The cumulative actual expenditure for all 36 states grew by 2.73% from N5.12trillion to N5.26trillion between 2018 and 2019 fiscal years. Actual recurrent expenditure and loan repayments grew by 4.75% from N3.17trillion to N3.33trillion 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 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 N1.94trillion to N1.93trillion. 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. (Exchange rate N380/$1).
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 effectiveness of all expenditure. 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 crowds 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 creating a risk for public debt build-up
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.
The need for subnational governments to invest considerably in impactful capital expenditure has never been more urgent, especially with the attention of its citizenry tilting towards the short and long term service delivery benefits of capital infrastructure in their locales, Many citizens are more aware of the direct, and in some cases, indirect impact of government activities on their lives and livelihood.
It is a no-brainer that the government's capital expenditure, whether national or in this case, subnational, plays a key role in how effective its economy functions. In more simpler terms, the more the government spends on infrastructure, the better the performance output of its economy, thereby impacting economic growth. Whereas, recurrent expenditure focuses on the running cost of government, such as payment of salaries, and pensions and overheads, capital expenditure on the other hand, deals with investing in infrastructure and assets that have short and long-term benefits in stimulating economic growth, as well as improving the lives and living conditions of the general public.
As the COVID-19 pandemic ravages its way across the world, with Nigeria not spared, state governments in Nigeria have been forced to see the need to invest largely in adequate infrastructure, not only in its health sector, but also, in other sectors like education and transportation. A lot of states have come under scrutiny, especially with the dilapidated state of infrastructure needed to combat COVID-19. This, expectedly, has drawn a lot of attention to how state governments utilise their resources, and ultimately, how much they spend on capital expenditure vis-a-vis the current reality and needs of the populace.
Inasmuch as capital expenditure is important for the economic growth of subnational states, understanding the peculiarities of the state, as well as the realities and needs of the public will be important to assess the kind of infrastructure the state government should implement. Nigerian state governments have a simple task: understanding that not all capital obligations are viable economically. This will go a long way to determine how useful state proposed capital investment will impact citizens' living standards. This knowledge will prove whether states' capital investments will augment economic growth, or be another needless "white elephant project", a colossal waste of public funds.
Capital Expenditure Performance
Although, it is a common point to note that budgeting of an amount does not automatically translate into disbursing of allocated funds, the salient reasons, why state governments fail to meet their capital expenditure obligations, is majorly attributable to a general inadequate lack of planning. Sadly, these fundamental issues or gaps are not just limited to poor funding/ revenue generation, but can also be linked to other underlying factors like inadequate budget planning process, a lack of informed knowledge of the current realities of the macroeconomic environment, and a huge politicisation of project implementation.
As shown in Appendix 1, there is a huge disparity between state governments' budgeted capital expenditure amounts and the actual performance of its capital expenditure in the 2019 fiscal year. Out of the 36 states of the federation, only 11 states performed over the 50% average with Kaduna topping the list with 97.53%; followed by Yobe State with 76.21%, Rivers state with 74.53%; others are Lagos, 69.81%; Jigawa, 67.99%; Abia, 65%; Delta, 59.01%; Enugu, 57.28%, Anambra, 53.92%; Kwara, 52.31% and Gombe state with 50.41%. It is also sad to see that 12 states have a capital budget performance less than 30%. A major reason is also the lack of budget realism across states in Nigeria. For example, Cross River had 2.78% performance due to its bloated projections of N1.04tn. As seen also in the federal government, most states project high budget numbers only to meet the recurrent expenditure component due to its "compulsory" payments to staff and running of government, which starve opportunities to expand capital projects.
Over the years, the sub-national governments' actual capital expenditure spend has consistently fallen lower than their budget targets. This has particularly become a common trend, whereby state governments fail to meet their capital expenditure obligations, usually by a huge percentage.