Prevalence of Recurrent Spending

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Wednesday, March 10, 2021 / 09:04 AM / by FBNQuest Research / Header Image Credit: FBNQuest

 

The valid criticism of FGN expenditure is not that it spends too much. If it collected far more revenue, it could make far larger capital releases with a positive developmental impact. The criticism is that its spending is skewed towards recurrent items, notably wages and salaries, and that there is not a huge amount to show for it. In March-November '20 recurrent items represented 79.9% of total spending rather than the 77% projected in the FGN's annual budget, according to CBN monthly reports. The total exceeded the pro rata monthly budget of NGN901bn just three times in the period, twice narrowly and the third time (March) by NGN200bn.

 

Over the period capital spending was well below budget and outlays on overheads were well ahead. It seems that spending overruns and unforeseen items are generally posted as overheads. 

 

Personnel costs are rising, which may suggest that the FGN is honouring the latest national minimum wage.

 

One reason for burgeoning recurrent expenditure is the overlap in the remit of government bodies. An administration will create a new authority with a particular agenda without always closing others where duplication has arisen. An independent monitor of the public finances has estimated that Nigeria has collected more than 540 ministries, departments and agencies (MDAs) as well as suggesting some strong candidates for disbandment.

 

Interest payments peak in the first and third quarters, when the majority of FGN bonds are launched (with semi-annual coupon payments). External payments account for 20-25% of total interest payments.

 

In the 2021 budget the pro rata monthly budget has been hiked by 25.6% from NGN901bn to NGN1,132bn. We expect another shortfall in spending because of underperforming revenue collection. The shortfall is again likely to be most pronounced in capital items (including relevant statutory transfers), for which the authorities hopefully project an increase of more than 70% to NGN4.37trn this year.

 

The fiscal authorities in Nigeria, as in many other jurisdictions, were unprepared for this latest external shock (the virus): the buffers were inadequate and there was no headroom to compensate for the sharp fall in revenue collection, particularly in Q2 '20. The borrowing requirement has soared, and the Debt Management Office has a very challenging funding target.

 

Monthly FGN spending (NGN bn)

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Sources: CBN; FBNQuest Capital Research


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