FG Urged to Prioritise Capital Expenditure

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  • FG Urged to Prioritise Capital Expenditure

For Nigeria to realise opportunities that come with improved infrastructure spending, the federal government has been advised to prioritise capital expenditure over recurrent expenditure.

The government was also urged to close the gap between budget allocations and actual disbursements, and engage the private sector for additional investment.

Doing these, according to the latest economic bulletin by the Financial Derivatives Company Limited, would create a business operating environment more conducive to growth, which would in turn increase private investment and encourage foreign business travelers and tourists to come to the country.

The report noted that there has been a strong case for increased infrastructure spending around the world, more so in Nigeria, given the substantial infrastructure deficit.

It pointed out that the severity of the downpour in most parts of the country in early July was unexpected, saying that the high level of flooding from the rain exposed the precariousness of Nigeria’s basic infrastructure.

According to the FDC, increased spending on roads, railways and power plants would benefit Nigeria greatly as the spending boosts economic activity, creates jobs and improves the general quality of life.
“One can even say that infrastructure development is politically expedient as any progress gives the ruling administration an invaluable record of achievements.

“Unfortunately, Nigeria has fallen far short in attempting to tackle its infrastructure deficit, a failure that stems largely from insufficient public expenditure,” it added.

Driven by an oil price boom, Nigeria’s public expenditure soared in the last few decades. But capital expenditure failed to follow the same trend; instead, the focus was on recurring costs.

In 2008, the total budgeted expenditure wasN3.3 trillion, while the capital allocation wasN1.2 trillion or 37 per cent of the total budget.

By 2016, the total expenditure had increased significantly to N6.1 trillion while the capital allocation rose to just N1.6 trillion, falling to just 25 per cent of the total.

In the 2017 budget, the allocation for capital expenditure was increased to N2.24 trillion. President Muhammadu Buhari recently sought approval from the Senate to borrow $5.5 billion from the international capital market in the form of Eurobonds.

The government said it intends to use the proceeds to finance infrastructure projects such as the Mambilla hydropower dam and a second runway for the Abuja airport.

Continuing, the FDC report stressed that infrastructure development was critical for economic diversification.

“Bridging the infrastructure deficit will be a difficult task. Nigeria’s infrastructure base in 2012 stood at 35 per cent of Gross Domestic Product (GDP), compared to 58 per cent in India and 87 per cent in South Africa.

“The international benchmark is 70 per cent, double our current ratio. The good news is that we have witnessed a notable rise in recent years as the present administration implements its expansionary fiscal policy.

“Following the appalling situation in 2015, when capital expenditure was merely 10 per cent of the budget expenditure, the government has stabilised the allocation around 30 per cent, with a significant jump in absolute terms.”

The oil price crash in 2014 precipitated a technical recession in 2016, highlighting the fragility of the Nigerian economy once again.

According to the FDC, to transform the country from an oil dependent economy to a diversified economy, the government must continue to increasingly prioritise infrastructure development that would support other key sectors such as manufacturing and tourism.

More importantly, the federal government was advised to bridge the gap between allocated amounts and what is actually disbursed.

For instance, it noted that in 2014, only 50 per cent of the projected N1.1 trillion capital expenditure was actually spent, due primarily to delays in budget ratification.

“Incessant cases of either budget padding or missing budgets have complicated and extended the process of passing the budget, particularly in recent years.

“These delays leave little time for civil servants to actually spend the allocated money before the fiscal year comes to an end.

“The hope is that a recent constitutional amendment bill will address this issue, reducing the ability of the president and state governors to withhold assent for bills passed by lawmakers and setting a time limit requiring the president and governors to submit annual budgets to their respective legislatures,” it added.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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