investment in the private sector. Government spending, according to Riedl (2010), can support long-term growth if it is focused on boosting productivity and employment-supporting activities like education (human capital development), physical capital (plant and equipment, tools, etc.), technology, public infrastructure and utilities, and the creation of institutions that support contract enforcement.
2.7 Empirical Literature Review
In order to determine whether there is a correlation between Nigeria's GDP and government spending, Agbonkhese and Asekome (2014) evaluated the effect of public spending on the expansion of the Nigerian economy. It uses the Ordinary Least Square (OLS) approach of econometric technique and covers the years 1981 through 2011. Although there is a positive association between the dependent and independent variables, the econometric analysis showed that the adjustment of economic growth or gross domestic product was a fair one, making it challenging to reject the null hypothesis.
Ogundipe and Oluwatobi (2013) shown that spending on the health and education sectors in Nigeria from 1970 to 2009 substantially associated with economic growth. The ordinary least squares approach (OLS) was employed in a study by Hasnul (2015) to calculate the impact of government spending on economic growth in Malaysia between 1970 and 2014. Evidence from the study showed that spending on housing and construction decreased production growth whereas spending on government operations, defense, and healthcare did not have a substantial impact on economic growth.
Salami et al. (2017) conducted an empirical analysis of the impact of health and education spending between 1917 and 2013 on economic growth in Nigeria. Contrary to what we had expected, the result did not support our a priori hypothesis that all variables would be positively correlated with economic growth. Instead, capital expenditure and recurrent expenditure showed a negative sign, suggesting that as more variables increase, economic growth decreases.
Omodero, (2019), used secondary data covering the years 2000 to 2017 to analyze the impact of government sectoral spending on reducing poverty. Ordinary least squares technique was used in the study, and the regression result shows that government spending on agriculture, building and construction, education, and health does not significantly affect the reduction of poverty in Nigeria. As a result, the study draws the conclusion that government spending on these important economic sectors is insufficient and suggests that additional money be budgeted to support these sectors in order to combat the national scourge of poverty.
Using time series data from 1965 to 2014, Yahaya (2019) investigated the relationship between overall government spending and the effects of certain sectoral expenditures on the degree of poverty in Nigeria. The findings showed that poverty trend and Nigeria's spending on agriculture, health care, and education are significantly correlated negatively. Population, inflation, and corruption are some of the main problems impeding the Nigerian government's efforts to increase citizen welfare and lower the rate of poverty in the nation.
Using a test of causation, Jeff-Anyeneh (2020) identified the impact of government recurrent and capital expenditure on the standard of life in Nigeria. The study claimed that the standard of living in Nigeria is significantly influenced by government recurrent and capital expenditure. However, that does not accurately represent the country's standard of living.