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OKAFOR, MICHAH CHUKWUEMEKA
REG NO. PG/Ph.D/04/38081
EFFECT OF PUBLIC EXPENDITURE AND NATIONAL
INCOME ACCOUNTING ON MACROECONOMIC
PERFORMANCE IN NIGERIA,1980-2007
ACCOUNTANCY
A THESIS SUBMITTED TO THE DEPARTMENT OF ACCOUNTANCY, FACULTY OF
BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA ENUGU CAMPUS
Webmaster
Digitally Signed by Webmaster’s Name
DN : CN = Webmaster’s name O= University of Nigeria, Nsukka
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JULY, 2010
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EFFECT OF PUBLIC EXPENDITURE AND NATIONAL
INCOME ACCOUNTING ON MACROECONOMIC
PERFORMANCE IN NIGERIA,1980-2007
By
OKAFOR, MICHAH CHUKWUEMEKA
REG NO. PG/Ph.D/04/38081
DEPARTMENT OF ACCOUNTANCY
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA,
ENUGU CAMPUS
JULY, 2010
3
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Public expenditure happens to be the most visible and quantifiable measure of
government activity. This appears to be the case with many countries, especially
the developing ones. Nigeria has been adopting public expenditure as a practical
instrument of government policy towards achieving some macroeconomic
objectives. According to Adubi, et.al. (1999:184), public expenditure could
simply be seen as expenses which the public sector incurs for its maintenance,
for the benefit of the economy, external bodies and for other countries. Klein
(1976:4) states the view that public expenditure can comprehensively and
conventionally be defined to include all spending by central and local
government, as well as capital investments by public corporations. Adubi,
et.al.(1999:184) also express the view that public sector can be broadly defined
as that portion of national economy in which economic and non-economic
activities are under the control and general direction of government. The public
sector in Nigeria consists of the Federal Government, State Government, Local
governments and government enterprises.
4
The appeal of public expenditure as a subject of inquiry is that it sums up a
mass of varying decisions and developments- with varying implications for the
political and social order in a common unit of currency (Klein, 1976:6).
Classification of public expenditure can be done in several ways. It can be
classified into current and capital expenditures for government budgeting
purposes, ( World Bank, 1988:108 as cited in Adubi, et.al.,1999: 184).
There could also be further subdivision of each class according to “function” or
sector such as administration, economic services, social and community
Services and transfers. The classification under administration is made up of
general administration, defence and internal security. Economic services
normally comprise agriculture, construction, transport and communication
among other things. Social and community services include education, health,
housing and others. The items classified under transfers are public debt charges
(both internal and external), non-statutory appropriation, grants and
subventions.
There have been inconclusive results on the growth effects of the ratio of total
government expenditure to GDP, which is not surprising, since different
expenditure compositions for a given level of the total have many effects on
output growth.
5
In Nigeria, attempts to empirically verify the relationship between public
expenditure and macroeconomic variables have not been well documented in
literature. Most works on public expenditure in Nigeria centred on the factors
that are responsible for increase in government expenditure (Ezirim,2006:90;
and others). Other works along this line which investigate the disaggregated
components of public expenditure include, Fajingbesi,et.al. (1999), Ekpo
(1995), Ogiogio (1995) and Odusola (1996). Ekpo (1995) regresses the
disaggregated components of government capital expenditure on private
investment, using ordinary least square approach with annual data from 1960-
1990. Ogiogio (1995) investigates the growth impact of recurrent, capital and
sectoral expenditures over the period 1970-1993. Odusola (1996) adopts a
simultaneous equation model to capture the interrelationship between military
expenditure and economic growth in Nigeria.
Three studies which adopt a broader methodological framework to understand
the links between public expenditure and economic growth in Nigeria are
Fajingbesi, et. al. (1999), Ezirim (2006) and Tsauni (2007). It is a fact that both
public expenditure and economic growth are bicausually related. This makes
any deductions from a single equation model invalid. This is owing to the
possibility of simultaneity bias. The work of Fajingbesi,et.al.(1999) aim at
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analysing the existing link between public expenditure and economic growth in
Nigeria. The ordering of the variables are inflation rate, output and total
expenditure.
The studies by Ezirim (2006: 87) investigates the factors that truly affect public
expenditure in less developed countries using data from Nigeria. The studies by
Tsauni (2007: 93) examines whether there is any causal relationship between
education expenditure and economic growth and whether education expenditure
is a good predictor of economic growth or vice-versa.
These studies are very comprehensive, illustrating a wide range of analytical
approach for assessing impacts of public expenditure on economic growth.
However, no one adopted an economic-wide approach which allows capturing
interaction of various factors through direct, indirect and multiple-round effects
over time. Furthermore, the existing studies do not contrast alternative
government spending strategies, discussing their advantages and drawbacks for
deeper evaluation. Most of these studies did not take into cognizance a wide
range of growth determinants like employment rate, investment, inflation rate,
capacity utilization among others.
This research is an attempt to fill this lacuna by adopting a holistic approach
which will incorporate the major determinants of growth on economic wide
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basis. The study will adopt a wider variety of variables incorporating multiple
linear regression approach to examine the impact of public expenditure on
macroeconomic growth.
The way in which public expenditure are allocated has significant effect on
economic growth and poverty alleviation. “The link between public outlay and
economic growth in Nigeria calls for empirical investigation. The work of
Adubi and Obioma (1999: 182) examine public expenditure management in
Nigeria. They perceive that the role of the pubic sector in the growth and
development process led to tremendous growth in public expenditure and
consequently the public sector itself. Good economic policy is critical for
meaningful national development. According to Hiley (1999: 11), the four main
goals of macroeconomic policy are controlling inflation, maintaining a stable
and competitive real exchange rate, exercising fiscal prudence, and operating
efficient capital markets. In order to realise these obligations, government must
have some instruments for operating on the macroeconomic variables
(investment, employment, inflation, capital utilization, economic growth etc.).
Pubic expenditure happens to be one of these instruments; others may include
taxation, government subsidy, etc.
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1.2 STATEMENT OF RESEARCH PROBLEM
Fiscal crisis is mainly at the root of the economic distress confronting nearly all
the developing countries, including Nigeria (Komolafe, 1999:3). It appears that
the countries are facing serious difficulties in programming and management of
public expenditure. Timely adjustment in public expenditure levels to changes
in resource profiles of government is still posing serious problems to fiscal
planning and management in Nigeria (Adubi, et. al., 1999:189).
Public expenditure as one of the instruments of fiscal policy influences
economic activities in desired ways with the allocation of resources and their
use for the attainment of stability and growth (Anyafo, 1996: 244; Buhari, 1993:
149), Samuelson (1980: 144), Hilley (1999: 11), Premchand(1989) and Adubi,
et.al. (1999: 181).
Although the effects of fiscal policy are extensive, they are particularly
measurable in areas such as employment, price stability, savings and investment
and the balance of payments.
Resulting from dearth of empirical studies on the impact of public expenditure
on economic growth, Amin (1998) as cited by Fajingbesi and Odusola( 1999:
153)examines the effects of public investment expenditure on growth of
Cameroon’ economic activities.
9
Using an aggregate production function, he discovered a positive relationship
between the two, even though the relationship could not be statistically
established. In Nigeria, attempts to empirically verify the relationship between
government expenditure and growth have not been well documented in the
literature (Fajingbesi et al, 1999: 154). To the best of the researcher’s
knowledge there have not been extensive studies on the effects and relationship
of public expenditure on macroeconomic variables and economic growth in
Nigeria. This has necessitated the need to fill the research lacuna in Nigeria.
It is held that the persistent poor economic performance of the Nigerian
economy since the early 1980s has raised genuine concern about the efficacy
and timeliness and appropriateness of the macroeconomic framework forming
the background of the policy constituents (Ugwuh, 2002).The policies on
governance and anticorruption can be translated into practice only by significant
and sustained improvements in the efficiency, integrity, effectiveness of public-
sector management, and in the accountability and transparency of corporate and
financial governance in the public sector. The spending power of government is
enormous and requires deliberate prioritization to achieve the twin objectives of
efficiency and effectiveness in the use of Scarce public resources (Ugwuh,
2002: 42)
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1.3 OBJECTIVES OF THE STUDY
This study aims at examining the relationship between public expenditure and
macro-economic performance using Nigeria as a case study. On specific bases,
the study shall attempt to:
1. Establish the effect of public capital expenditure on the growth of the
Nigerian economy.
2. Establish the effect of recurrent expenditure on the growth of the
Nigerian economy.
3. Determine the effect of total (both capital and recurrent) public
expenditure on the growth of the Nigerian economy.
4. Establish the relationship between recurrent public expenditure and total
investment in Nigeria,
5. Establish the relationship between public capital expenditure and total
investment in Nigeria,
6. Determine the effect of public capital and recurrent expenditure on
inflation rate in Nigeria,
7. Determine the effect of public expenditure on industrial capacity
utilization in Nigeria, and
8. Determine the significance of national income accounting on
macroeconomic variables.
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1.4 RESEARCH QUESTIONS.
This study has been structured to answer the following questions:
1. What is the effect of public capital expenditure on the growth of the Nigerian
economy?
2. What is the effect of public recurrent expenditure on the growth of the Nigerian
economy?
3. What is the effect of total (both capital and recurrent) public expenditure on the
growth of the Nigerian economy?
4. What is the relationship between public recurrent expenditure and total
investment in Nigeria?
5. What is the relationship between public capital expenditure and total investment
in Nigeria?
6. What effect has both capital and recurrent public expenditure in Nigeria on the
country’s inflation rate?
7. To what extent does public expenditure impact on industrial output?
8. Of what significance is national income accounting to the economic health of
the nation?
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RESEARCH HYPOTHESES
In order to achieve the above stated objectives, the following hypotheses have
been formulated for the research study.
HYPOTHESIS 1
Public capital expenditure does not have positive and significant impact on the
growth of the Nigerian economy
HYPOTHESIS 2
Recurrent public expenditure does not have positive and significant impact on
the growth of the Nigerian economy
HYPOTHESIS 3
Public recurrent and capital expenditure do not have significant effect on the
growth of the Nigerian economy
HYPOTHESIS 4
There is no positive and significant relationship between recurrent public
expenditure and total investment in Nigeria.
HYPOTHESIS 5
There is no positive and significant relationship between public capital expenditure
and total investment in Nigeria.
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HYPOTHESIS 6
Public capital expenditure and recurrent expenditure do not have a positive
and significant effect on inflation rate in Nigeria
HYPOTHESIS 7
Public expenditure does not have positive and significant impact on
industrial capacity utilization in the Nigeria economy
HYPOTHESIS 8
The nature and form of National Income Accounting does not significantly
affect the nation’s economic health.
1.6 SIGNIFICANCE OF THE STUDY
Nigeria as a developing country is faced with the challenge of improving fiscal
discipline, bringing resource allocation in line with development priorities,
creating an enabling environment for public financial managers, and protecting
due process.
This study will be significant to the following:
I. GOVERNMENT: Policy makers in governments and their economic advisers
will benefit from this work as they will be well informed on necessity of
growth as well as the fundamentals of economic policy formulation.
II. ECONOMIC ANALYST / ACCOUNTANTS:
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It will provide some insight into the macroeconomic variables and their
relationship with public expenditure. Thus, it will allow for performance
evaluation of fiscal policies of governments. The study will also bring to fore
the various expenditure reforms for proper evaluation.
III The Academia: It will add to the body of literature on public expenditure,
thus serving as reference material or research material for research on
macroeconomic policies and performance. The work will also throw more light on
the relationship between employment, investment, economic growth, inflation rate
and public expenditure.
IV The Regulatory Authorities and other governmental agencies will
find the research work very useful in their policy formulation.
1.7 SCOPE / LIMITATION OF THE STUDY
The scope of the research is on the relationship between public expenditure and
economic growth. This study centred on Nigeria and made use of Federal
Government of Nigeria budgets as framework of determining public
expenditure profiles. The budget periods covered is 1980-2007. The public
expenditure data are reported and published by government agencies like
Central Bank of Nigeria, the Federal Ministry of Finance, Budget Office,
National Bureau of Statistics and National Planning Commission.
15
The data on macroeconomic variables like GDP, inflation rate, investment, and
capacity utilization were collected from CBN statistical bulletin and Annual
Reports and Statements of Accounts of National Bureau of statistics and
National Planning Commission were also used in this study.
The study is limited by the shortcomings in the published data, particularly data
from the yearly National Accounts, which have a way of introducing some
measure of variability and inaccuracies in the final results due to review of
procedure and harmonization of new compilations with the back series for
consistency.
The usual apathy in obtaining data by researchers was experienced in some of
the institutions visited .However, the problem was sufficiently addressed in the
fairly efficient strategies adopted in data collection and the reasonable time
evolved for the study.
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REFERENCES
Adubi, A.A. and Obioma, E.C. (1999), “Public Expenditure Management in
Nigeria”, edited by Komolafe, O.S; Jalilian, H, and Hiley, M. in Fiscal
Policy Planning and Management in Nigeria, Ibadan: NCEMA.
Anyafo, A.M.O. (1996), Public Finance in a Developing Economy. The
NigeriaCase, Enugu: Banking and Finance, UNEC.
Buhari, A.L. (1993), ICAN/Polytechnic Public Finance, Ilorin: University
Press.
Diamond, J. (1989). “Government expenditure and economic growth: an
empirical investigation.” WP/89/45, International Monetary Fund.
Ekpo, A.H. (1995), “ Public Expenditure and Economic Growth in Nigeria, 1060-
1992”. Final Report, AERC, Nairobi, Kenya.
Ezirim, C.B. (2006), Explaining the Size of Public Expenditure in Less
Developed Countries: Theory and Empirical Evidence from Nigeria,
Nigerian Journal of Banking and Finance, UNEC, Vol. 6.
Fajingbesi, A.A. and Odusola, A.F. (1999), Public Expenditure and Growth,
NCEMA, Ibadan.
Hiley, M. (1999), “Fiscal Policy within a Simple Macroeconomic Model”.
NCEMA, National Seminar Report (1989).
Khan, M.S. and Villanueva, D. (1991), Macroeconomic Policies and Long-
Term Growth: a Conceptual and Empirical Review. AERC Special
Paper 13.
17
Klein, R. D. (1976), The Politics of Public Expenditure: American Theory and
British Practice. British Journal of Political Science, Vol. 6, No. 4, October, .
Komolafe, O.S. (1999), An Overview of Issues in Fiscal Policy Planning and
Management in Nigeria, edited by Komolafe, O.S; Jalilian, H, and Hiley, M. in
Fiscal Policy Planning and Management in Nigeria, Ibadan: NCEMA,
Martin, R. and Fardmanesh, M. (1990), “Fiscal Variables and Growth: a
cross sectional analysis”. Public Choice 64: 239-51; March.
Odusola, F. A. (1996), “ Military Expenditure and Economic Growth” The
Nigerian Journal of Economic and Social Studies 38 (1,2&3).
Ogiogio, G.O. (1995), “Government Expenditure and Economic Growth in
Nigeria”. Journal of Economic Management 2 (1), October.
Otani. I. and Villanueva, D. (1989). “Theoretical aspects of growth in
developing countries: external debt dynamics and the role of human capital.”
Staff Papers International Monetary Fund 36: 307-42: June.
Orsmond, D. (1990), “The Size of Government and Economic Growth: a
methodological review”. International Monetary Fund, August.
Premchand, A. (1989), Government Budgeting and Expenditure Controls:
Theory nd Practice, Washington DC, IMF
Samuelson, P.A. (1980), Economics, 11th
edition, Tokyo: McGraw-Hill
Kogakasha.
Tsauni, A.M.(2007), An Examination of Casual Relationship between
Education Expenditure and Economic Growth in Nigeria. Journal of Social
and Management Sciences,BUK, Vol.12.
Ugwuh, C.C. (2002), “Real Sector Policies in the 2002 Budget” The CBN
Bullion Vol.26.No.2.
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CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 INTRODUCTION
In the early days of the development of fiscal policy, during which it was still
used as a tool to prevent a depression, the belief then was that the same technique
could be used in both developed and developing countries. However, this
assumption proved to be wrong in view of the differences in the relative levels of
development. In developed countries, fiscal policy was first identified with
reducing unemployment by stimulating demand through deficit spending. During
periods of weak demand, developed countries have huge pool of unemployed
productive resources, which include underutilized capital equipment and
managerial skills; and fiscal policy can minimize the cyclical impact through the
maintenance of aggregate demand (Premchand, 1989: 8).
The experience is different in the developing countries where unemployment is
chronic and reflects structural bottlenecks of the economy rather than those that
are cyclical in nature. In developing countries, it has been held that injection of
increased purchasing power, as is the practice in developed countries, tends to
work itself out through increased imports and increases in prices rather than
leading to increased production.
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According to Premchand (1989: 13), it is primarily for this reason that fiscal
policy is used in developing countries as an integral part of development plans,
with the aim of making appropriate structural adjustments in the economy Thus
achievement of growth is necessarily a long-term task, and there is more reliance
placed on fiscal policy in developing countries because of the features associated
with the workings of monetary policy, non-existence of relatively well developed
financial markets and the existence of large non-monetized sectors in the
economy which have tended to reduce the efficiency of monetary instruments,
shifting the major burden of adjustment to fiscal policy. “Also, the dominant role
assigned to public sector operations in the development process necessitates
greater reliance on fiscal policy.
Fiscal policy is also used in developing countries to counteract inflationary
pressure,”( Premchand (1989: 15). Thus, the role of fiscal policy in the long-run
in developing economies is more positive, as it seeks to reflect the aspirations of
all developing countries. There is emphasis on the expansion of productive
capacity, on large expenditure for development purposes, and on projects that are
more viable from the point of view of social return than financial return. The role
of expenditure in fiscal policy is partly dependent, as mentioned earlier, on their
overall ratio to GDP and partly on their function and economic characteristics.
20
Governments of many countries pursue a number of economic objectives. While
some of the objectives may be conflicting, however, there is general acceptance
as to the desirability of achieving specific targets for these macroeconomic
variables.
According to Buhari (1993: 153), typical macroeconomic objectives which
governments pursue include, price stability, full employment, economic growth
and equilibrium in the balance of payments.
Macroeconomic is basically the study of the structure and performance of
national economies and of the policies that government uses to try to affect
economic performance. Macroeconomic focuses on developments that involve
the economy as a whole; it attempts to explain changes in these aggregates and to
guide policy makers in their pursuit of economic objectives and efforts to
respond to unanticipated changes in the economic environment.
As stipulated in the work of Budget Process Support Project (2004), funded by
USAID (Nigeria),the issues that macroeconomists address include the following:
What determines a nation’s long-run economic growth? Why do some nations’
economies grow quickly, providing their citizens with rapidly improving living
standards, while other nations’ economies are relatively stagnant?
What causes a nation’s economic activity to fluctuate? Why do economies
sometimes experience sharp short-run fluctuations, lurching between periods of
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prosperity and periods of hard times? For example, after nearly a decade of
prosperity, during the early 1970s, why did Nigeria economy began to falter in
the late 1970s?
Unemployment occurs when growth in the number of jobs a nation’s economy
creates falls below the growth rate of the population that enters the labour force.
Why does unemployment sometimes reach very high levels? Why, even during
times of relative prosperity, is a significant fraction of the workforce unemployed?
What causes prices to rise? What causes inflation and what can be done about
it?
How does being part of a global economic system affect a nation’s economy?
How do economic links among nations, such as international trade and
borrowing, affect the performance of individual economies and the world
economy as a whole?
Can government policies be used to improve a nation’s economic performance?
How should economic policy be conducted so as to make the economy as
prosperous and stable as possible?
Macroeconomics seeks to offer answers to such questions, which are of great
practical importance and are constantly debated by politicians, the press and the
public. From a macroeconomic perspective, the difference between rich nations
and developing nations may be summarized by saying that rich nations have at
22
some point in their history experienced extended periods of rapid economic
growth, while the poorer nations either have not experienced sustained growth or
have had periods of growth offset by period of economic decline. Why, for
example, did resource poor Japan and Korea experience growth rates that
transformed them in a generation or two from war-torn nations into industrial
power, whereas several resource rich nations of Latin America and Sub-Saharan
Africa such as Nigeria have had erratic or negative growth in recent years?
Today every major economy is an open economy, that is, one that has extensive
trading and financial relationships with other national economies. A closed
economy is one that restricts trade by imposing various imports restrictions such
as high tariffs or quotas and does not interact economically with the rest of the
world. An important goal in macroeconomics is to understand how international
trade and borrowing relationships transmit business cycles from country to
country.
Most empirical growth studies have evolved from the sources of growth
framework pioneered by Denison (1962, 1967 as cited by Khan and Villanueva,
1991: 23). The focus of most empirical studies to date has been on growth
effects of fiscal policies (government expenditure, taxation and deficits);
remarkable useful reviews of such studies have been undertaken by Orsmond
(1990). A summary of the studies considered in Orsmond’s survey is
23
reproduced in table 2.1 page 22 of this work, which is also supplemented by
other empirical studies that emphasize the growth effects of monetary interest
rate and external policies aimed at promoting macroeconomic stability (Khan
and Villanueva, 1991: 21).
To arrive at a discernible growth effect, many studies centred on the
components of government expenditure, some studies support a negative
relationship between the ratio of government consumption to GDP and the rate
of growth of output. It has also been held that the average ratio of infrastructure
expenditure to GDP has been found to exert a positive impact on long-run
growth in other studies.
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Table 2.1 Empirical Studies of the effects of macroeconomic policies on long-term growth.
Authors TG CG INF EDH TR TAX DEF RINT RX CPI
Balassa (1978) +
Barro (1989) - + +
Castles and Dowrick (1988) - - +
Diamond (1989) - + + + +
Dornbusch and Reynoso (1989) -
Easterly (1990) - +
Khan and Reinhart (1990) +
Koester and Kormendi (1989) 0
Landau (1983, 1985, 1986) - - - +
Marlow (1986) - -
Marsden (1983) -
Martin and Fardmanesh (1990) - +
Michaely (1977) +
Michalapoulos and Jay (1973) +
Orsmond (1990) + + - +
Otani and Villanueva (1990) + +
Polak (1989) + +
Ram (1985, 1986) + +
Rubinson (1977) +
Saunders (1985) -
Skinner (1987) - -
Tyler (1981) +
Weede (1986) - -
Note: A positive effect is indicated by “+”,negative by “-”, and no effect by “0”. TG denotes total government expenditure;
CG current expenditure; INF infrastructure; EDH education and health; TR transfers; TAX tax receipts; DEF fiscal deficit;
RINT real deposit interest rate; RX rate of change in real exports; and CPI rate of inflation (consumer prices). All variables
are expressed as ratios to either GDP or GNP, except for RINT, RX, and INF, which are in percent. Estimates for Michaely
(1977) are based on equations using data contained in his paper.
Source: Khan and Villanueva (1991), Page 21
25
“The positive impact on growth of the average ratio of expenditures on education and
health has also been generally confirmed”, (Khan and Villanueva, 1991:22).
As we have the aggregate results on expenditure ratios, the empirical studies on
the growth effects of taxation are also inconclusive. The diverse impact of
different compositions of a given level of the overall Tax-to-GDP ratio gave rise
to this ambiguity. The study by Orsmond (1990) cited by Khan and Villanueva
(1991: 21) attempts to disaggregate tax effects, and concludes that the ratio of
import taxes to GDP is positively associated with the growth rate of output.
Furthermore, it was confirmed that there have been empirical studies by Martin
and Fardmanseh (1990), where expenditure ratios are found to have positive
growth effects, while tax and deficit ratios exert negative effects. This pattern is
reversed, however, when non-tax revenue replaces deficits, that is, the growth
effect of the expenditure ratio becomes negative and that of the tax ratio turns
positive. When the ratios of expenditure, tax, and deficit to GDP are jointly
utilized in a growth regression, only the deficit ratio is significant (with a
negative sign) as provided by the estimates of Orsmond (1990) in Khan and
Villanueva, (1991). The situation is different when the ratio of non-tax revenue
is
26
substituted for the deficit ratio, where the expenditure ratio now has a negative
effect on growth, whereas both the tax and non-tax revenue ratios have positive
effects.
The work of Khan and Villanueva (1991:22) raises the question; why is the
empirical evidence on the growth effects of fiscal policies by and large so
inconclusive? Apart from econometric reasons, measurement errors, problems
of simultaneity, and possible heteroskedasticity- two principal factors may
account for the different empirical results:
Ad hoc selection of explanatory variables; and
The length of time over which the sample observation are averaged.
Most of the empirical studies include only government policy variables as
explanatory in the regression equation for the growth rate of output, but there
are many other variables that determine output growth.
The total government expenditure ratio includes both “productive” and
“unproductive” components. With the assumption that the “productive”
expenditure elements have direct positive effects on private productivity, their
positive impact on growth serves to partially offset any disturbing effects
arising from associated financing costs (taxes and deficits).
27
Similarly, “there is a limit to the inclusion of all expenditure and tax categories
owing to multi-collinearity, which will increase the estimated variances of the
regression coefficients” (Khan and Villanueva, 1991: 23).
Whenever empirical studies produce a result that is either negative or
insignificant, coefficient for educational and health expenditure ratio is usually
presumed that study employed observations averaging over a relatively short
time. Orsmond (1990) as cited in Khan and Villanueva (1991:23) rightly states
that the long gestation period for such expenditure biases downward both the
size and significance of their coefficients. Studies that utilize samples over a
longer time, such as those by Diamond (1989) and Otani and Villanueva (1989),
support a positive and significant relationship between these “productive”
expenditure and long-run economic growth. The ad hoc selection of explanatory
variables is another possible factor that accounts for the diverse results from
empirical studies; such empirical regression that appears to lack theoretical
foundations was even undertaken by Orsmond (1990).
It is only the empirical growth equation of Otani and Villanueva (1989) that was
derived from a particular structural model, wherein the growth-macroeconomic
policy relationship is estimated in reduced form. As
28
specified by Khan and Villanueva (1991:23); “A fully specified growth model
would not only take account of all variables relevant to the process of economic
growth, but also would separate the endogenous from the exogenous and policy
determined variables”. In this manner, the econometric problems of variable
exclusion, simultaneity, and multi-collinearity are avoided to a large extent.
Nevertheless, over a reduced –form estimation of a structural model, cannot
entirely escape the problem of simultaneous-equation bias, since some of the
policy variables may indeed be endogenously determined by government in
response to macro economic development, including changes in the rate of
economic growth.
2.2 MACROECONOMIC POLICY
A nation’s economic performance depends on many factors, including its natural
and human resources, its capital stock (building and machines), its technology
and the economic choice made by its citizens, both individually and collectively.
Macroeconomic policies affect the performance of the economy as a whole.
Fiscal policy, which is determined at the national, state and local levels, concerns
government spending and taxation. Monetary policy determines the rate of
growth of the nation’s money supply and is under the control of a government
institution known as the Central Bank.
29
Large Federal budget deficits emerged in the early 1980s, and have continued
since then. The possible link between the government’s budget deficit and the
trade imbalance illustrate an important aspect of macroeconomics.
Macroeconomic issues and problems are frequently interconnected. .
For instance in the work of Tsauni (2007:95), the causal relationship between
education expenditure and economic growth was examined by employing
Granger causality test.
This is replicated as:
EDEX1 = a + ∑ bi EDXt -1 + EgiEGt-j + Ui ------------- (1a)
EGt = Y + ∑ δEGt-1 + ∑λi EDEX Ej + νt --------------- (1b)
RDEXt = a + ∑ bi RDEXt-1 + ∑ giEGt-J + Ui------------ (2a)
EGt = Y + ∑EGt-1 + ∑liRDEXt-j + νt ---------------------- (2b)
CDEXt = a + ∑ bi CDEXt-1 + ∑giEGt-J + Ut-------------- (3a)
EGt = Y + ∑δiEGt-1 + ∑ λiCDEXt-j + vt------------------- (3b)
where EDEX, RDEX, CDEX, EG are total government education expenditure,
recurrent expenditure on education and economic growth (GDP at current
30
factor cost) respectively. It was also stated that, Ut and Vt are serially
uncorrelated random disturbance with zero mean.
The equation as stated above confirmed that Granger Causality tests are related to
the significance of the g’s and d’s conditional on the optimal lag lengths m, n, q
and r (Jackson, Fethi and Fethi, 1998 in Omotor 2006) as cited by Tsauni
(2007:95). This work confirmed that causality exists between economic growth
and education expenditure and went further to examine the nature and direction
of causality pair wise granger causality test was utilized which showed that the
hypothesis that economic growth (EG) does not granger cause recurrent
expenditure on education (RDEX) and that economic growth (EG) does not
granger cause capital expenditure on education (CDEX) in Nigeria cannot be
rejected, but the hypothesis that EDEX does not granger cause EG, that RDEX
does not granger cause EG and that CDEX does not granger cause EG were
rejected. Thus, it indicates that granger causality runs one-way from education
expenditure to economic growth and not the other way. As stated in Tsauni
(2007:97), “this finding is compatible with the Keynesian theory and the
empirical works of Kweka and Morissey, 2000 and Tsauni, 2004”.
31
Table 2.2a: Public Expenditure Objectives and Instruments
Objectives Determinant of Objectives Expenditure Instruments
Provision of social Sociopolitical approaches Consumption expenditures
wants. Incurred in the provision of
Public goods and services:
Investment outlays on the
production of goods: and
provision of general, social
and economic services.
Optimal growth Socioeconomic approaches Investment expenditures:
other outlays on the
provision of infrastructure
facilities: and loans to
private sector.
Employment Socioeconomic imperatives Investment in labour
intensive industries;
subsidies; and
related fiscal incentives.
Stabilization or Economic factors Reductions or increases in
demand expenditures; changes in the
management composition of expenditures
and methods of financing
budget surpluses and deficits.
Distribution of Socio-political approaches
Income
(i) Among people Transfer payments; direct and
indirect subsidies; provision
of goods and services free to
specified income groups of
community.
(ii) Among Regions Investment in less
developed regions; greater
subsidies and grants
NJote: In a way, all the objectives and instruments listed above are related to each other. But some
objectives are more closely related to some instruments and this aspect is illustrated above.
Source: Premchand (1989:15).
32
ANALYSIS OF PUBLIC EXPENDITURE
Considering the constitutional framework of Nigeria and its federal set-up,
responsibilities are functionally allocated to the three tiers of government, that is.
Federal, State and Local Government. We have the first list of social services that
are exclusively made for the Federal Government which includes National
Defence, Security, External Affairs, printing of money, among others. The
second list which is referred to as concurrent matters, such as health, education,
agriculture, among others, can be accommodated in the expenditure programme
of each Federal, State and Local Governments. Residual subjects are contained in
the third list which includes Social Services that are not specifically mentioned
under the exclusive or concurrent lists. The State and Local Governments are to
provide services under the third list. The list of services as assigned to the three
tier of governments are as stated in table 2.2b below:
33
Table 2.2b: Assignment of Responsibilities in the 1999 Constitution
Source: (1) 1999 Constitutions.
(2)Sanni, 2003:9)
Federal Government State Governments Local Governments
Defence and National Security
Police
Foreign Affairs
Inter-State Road
Mineral Exploration
International Road
Railways
Airport
Aviation Facilities
Power Supply
Communication
Management of
Territorial Waters
Higher Education
Secondary Education
Tertiary Health Services
Agriculture
Commerce and Tourism
Higher Education
Secondary Education
Primary Education
Maintenance of Standards
Urban and Rural Waters
Transportation
Housing
Health
Lighter Industries
Agriculture
Tourism and Town
Planning
Sewage Disposal
Environmental sanitation
Maintenance of
Federal Earth Roads
Primary Education
Payments of salaries
Market stalls
Craft and Small
Scale Industries
34
2.3 THEORIES OF PUBLIC EXPENDITURE
Many theories have been propounded by scholars to explain the concept of
public expenditure and the association with economic growth. Most studies
have also tried to review these theories which include the work of Ezirim,
(2006: 85), Tsauni (2007: 92) and Buhari (1993: 153).
The more popular theories include the following:
2.3.1 WAGNER’S LAW OF EXPANDING STATE ACTIVITY.
Wagner’s Law states that as the per capita income in industrializing
countries rise, the relative share of the public sector in national output
would rise. Following this theory, there are possibilities that the activities
of different tiers of a government (as in the case with Nigeria, where we
have the Federal, State and Local government) to continually be on the
increase. Ezirim (2006: 87) therefore argues that these increase in State
activities necessitate increases in public expenditure.
Buhari (1993: 155 ) also accepts that Wagner’s argument has support from
sociology. Sociologists argue that population growth, increased
urbanization and division of labour that tend to characterize economic
development, tend to increase alienation. Thus, this will necessitate
increased government spending. In line with Wagner’s law and the
arguments, Aigbokham (1997), Bhatia (1982) and Isiaku(1987) as cited
35
by Ezirim (2006: 88) accept that reduction in public sector growth would
require a slowdown of economic growth and it is expected that a
continuous expansion of the government sector and its expenditure would
occur. Tsauni (2007: 92), expresses the view that public expenditure can be
treated as an outcome or an endogenous factor of the growth of economy
and also state the opposite view of Keynes which regards public
expenditure as an exogenous factor which can be utilized as a policy
instrument to stimulate economic growth. According to Tsauni (2006:93)
“the two completely opposite arguments reflect the view points over the
issue of what is the causal relation between economic growth and public
expenditure”.
Ezirim(2006: 87), states number of reasons which can be advanced as to
why all types of governments manifest the tendency for increasing public
expenditure. The list of these reasons which is being replicated here
includes:
i. The expanding nature of traditional functions of the state, with
various complexities of social and economic nature springing up
to make an effective and efficient running of the state to be rather
complex and expensive.
36
ii. State activities continue to grow in scope over time beyond the
confines of defense, justice, law and order and maintenance of state
increasing welfare activities.
iii. Increased recognition by government of the need to provide and
expand the spheres of public goods and those necessitating increase in
public investments and enterprises.
iv. The need to increase and harmonize the scale of various public
services with the growing population.
v. Rising drift of population from rural to urban areas with the resultant
urbanization demanding for a much larger per capita expenditure in
civic amenities.
vi. Cost-over-run with tendencies of inflationary trends over time and
with attendant increase in government expenditure on goods and
services increasing as well
vii. Increased tendency for public indebtedness, deficit budgeting, and
extra-budgetary activities that are very popular with modern day
governments; these bring about increase in public expenditure
through the vehicles of debt servicing repayments.
viii. The need to finance the dictates of economic plans and growth
targets usually precipitate increasing public expenditure.
37
Public expenditure reserves the tendency to increase overtime because of
these reasons among others.
2.3.2 PEACOCK AND WISEMAN HYPOTHESIS (OR DISPLACEMENT
HYPOTHESIS)
This second theory of public expenditure growth was offered by Allan Peacock
and Jack Wiseman. It is being regarded as the displacement hypothesis of
Peacock and Wiseman, which is concerned with providing an explanation for
the time pattern of change in the level of public expenditure. This happens to be
the result of study by Wiseman and Peacock (1961) on public expenditure in the
United Kingdom for the period, 1890-1955. They agree that public expenditure
grows in step-wise fashion.
They argue that at some times, some social or other disturbances take place
which at once shows the need for increase in public expenditure which the
existing public revenue cannot meet, Ezirim (2006: 85). According to Buhari
(1993: 156), Peacock and Wiseman are suggesting a displacement effect, a
shifting of government expenditure and revenue to new higher level.
38
2.3.3 THE CRITICAL –LIMIT HYPOTHESIS
Ezirim (2006:90), confirms as stated in Bhatta (1982) that the critical – limit
hypothesis is credit to Collin Clerk (1943), who argues that when the share of
the government sector activity (represented by its expenditure) exceeds 25 per
cent of the total economic activity of the country, inflation would be the natural
result; and this would be so even when the country is operating under a
balanced budget.
Therefore, at any time the share of the aggregate economic activity reaches the
critical limit of 25 per cent, the income earners would be affected by reduced
incentives (as a result of high tax incidence), and this would hamper their level
of productivity. The resultant effect being producing less than their capabilities
and potentials can support.
There will then be reduced supply. Consequently, the demand-effects to
government financing (i.e. expenditure) would be quite strong.
2.3.4 MUSGRAVE THEORY OF PUBLIC EXPENDITURE GROWTH
This theory propounded by Musgrave discovered changes in the income
elasticity of demand for public services in three ranges of per capita income. In
a typical of pre-industrial society in developing countries when the levels of per
capita income are low, demand for public service tend to be generally low. The
reason being that at this stage, nearly all income is channeled to
39
satisfying primary needs. When per capita income begins to rise above these
low levels, a demand for services supplied by the public sector such as health,
education and transport, starts rising, pressurizing government to increase
expenditure on them. At the situation of high levels of per capita income,
typical of developed economies, the rate of public sector growth tends to fall as
the more basic wants are satisfied (Buhari, 1993:157).
2.3.5 THE LEVIATHAN HYPOTHESIS
Leviathan is a model explanation proposed by Brennan and Buchanan (1980),
as stated by Aigbokham(1997) in Ehirim (2006: 89), which considers
government as a revenue maximizing entity, whose ability and propensity to
maximize tax-pricing revenue is only constrained by constitutional limits placed
upon its activities. Good example of such constraints is the constitutional
provision for decentralization of spending and taxing powers among sub-
national governments. The basic hypothesis postulated by Brennan and
Buchanan (1980), is that the less the total government intrusion into the
economy, ceteris paribus, the greater the extent to which taxes and expenditure
are decentralized.
Aigbokham (1997), states the assumption that government expenditure is
financed mainly from taxes and other charges, spending will therefore be
limited by the ability of the government to raise taxes. Ezirim (2006:91),
40
expresses the view that it may be correct to say that the ability and willingness
of the tax-payer to pay will bear much on the expenditure behaviour of
government. He further states that “the more decentralized taxing and
expenditure (spending) responsibilities are, the smaller the size of government
would be”. Ezirim (2006:89), also argues that, “the Leviathan’s hypothesis
agrees with fiscal federalism theory that intergovernmental transfers, especially
from top to down, influence public expenditure”.
2.4 OTHER THEORIES
In furtherance of discussion on the Wagner’s law and the Leviathan hypothesis,
Ezirim (2006: 90), cites other studies that offer explanation on other theories of
public expenditure. Such works include Baumol (1967) who offers explanation
on the differential productivity hypothesis, relative price hypothesis of Richard
Bird (1980), development changes argument of Rastow (1971).
Baumol (1967), expresses the view that the rise in government expenditure in
terms of unbalanced growth between public and private sector. The economy is
divided into progressive private sector and non progressive public sector, he
states that productivity rises only in the private sector, whereas wage rate rises
in both, and as a result public expenditure would rise. It went ahead to argue
that public services are more labour intensive and
41
as employees in themselves have no motivation to improve productivity, the
increase in public expenditure becomes acceleratory.
Rastow (1971), offers explanation that the growth in public expenditure is better
seen in terms of changes in levels of development of the country’s economy. In
this circumstance, less developed countries at their cradle of development
required higher levels of investments in order to create necessary infrastructures
for gainful economic breakthrough. When such economies approach maturity of
economic development, much of the further public expenditure would basically
be promoted by repeated market failures (Ehirim, 2006:98).
More detail discussion on public expenditure theories can be found in Rosen
(1995), Agiobenebo (1998), and Onuchukwu (2001) in Ehirim (2006).
2.5 REMARKS ON THE REVIEWED THEORIES
The reviewed theories have raised some salient issues that are of much interest
to scholars in this field of study. To start with, it can be expressed that Wagner’s
theory accepts public expenditure as one that increases, at an arithmetic
progression, while Wiseman and Peacock’s hypothesis seems to agree to
government expenditure to be increasing at a geometric progression
42
(i.e. in Jerks and Step-like manner). However, both attempt to explain the
growth of public expenditure overtime.
Another issue is that, from Wagner’s opinion, a number of factors that affect
public expenditure would include: expansion in the nature and complexity of
traditional governmental functions; increase in the scope or coverage of state
activities; the need to provide and expand the sphere of public good; rising
population; high rate of migration of population to urban centres; problem of
cost-over-runs; rising cost of providing public services occasioned by increase
in size and nature of public services; increasing welfare and social security
costs; budget deficits and debt servicing requirements; target economic growth
rates or levels and development plans’ target. Ezirim (2006), agrees that the
major factor affecting public expenditure would include all major social and
other disturbances in the economy or catastrophic occurrences.
Inflation seems to be an effect on increasing public expenditure according to
Collins Clerk’s Critical-Limit hypothesis, which is contrary evaluation of
Wagner’s opinion. The critical evaluation of these theories have provided good
platform for empirical studies on the relationship of economic growth and
public expenditure.
43
In Nigeria, like the rest of the developing world, examining the productiveness
of the various components of public spending has always been given less
attention (Fajingbesi, et.al. 1999: 151).This implies that before any meaningful
public expenditure policy could be embarked upon, a thorough empirical
analysis of the link between economic growth and public expenditure is
imperative.
Fajingbesi, et.al.(1999:150) in their work confirm that public expenditure
contributes to growth and also emphasis that the distribution between capital
and current expenditure can be misleading, what is important is indeed the
composition rather than the level .
The focus should be to distinguish productive from unproductive expenditure.
Ogiogio (1999) in his work examines the growth impact of recurrent, capital
and sectoral expenditure over the period 1970-93. The study went further to
confirm the existence of long-run relationship between economic growth and
government expenditure. “Contemporaneous government recurrent expenditures
have more significant effect than the capital expenditure while five-year lags of
capital expenditure are more growth inclusive” (Hiley, 1999:154).
44
The study raises the argument that for effective assessment of the effect of
capital investment programmes on economic growth, one would require a five-
year planning horizon (Hiley, 1999). Thus, confirming that both government
expenditure can achieve economic growth and be causally related, thus making
any deduction from a single equation model invalid. This is as a result of the
possibility of simultaneity bias. In his own study, Odusola (1996) as cited by
Hiley (1996:12) adopts a simultaneous equation model to capture the
interrelationship between military expenditure and economic growth in Nigeria.
This study proved that aggregate military expenditure is negatively related to
growth at 10 per cent significant level. When it was composed into recurrent
and capital military expenditure, the former was more growth retarding than the
later. The work further recommend that reduction of resources concentration on
the military will have a positive impart on the economy.
Adubi and Obioma(1999:183) express the view that inefficiencies in the
management of public expenditure, which were ignored or camouflaged by
substantial government transfers in the form of subsidies or subventions,
became very glaring in the 1980s owing to severe resource constraints
confronting governments.
45
To address the deficiencies in public expenditure management in Nigeria,
government has introduced a wide range of policy and institutional reforms,
particularly since mid 1986 when the Structural Adjustment Programme (SAP)
was adopted.
Adubi , et.al. (1999:181) define the public sector as that portion of the national
economy in which economic activities are under the control and general
direction of government. In Nigeria, the public sector consists of the federal
government, state government, local government and government enterprises.
Public expenditure management portrays the manner in which government and
its various organs manage public funds to meet national goals and objectives. It
involves the use of discretional policies involving changes in the level,
composition and timing of government outlays, for the sake of achieving set
objectives overtime, subject to a number of constraints, including budget or the
financial resources at the disposal of government. Adubi, et.al. (1999: 181)
express the view that the traditional role of public expenditure suggest that it
shapes the course and determines the state of economic development. The
World Development Report of 1988 confirm that through spending government
promote national identity, supplies infrastructure for developing the course of
economic growth and distribution
46
of its benefits and provide social services to meet the basic needs of the
population.
Nevertheless, while public expenditure determines economic success, economic
problems are often caused by imprudent public expenditure. Based on this fact,
the World Development Report of 1998 warns that careless public expenditure
can lead to prolonged recession and place a heavy burden on the poor,[Adubi,
etal, 1999:185]. In situations where public expenditure are not properly
managed, they usually create distortions which retard, rather than promote
economic growth and development. This is typically the case for Nigeria,
where, despite the huge resources that accrued to the nation during the boom era
and the tremendous increase in public expenditure during the period, there was
little to account for it. For quite a long period now, as generally observed, we
have witnessed a lot of wastage in public resources, with little or no
transparency and accountability in public expenditure. “This points to the
conclusion that the manner and style by which public expenditure is made and
managed determine, to a large extent, its success or otherwise in achieving the
desired growth and development objectives,” (Adubi and Obioma, 1999:186)
47
2.6 PUBLIC EXPENDITURE AND GROWTH
Three arguments have been advanced in the literature, (i) First, that capital
expenditure are very essential for growth. Three types of public expenditure are
often regarded as very productive; which include physical infrastructure
programmes, human capital programmes and government funded research and
development (Lancing, 1995) in Fajingbesi (1999:149). The proponents of this
view accept that there is some minimum amount of capital expenditure required
for growth (Diamond, 1990). However, Tanzi (1988) and Diamond (1990),
argue that some recurrent expenditure may well be equally beneficial to growth
(e.g. Education), while some capital expenditure are obviously wasteful.
The second argument usually put across to support capital outlay is that the
failure to differentiate between types of expenditure in fiscal adjustment has
been unduly detrimental to capital spending.
The third argument in support of capital spending is that it is less inflationary
than recurrent spending. Fajingbesi,et. al.(1999) argue that this may be true in
the short run, but later, it will put pressure on the aggregate demand, thus
leading to demand pull inflation.
Economic growth is associated with an increase in capital per head; however,
capital cannot be the only requirement for growth. Framework for its use is
48
also very useful, if not it will be wasted. Hemming (1991) observed that the
composition of capital influences growth.
Fajingbesi, et. al. (1999) conclude that public expenditure contributes to growth
and emphasized that it is the composition rather than the level which is
important and also moved ahead to say that the distinction between capital and
current expenditures can be misleading.
There is a lack of consensus on both the empirical impact of size of public
expenditure on growth. In addition, economic theory does not provide a well
developed methodology for the incorporation of government expenditure in
Standard growth models. Studies that have found a negative relationship
between the size of public expenditure and growth include Landau (1986),
Barro(1990), Grier and Tullock (1989). Others that have found a positive
relationship are those of Ram (1986), Aschauer (1989) while those of Kormendi
and Maguire have found no significant relationship. Most of the above studies
have utilized aggregate measures of government size in the form of either
growth in government consumption or government consumption as a ratio to
GDP.
Balassa (1978) used pooled data of 10 countries for 1960-1966 and 1966-1973.
The regressors include domestic and foreign capital flows, labour
49
growth, and export growth. The result showed that exchange rate is positive in
explaining domestic and capital flows.
Further more, Barro (1989) in examining the impact of current expenditure on
infrastructure, education and health development using a cross-section of 98
countries, including industrial and developing countries , for 1960-1985.
Regresses include the initial per capital GDP level, its squared value, the initial
level of human capital, proxied by primary and secondary enrolment rates, the
ratio of government consumption to GDP, and measures of political instability
and market distortions. To deal with potential heteroskedasticity, observations
are weighted by either the level of GDP or population. However, these standard
errors do not differ greatly from the OLS estimates. The result showed that the
negative co-efficient of current expenditure is positively and significantly linked
to infrastructure, education and health on economic wide basis.
Additionally, Castles and Dorwrick,( (1988) also used cross-section of 18
OECD for 1960- 1985 including initial per capita GDP, an institutional sclerosis
dummy, population growth and investment rate as regressors to investigate the
impact of current expenditure on macroeconomic variables. The result showed
that the negative co-efficient of current expenditure is
50
negatively correlated with education and health, but positively correlated with
transfer. This result contrasts sharply with the findings of Barro (1989).
Diamond (1989) used five-year averages of growth rates for 125 countries
during 1960-1980 to investigate the role of current expenditure on private
capital, growth of the labour force, export growth and external interest rate. The
result concludes that current expenditure is positive in explaining infrastructure,
education, health, and transfers.
Diamond (1989) finding is consistent with the result of Barro (1989) and also
consistent with the result of Castles and Dowrick (1988). Diamond (1989) also
introduced exchange rate in real export as one of the regressors. The result also
showed that exchange rate in real export has a positive co-efficient in relation to
current expenditure.
Dornbusch and Reynoso (1989) used a cross-section of 41 countries, using
averages for the period 1965-1985, with the level of per capital income in 1965,
change in the capital-labour ratio, and an inflation dummy that applies to
inflation rates in excess of 20 percent as regressors. The result shows that the
co-efficient of consumer price index is positive and significant in the regression
model.
51
Easterly (1990) used a cross-sections of 22 developed and 70 developing
countries, using- 2 -averages for the period 1965-1987. Regressors include the
investment-GDP ratio, population growth, export-to-GDP ratio, government
consumption ratio, a subjective dummy variable measuring trade restriction, and
a dummy variable measuring financial repression (defined as an average real
interest rate less than minus 5 percent). His result show that co-efficient of
current expenditure is positive in explaining real deposit interest rates.
Khan and Reinhart (1990) examined the relationship between current
expenditure and rate of change in export. They used a cross section of 24
developing countries, using averages for the period 1970-1979. Regressors
include total investment, private investment, public investment, and growth of
labour, exports, and imports. The resulted documented extensive evidence to
support the view that current expenditure promotes export. This result is
consistent with the Keynesian model, which posits that increase in expenditure
stimulates economic activities, which directly promotes level of output and on
the long-run increases the rate of export.
Koester and Kormedi (1989) used vector-auto regression to estimate the impact
of recurrent expenditure on investment rate, labour force growth, and
52
initial GDP per capita for the period 1970-1979, with a cross section of 63
countries. The estimation result is very interesting. The estimation showed that
there is fixed effect on the co-efficient of the regresses.
Landau (1983 and 1986) studies use cross-sectional data for 104 countries over
1960- 1977, including education, energy consumption, initial GDP per capita
and climate dummies. The 1985 study utilizes 16 developed countries for
pooled cross-sections over the 1952-1976 period, with investment rate, per
capita initial GDP, changes in terms of trade, education, and various dummy
variables as regressors. Lags of some variables are employed. The co-efficient
for current expenditure, total government expenditure and infrastructure were
negative, while the co-efficient for transfers was positive. The results are not a
radical departure from previous studies along this line.
Marlow (1986) used the simple ordinary least square methodology to investigate the
relationship between the size of government sector and the level of growth for a cross-
section of 19 industrialized countries during 1960-1980. The result shows that the size
of government sector has a negative relationship with the level of infrastructural
development, educational development and health development. This result is one of
the pioneer works that advocated for the downsizing of the public sector through
53
the introduction of Structural Adjustment Programme in most developing countries of
the world.
Marsden (1983) is the first study along this line that compared countries with
difference in growth rate. He classified the countries into developed and
developing countries. The study made a comparison between 10 countries with
low growth and another 10 countries with high growth, using mixed data for
developed and developing countries with high growth, using mixed data for
developed and developing countries during 1970-1979. The result shows that
tax receipts has negative co-efficient.
Martin and Fardmanesh (1990) used a cross-section of 76 developing and
developed countries, with labour and capital as additional regressors over 1972-
1981. The result shows that total government expenditure is positively linked to
fiscal deficit.
Weede (1986) used pooled cross-section of industrial countries over a split
1960-1982 period with initial per capita GDP and an index of democracy as
additional to evaluate the role of government expenditure on economic growth
and political environment. The result shows that the high level expenditure on
the part of government has a negative impact on transfers, economic growth and
tax receipt. This result is consistent with literature. The
54
social theory argues that the public sector is not efficient in resources allocation.
This is even more worrisome when one considers the level of corruption and
fiscal indiscipline in the Nigerian public sector. Thus, the proponents of the
social theory posits that it only the private sector that can efficiently allocate
scarce resources effectively, which will on the long-run promote economic
growth and other macroeconomic variables.
Skinner (1987) also used pooled cross-section of 31 Sub-Saharan nations over
1965-1973 and 1974-1982 with the terms of trade, population, and investment
rates as other regressors. The emphasis is to investigate the fixed effects of total
government expenditure on balance of trade and level of investment. With a
negative co-efficient for tax receipts, the result documents evidence to support
the argument that increase in government expenditure stimulates consumption,
promotes importation and as such resulting in balance of payment deficit for an
import dependent countries like most West African countries.
Michaely (1977) in using averages of the ratio of exports to GNP and change in
this ratio for 41 developing countries over the period 1950—1973, coefficients
of the Spearman rank correlation are computed. The result ranked rate of
exchange in real export above the other regressor in the
55
equation. This result is consistent with the results of Khan and Reinhart (1990),
Diamond (1989), Balassa (1978), and others.
Michalapoulos and Jay (1973): A cross-section of 39 developing countries in
the period 1960-1966, with domestic and foreign investment, labour growth,
and export growth as regressors.
Orsmond (1990): A cross-section of 36 developing countries over the 1975-
1986 period. This study undertakes both linear and non-linear regressions,
including the components of expenditures and taxes alternately, non-tax
revenues, and the fiscal deficit. Other regressors include the initial per capita
GDP level, changes in exports, inflation investment rates, and population
growth.
Otani and Villanueva (1990): The growth equation, derived from a
structural macroeconomic model, includes the saving rate, export
performance, expenditures on education, population growth, the real
interest rate on external debt, and regional dummy variables. The sample
consists of 55 developing countries over the 1970-1985 periods.
Regression results are reported for the entire sample and for different
income groups.
Polak (1989): A cross-section of 40 developing countries over the period 1965-
1985. Regressors are the ratio of total investment to GDP, median interest rate
on 6-12 month deposits, corrected for the average annual rate of inflation
(consumer prices), and the growth rate of real exports.
56
Ram (1985, 1986): The 1985 study is a cross-section of 73 LDCs in the periods
1960-1970 and 1970-1977, using the ratio of total investment to GNP, growth
of labour force, growth of real exports, and a dummy variable that takes value
one if the country is low-income, zero otherwise. In the 1986 study, annual data
for 88 LDCs covering the period 1960-1982 are used. First, the growth
relationship is estimated for each country separately. Then, the relationship is
also estimated using a cross- sectional sample. The same explanatory variables
are used as in the 1985 study.
Rubinson (1977): A cross-section of 40 countries during 1955-1970 with initial
GDP, population growth and export ratio as additional regressors.
Saunders (1985): A cross-section of 20 OECD countries during 1961-1983
using various aggregate measures of government expenditures.
Tyler (1981): A cross-section of 55 middle-income LDCs for the period 1960-
1977, with the rate of total investment, labour force growth, growth of total real
exports, and growth of real manufactured exports as independent variables.
In Nigeria, empirical studies that relate to public expenditure include; Ekpo
(1995), Ogiogio (1995), Ezirim (2006), Fajingbesi et al (1999) and Tsauni
(2007). There are other empirical studies that focused on the growth effects of
fiscal policies (public expenditure, taxation and deficit), a useful review of
57
such studies has been undertaken by Orsmond (1990), in Khan and Villanueva
(1991).
2.7 STUDIES BASED ON FOREIGN EVIDENCE
The selection of an appropriate paradigm provides us with some hint as to the
likely impact of public expenditure on the economy; the issue is ultimately an
empirical one. Presently, there is a vast body of studies that examines the
relationship between public expenditure and macroeconomic variables.
Table 2.7 summaries the results from empirical studies on the relationship
between public expenditure and macroeconomic variable in both developed and
developing countries
58
Table 2.7:
Selected Empirical Studies of Public Expenditure and Macroeconomic Variables
Author Sample Explanatory Main results
Landu (1983) Panel (27 LDCs) Categories of g GC has negative impact.
Kormendi and
Meguire (1985)
Panel (N=47) GC GC insignificant.
Landu (1985) Cross-section 65
LDCs (1960-80)
G and various
functional types
GC and GI significantly
negative. Eduction is
insignificant.
Ram (1986) 115 countries
(1960) -80)
Private investment,
and labour force
growth rate
Externality effect of G is
positive, especial in lower
income countries. G has a
negative impact.
Grier and Tullock
(1989)
113 country panel
(1951-80)
GC GC significant negative,
but positive for Asian sub-
sample.
Romer (1990) Cross-section of 112
counties (1960-85)
G, GC, GI and human
capital
G significant and negative
but GI has a positive
coefficient.
Alexander (1990) Panel 13 OECD
countries (1959-84)
GC, GI and deficits
(growth rate of shares)
GC and inflation have
negative impact on growth.
Barro (1970-90) 98 countries (1960-
85)
GC GC has a negative impact.
Chan and Gustafson
(1993)
Time series on Uk
(1955-86)
G less transfer (levels),
private consumption
and relative price of
public goods
G a positive impact on
private consumption.
Devarajan, et al
(1993)
Panel 14 OECD
(1970-90)
Functional types of G
(health, education,
transport, etc)
Health and infrastructure
spending have positive
impact; education and
defence have negative
impact.
Easterly and Rebllo
(1994)
Cross-section of 100
ADCs and LDCs
(1970)
Government surplus,
GI, GC and other types
of expenditure and
taxes, and human
capital
GI has a negative impact
on growth, GC a negative
impact, but positive impact
on private investment.
Spending on infrastructure
has positive impact on
private investment.
Lin (1994) 62 country panel
(1960-85)
I and G (growth rates),
growth rate of labour
force
Mixed result. GI insig. In
ADCs, but significantly
positive in LDCs.
Source: Kweka, J.P and Morrisey O. (2000: 4)
59
Table 2.7 (cont.)
Selected Empirical Studies of Public Expenditure and Macroeconomic Variables
Author Sample Explanatory Main results
Hsieh and lai (1994) Time series G7
(1885-1987)
G and private
investment
No uniform causality
Hansson and
Henrskson (1994)
Cross-section of 14
industries for OECD
country (1970-87)
G, GC, GI, education,
transfers, social
security
Transfers and G have
negative effect. Education
spending positive, GI
insignificant.
Devarajan et al
(1996)
Cross-section 43
LDCs (1970-90)
GC, GI and functional
categories
GC positive, GI negative in
LDCs, reverse for ADCs.
Ghali (1998) Time series, 10
OECD countries
(1970: 1-1994: 3)
G, I, exports and
imports
G Granger-causes growth,
directly for most countries.
Kneller et al (1998) Panel of 22 OECD
countries (1970-95)
GI, GC other types of
expenditure; I, types of
taxes
GI enhances growth, GC
does not.
Dunne and
Nikolaidou (1999)
Time series on
Greece (1960-96)
Military expenditure,
defence, GC
Military/defence
expenditure have a
negative effect; GC does
not affect growth.
Batchelor et al
(1999)
Time series on S.
Africa (1964-95)
Military and non-
military expenditure
Military spending has
positive externality,
negative size effect.
Tanninen (1999) 52 country panel
(1970-92)
I, categories of G,
income inequality
GC has negative impact.
Spending on public goods
growth retarding for large
G but not for small G;
social security spending is
positive .
Folster and
henrekson (1999)
23 OECD (1970-95)
countries
G and taxes G a significant negative
impact.
Source: Kweka, J.P and Morrisey O. (2000: 4)
60
2.8 PURSUING ECONOMIC GROWTH IN NIGERIA
Nigeria is seen as a land of great potential. There are abundant natural and
human resources, before now, the economy should have been transformed into
major growth in the world and subsequently joined the league of newly
industrialising, medium-income countries in the world. However, over the
years, the condition of things has been on the contrary, as macroeconomics
performance has continued to be disappointing due to many factors including
policy errors (Oluyemi,2004).
According to Maku (2009: 1);
The size and structure of public expenditure will determine the pattern and
form of growth in output of the economy. The structure of Nigerian public
expenditure can broadly be categorized into capital and recurrent
expenditure. The recurrent expenditure are government expenses on
administration such as wages, salaries, interest on loans, maintenance
etc., whereas expenses on capital projects like roads, airports, education,
telecommunication, electricity generation etc., are referred to as capital
expenditure. On of the main purpose of government spending is to provide
infrastructural facilities and the maintenance of these facilities requires a
substantial amount of spending. The relationship between government
spending on public infrastructure and economic growth is especially
important analysis in developing countries, most of which have
experienced increasing levels of public expenditure overtime (World
Development Report, 1994).
61
There is need to manage the economy in a manner that will ensure full
employment, price stability, external balance of payment equilibrium, growth
and development. According to Oluyemi (2004: 51). “One major process of
achieving this is through the annual budget and, where necessary through
supplementary budgeting”. Thus it could be said that budgeting is an important
instrument of macroeconomic management in the economy.
A budget’s performance can be viewed in terms of its relevance, effectiveness,
efficiency as well as overall impact on the economy. Also very significant is the
budget implementation. “Budgeting can be conceived as a process of taking
deliberate measures aimed at moving the relevant economic system from its
current state towards a specified desired state”.(Oluyemi, 2004:52).
Budget indicates government’s intention during a specified period, usually a
year. The most important fiscal tool which government uses is the National
budget as a yardstick to raise and allocate funds and measure its performance in
a fiscal year.
Akinkugbe (2004) argues that the government is the vehicle through which
planning, budgeting, implementation and control are carried out worldwide. It is
the focal point of reference irrespective of the type of political set up being
operated. In other part of the world, the government is the catalyst
62
through which progress and development are planned and achieved, and this is
what has made the difference between Europe, America, Asia and the laggard
Africa in the last half century. “In Nigeria, the government has implemented
budgets for forty-eight (48) years since independence in 1960. Today, we are
still showing development parameters of an “Underdeveloped” Country.
“Whereas Malaysia in 1960 was poorer than Nigeria, today, their economic and
development parameters qualify them to be described as “Developed Nation”
like any member of OECD”. ( Akinkugbe, 2004:59).
The difference between Nigeria and Malaysia in those 48 years is that Malaysia
budgeted and implemented them and achieved development. In Nigeria, we
budgeted and implemented them and achieved under development.
Nigeria witnessed many years of military rule, the emergence of democratic
government in May, 1999 was a good omen to tackle the inherited structural
problems, and to inspire confidence in the Nation’s ability to overcome its
economic and social-political problems.
To ensure a solid foundation for effective reforms and sustainable long term
growth of the nation’s economy, budgets were usually adopted yearly as a fiscal
tool in the hand of the government. It focuses at redressing perceived distortions
in the economy and for the realisation of selected policy goals during a given
period.
63
According to Oluyemi ( 2004:53), “The economy has recorded mixed
performance with some persisted basic structural imbalance such as the
lingering problems of import dependence, reliance on single economic sector-
oil, weak industrial base, low level of agricultural base, low level of agricultural
production, a weak private sector, high external debt overhang, rising
unemployment, poverty, etc. in the system”. From monetary and economic
point of view, capital expenditure is positively related to economic growth.
However, from the look of things in the last few years, there are indications that
capital expenditure has not been having the necessary impact on growth in the
system. The apparent failure of that expenditure to uplift the nation’s economy
to any significant extent provides prima facie evidence of lapses in the
implementation of the budget.
Ezekwesili (2002) argues that it is the widely lampooned abuse of the public
treasury that has led the country down the path of lean resources and brought
along the continuous budgetary constraints that we must get a handle on, or
continue our regressive developmental trend.
The best measure for enlarging the envelope of resources in countries with
budgetary challenges like Nigeria is to plug the holes in the public treasury.
64
The good governance that citizens of any nation demand starts with the good
governance of the public treasury. Nigerians have not had the good fortune of
such good governance of public wealth. Nzenwa (2000) also expresses the view
that the bulk of developmental resources are held by the government and her
choices and decisions affect almost every other thing, even the options available
for the organised private sector (OPS).
Schiavo-Campo and Tommasi (1999) argue that lack of predictability of
financial resources undermines strategic prioritization, makes it hard for public
officials to plan for the provision of services, and is an excellent alibi for non-
performance to continue. Predictability of government expenditures in the
aggregate and in the various sectors is also needed as a signpost to guide the
private sector in making its own production, marketing and investment
decisions.
Budgets have come to be linked with management of the economy, in turn
bringing a greater consideration of the effects of expenditures on the economy.
The days are gone when expenditure were considered merely in terms of type
and the authorities responsible for incurring them. Currently, what is envisaged
is in terms of the multiplier effects of expenditure on incomes, consumption,
savings and investment.
65
“As most expenditures had come to be financed by borrowing from the public,
it also became necessary to consider the productive capacity of the programmes
being financed in order to ensure future financial viability”, ( Premchand,
1983:42). The budgetary process in due course, became more important,
because here the administrative, accounting, economic and financial objectives
interfaced and collectively produced a coherent fiscal policy. Budgeting is at the
crossroad of economics, political science, public administration and a host of
other social disciplines.
Premchand (1983:42) identifies three concepts of budgeting and evident in the
economic and organisational approaches, which include; (1) Budgeting as an
optimizing process that deals essentially with normative theories of resource
allocation, which in turn deal with the maximization of individual and social
welfare; (2) Budgeting view as an internal bureaucratic process and comprising
theories that compare the approaches of governments toward resource allocation
to firms in the commercial world; and (3) Empirical or descriptive approaches
that link budget as being finally decided in the bureaucratic process with
reference to endogenous variables ( Cost of Services) and exogenous factors (
Availability of Revenue).
Effective fiscal policy requires an effective budgetary process that integrates the
economic, financial and programme analysis as a feature economic analysis
66
involves the inclusion of long-range fiscal plans, establishment of resource
needs, formulation of alternative fiscal strategies, assessment of the proposed
budgets impact and planning of tax and expenditures adjustments. Likewise
financial analysis should consist of the evaluation of competing demands within
each function and their contribution to the allocation and stabilization purposes.
In the same direction, programme analysis entails the analysis of programmes
needs, incidence of expenditures and benefits, analysis of service standards,
estimates of the volume of activities, phasing of outlays and the guarantee of an
adequate allocation of resources.
The major task in budgetary policy is to promote growth; which can be
accelerated through additional expenditures in desired sectors either through
direct outlays or through an appropriate strategy of development of
infrastructure that, in turn, will induce further investment. The implementation
of a strategy of economic growth is reflected in the allocation of budgetary
resources to those sectors whose projects and programmes have been reviewed
and are considered to have an impact on growth.
There was greater recognition, over the years of the impact of the budget on the
economy and the economy’s impact on the budget. Indicators of employment,
prices, economic growth and balance of payments have become important in
67
determining appropriate annual expenditures, but they have not been given the
emphasis due in the traditional literature on government budgeting.
2.9 NATIONAL INCOME ACCOUNTING
National income accounting refers to the measurement of aggregate economic
activity, particularly national income and its components.
The United Nations (UN), since its creation, has been leading the initiatives to
promote accurate compilation of national income.
The first document on measurement of National Income and the construction
of social accounts was published in 1947. There was a revision later in 1968
with a change in title to “A System of National Accounts (SNA). “Later in
1993, there was a comprehensive revision in the system of National Accounts”
(Adamu, 1996: 27). The main motivation for the individual scholar to produce
national income is the desire to compare the economic performance of nations.
As stated in CBN (2008), statistical bulletin “The System of National accounts
(SNA) is a consistent, coherent and integrated set of macroeconomic accounts;
balance sheets and tables based on a set of internationally agreed concepts,
definitions, conventions, classifications and accounting rules”. It provides a
comprehensive accounting framework within which economic data can be
compiled and presented in a format that is designed for purposes of economic
analysis, decision taking and policy making.
68
Adamu (1996: 25) states that “There are two basic forms in which information
about the economy can be recorded in System of National Accounts (SNA):
flows, which refer to actions and effects that take place within a period of
time, and stocks, which refer to a position at a point of time. For example, in
the case of a company’s audited accounts, stocks appear in the balance sheet
and related tables, while flows appear in all the other accounts and tables.
Economic flows reflect in the creation, transformation, exchange, transfer or
extinction of economic value. They involve change in the volume,
composition or value of an institutional unit’s assets and liabilities”. Economic
flow have specific natures such as wages, taxes, interest, capital flows etc.
Thus, these record the ways in which a a unit’s assets and liabilities are
changed.
Categorization of transactions in the economy are done on the basis of
physical characteristics of the goods exchange or services provided as stated
by Adamu (1996: 26) on the basis of the status of the transactions and,
possibly on the purposes they hope to achieve, as follows:
a.) Transaction in goods and services: output of goods and services
intermediate consumption, final consumption by government and
households, gross capital formation (increase in stocks and gross fixed
69
capital formation), exports of goods and services, imports of goods and
services and net purchases of land and tangible assets.
b) Distributive transaction linked to the process of production:
Compensation of employees, indirect taxes and subsidies.
c) Transactions involving distribution of income: property and
entrepreneurial income, accident insurance transaction, and unrequited
current transfers?
d) Transactions involving distribution of capital: capital transfer.
e) Financial transactions: all financial services and transactions.
Transactions are classified in one or two ways. There is the process of
production and balance between the supply and users of goods and
services. This is regarded a kind of activity. Grouping of such activity is
usually done according to International Standard Industrial Classification
(ISIC). Kinds of activities are grouped broadly into major divisions. Each
major division is broken down into units of homogenous production
establishment or establishment-type unit. Furthermore, for the purposes
analysing the economic situation, the units could be classified into those
producing goods and services (Industries), those producing non-marketed.
2.10 DECADES OF NIGERIAN NATIONAL INCOME ACCOUNTING
70
Earlier attempt at estimating the national income of Nigeria was the one embodied in
the pre-second World War work of John Mars, Margery Perham and A.J. Brown.
Isaac Dina made a frail attempt to establish another estimate immediately after the
war. However, it was not successful nor was any final result published. (National
Planning Lagos, 1975). Before the appointment of A.R. Press and I.G. Stewart by the
Colonial Office to undertake a systematic estimate of Nigeria’s national income
nothing actually significant happened. They were to undertake a systematic estimate
of Nigeria’s national income and what came out of this pioneering work was
published in 1953, and they did not only contain the first systematic set of data but
also much basic of conceptual and methodological issues. Henceforth from that
moment, the report was to form the basis of any further national income estimation in
Nigeria, nevertheless the actual data were only for one financial year, 1950-1951. it is
on record that the first set of time series data for Nigerians gross domestic product, for
the period 1950- 51 to 1957-59 was made available by the more comprehensive
exercise carried out in the later year of 50’s and early 60’s by the team led by E.F.
Jackson and P.N.C. Okigbo. Once more, like its pioneer predecessor “the resulting
report was to establish the benchmark for economic policy and economic statistics for
the first decade following the achievement of political independence” (Federal
Ministry of National Planning, 1975).
71
As the results of Prest and Stewart were marginally extended in 1954 by the
visit of World Bank mission, the Jackson and Okigbo’s estimates were
modified slightly by the Federal Office of Statistics in 1963. It is a fact that
each succeeding exercise represented an improvement over its predecessor, in
conceptual coverage and methodology.
72
NATIONAL INCOME AND OUTPUT ACCOUNT FORMAT
Income Output
(1) income from:
a) personal sector
Xx
(i) personal sector
Xx
(b) Business sector Xx (ii) business sector Xx
C) government Xx (iii) government Xx
(d) foreign sector Xx (iv) foreign sector Xx
(A) total national income Xx (v) Depreciation
Gross National Product Xx
(2) Business Transfer Payments Xx
(3) Indirect Business Taxes Xx
(B) Net National Product Xx
(4) Depreciation Xx
Gross National Product ____ ____
(Income) Xx
===
Output Xx
===
Understanding this macroeconomic framework is very vital for meaningful
operation within a national economy in which national budgets is a critical
instrument Current income and output were classified as flows. Wealth was
73
counted as stock. It is possible to account for wealth too in order to produce
balance sheet of national assets and liability, which also affect national welfare.
The knowledge of the economic framework of a nation enables stakeholders in
an economy to measure and compare economic performance from year to year
and from country to country.
Through national income accounting we are equipped to:
Understand the behaviour of the economy
Understand the relationships among economic variables
Understand the effects of economic policy
Understand how much firms in the economy produce
Understand what a nation’s total income is
Understand who gets the income from production among workers,
businesses, and government
Understand who buys the output of the economy among household, for
consumption; households and business, for investment; and government
for public goods.
Understand how the economy remains in equilibrium.
74
2.11 REFORMING THE BUDGETING PROCESS IN NIGERIA
The tasks of budgeting have become more complex and seemingly intractable.
Formulation of economic policies without the recognition of the institutional
constraints is an open invitation to failure; emphasis on administrative aspects
without recognition of economic basis and purposes of policy is counter
productive.
Budgetary policy and budgetary management of both the industrial and
developing countries relate to utilization of budgets as instruments of national
economic management, communicating the resources constraints to spending
departments, reducing gaps between planned and actual expenditures.
The persistence of growth in expenditures, increasing deficits, and difficulties in
raising resources have given rise to serious questions on the direction of fiscal
policy and on the institutional adequacy of the budget machinery for controlling
expenditures (Premchand 1983: 35). The mismatch between theoretical
expenditures and practical performance in fiscal management is usually a
derivative of lack of comprehension of fiscal relationships and related issues (
Komolafe, et. al. 1999:3). The transactional link between the objectives and the
performance targets comprises a network of activities or programme of actions
which have resource implications – the most constraining of which is apparently
financial. Thus, Adeyemo (1989: 20), emphasises that “There have to be
75
systematic methods for programming those activities to minimize commitment of
resources and maximize achievement of the development objectives for the
shortest planning horizon, the budget has become the most versatile tool
worldwide.
Thus, there is the need to evaluate the impact of the budgetary operations on the
economy and of the economy on the budget and the relationship of these
operations to the overall objectives of economic growth. Second, the objectives
of the fiscal policy can be attained through the instruments of taxes, expenditures
and to an extent the provision of credit. The effects of these instruments are not
identical and one task of budgeting is to ascertain the effects of each and to
arrange the three instruments so that they collectively serve the purpose. Third,
the objectives are served by direct government operations, through activities of
levels of government, notably the state and local governments and through the
public enterprise at each level. Fiscal policy at a macroeconomic level requires
close coordination among all three levels in all phases of the budgetary process.
Fiscal policy is used to achieve the desired objectives of allocation of resources
and to influence the economic activities of the community in desired ways and is
concerned with the allocation of resources between the public and private sectors
and their use for the attainment of stability and growth.
76
The effects of fiscal policy are usually extensive, however they are particularly
measurable in areas such as employment, price stability, savings and investment
and the balance of payments.
Formulation of fiscal policy presumes the identification and clear recognition of
institutional aspects of government finance, such as tax systems, their incidence
and shifty, budget formulation and execution, and financial management. The
focus of budgeting is on the attainment of efficiency in the allocation of resources
within the public sector and is influenced at each stage by the goals of fiscal
policy. Although there is less convincing evidence that fiscal policy alone would
be able to reduce the inequalities steaming from the existing operations of
government, however, in conjunction with other social reforms, it has
considerable potential for this purpose.
Fiscal policy is so wide-ranging that selection of a combination of differing
objectives is both complex and controversial. The impact of these objectives on
budgeting is threefold. First, budgeting involves the identification and
management of, redistribution, stabilization and economic growth ( Komolafe,
1999: 7).
The growth consideration often seems to be the overriding objective in
developing countries where per capita incomes are generally very low. In
77
consideration of this fact, the tools of taxation and public expenditures should be
used to achieve an accelerated rate of growth.
Public spending in social services like education, water and health care, etc is
generally considered as the main redistribution or antipoverty policy instrument
in developing countries. The redistribution process of public expenditures affects
the population in a number of ways. First, fiscal policy influences the
macroeconomic balances, particularly the fiscal and trade deficits and the rate of
inflation. These changes in turn, affect living standards-directly through
influencing real incomes and indirectly, through changing the rate of economic
growth (HURILAWS, 2007).
These are the macroeconomic effects of public spending. Secondly, public
spending creates incomes directly, some of which might benefit poor households.
These incomes in turn create other incomes through the income expenditure
multiplier process. These are the primary income effects (or the “expenditure
incidence”) of public spending.
Finally, public expenditure generates transfers to the population. These may be
either in the form of cash or monetary transfers, such as social assistance or
social insurance payments, or in kind. Social insurance payments include
subsidized government services such as health, education, and infrastructure
services. The well-being of the beneficiaries are usually improved by these in-
78
kind transfers and also enhance their longer-run income-earning potentials. They
involve both current and capital transfers to the recipients and can be called the
transfer effects (or the “benefit incidence”) of spending. Government spending
needs to follow sound priorities which is best achieved through a coordinated
process of medium term fiscal planning, annual budgeting and regular monitoring
of revenue and expenditure (Anyafo, 1996:421).
The understanding of the budgetary process is very essential because of its role as
a tool for economic management and also the awareness of the implications of
public sector reforms for budget preparation, implementation and control,
particularly how to direct public expenditure and investment to the vulnerable
groups in the country.
Expenditure targeting is very much a policy issue and an area of growing concern
in contemporary budgeting practice, particularly in countries implementing
adjustment programmes.
The budget is a comprehensive description of government fiscal polices and their
corresponding annual financial plans. Since budgeting is a formal process of
mobilizing, allocating and managing resources for the execution of public sector
programmes and projects, the budget is an important instrument for plan
implementation. Usually, budgets should derive from medium-term plans, which
79
themselves are derivative of underlying perspective plans. Thus, planning and
budgeting are essentially complementary and related processes for the realization
of national goals.
“They represent a continuous and recurring process in the implementation of a
development strategy. In Nigeria, despite these close links between planning and
budgeting, the degree of harmonization between them has remained weak in
practice”. (NCEMA National Seminar Report 1989).
Public expenditure is realized through the budgeting process which is
indisputably a key government tool for the implementation of social, political and
economic policies and priorities. The issue of sectoral vulnerability in public
expenditure adjustment is also important. There are proves indicating that social
sectors, which offer opportunities for protection of the poor, are often considered
as more vulnerable than others to reduction in expenditure, whereas sectors like
defence have grown to be less susceptible.
A major issue in budgeting is how to effectively trade-off between consumption
and investment expenditure or between sectors and categories of expenditures in a
situation of economic adjustment. The importance of this issue lies in the fact that
the revenue base of a state depends on the level of its economic activities. Thus, the
nature of the trade-off in the adjustment of expenditures has significant
implications for economic growth and welfare.
80
2.12 THE ROLE OF ACCOUNTING IN PUBLIC EXPENDITURE
MANAGEMENT
Accounting has a great role in the fiscal management of nations. The
fundamental premise is that accounting has a crucial role in the formulation and
implementation of fiscal policies and, indeed, lies at the head of modern
governments.
Budgets have acquired new and deserving policy. It is the main tools for
distribution of economic resources and stabilisation. For budget to be successful
as instruments of policy and economic management, they had to be ably served
by accounting.
Despite the long pedigree, government accounting has suffered a long neglect at
the hands of accounting profession and the government. Development over the
years have had a major impact on the course and tenor of financial management
and therefore, on accounting in government. It should be noted that the changing
tasks of macroeconomic management have imposed new demands in addition to
the traditional management needs on the accounting system (Nwankwo, 2004:
37).
The accounting system in government should now reflect changing patterns in
public expenditure management.
81
Government at all levels are expected to be more responsive, accountable, and
cost effective. Presently there is much dissatisfaction with the existing systems,
particularly with its inability to make payments or furnish reports on time.
82
TABLE 2.12 DIMENSION OF PUBLIC EXPENDITURE MANAGEMENT
Categories of
objectives
Broad content Techniques utilized
for achieving
objective
Comments
Economic and
financial
Macroeconomic
stability
Determination of
aggregate spending
size of deficit
surplus and its
financing or
utilization.
Specification of
overall
macroeconomic
policies and design
of fiscal policy;
involves the
application of
macroeconomic
financial planning;
techniques of
medium-term
planning are also
extensively utilized.
This provides the annual
policy framework and a
link with monetary
policy. The
determination of
aggregate spending
could involve a two-tier
approach – one for
program appropriation,
which may be on an
obligation or accrual
basis, and a cash-based
approach to total
spending.
Effective budgeting Matching outlays
with resources,
determining
intensity of
allocation of
resources among
functions, and
within functions,
among programs
and activities.
Rolling expenditure
planning;
prioritization;
planning-
programming-
budgeting;
fundamental
expenditure
reviews; zero-base
budgeting; target-
based budgeting
below-base
budgeting; line-item
review;
development plans;
output budgeting
system; accrual-
based budgeting
system.
Techniques shown in the
previous column are
generally applied
independently of each
other. In any event,
several feature are
common to these
techniques. The actual
techniques used in a year
depend very much on the
economic setting and the
goals of fiscal policy. In
most developing
countries, a combination
of line-item reviews and
development plans, and
ad hoc budget-cutting
measures are in
operation.
Source: A. premchand (1998).
83
TABLE 2.12 (CONT.): DIMENSION OF PUBLIC EXPENDITURE MANAGEMENT
Categories of
objectives
Broad content Techniques utilized
for achieving
objective
Comments
Management aspects
Financial discipline Budget outcome to be
congruent with
estimate
System of time-lice-
based release of
budget authority; cash
management;
techniques; intrayear
reporting and
monitoring;
development of online
systems to track day-
to-day development;
provision of year-end
flexibility.
The management aspects
specified here work within
the overall policy
framework indicate above.
Efficiency gains Achieving economy
and efficiency with
estimate.
Specification of cost
standards;
specification of fiscal
dividend; performance
budget system;
activity-based costing
system; improved
competitive tendering
procedures.
The intent is to secure
efficient implementation of
programs and projects, and
delivery of services
Program and project
management
Managers to have
operational flexibility
to fulfil objectives
within specified
budgetary resource.
Performance
budgeting;
management
contracts; creation of
task-oriented
agencies; utilization
of new management
philosophy; value-for-
money audit;
evaluation.
These techniques may be
applied in various ways.
Financial disclosure Provision of accurate
information on the
status of government
finances to
policymakers,
managers, and the
public.
Accurate-based
accounting decision-
related information;
specification of
accounting standard.
Government have a
responsibility to provide
unbiased information at
regular intervals.
Source: A. premchand (1998).
84
TABLE 2.12 (CONT.): DIMENSION OF PUBLIC EXPENDITURE MANAGEMENT
Categories of
objectives
Broad content Techniques utilized
for achieving
objective
Comments
Public interest
requirements
Transparency Clear decision-making
procedures.
Improved budget
documentation that
shown the objectives
and features of
programs and
projects; preparation
of annual reports of
agencies;
dissemination of key
financial information;
complete annual
accounts.
In general, transparency
has often been viewed as
limited to the requirements
of the legislature; it has
however, broader
requirement vis-à-vis the
public. The emphasis on
transparency and
accountability could
contribute to the pursuit of
defence mechanisms in the
executive wing. This could
be overcome in the long-
run through the rigorous
implementation of
standards for transparency
and accountability.
Accountability Provision of goods
and services within
specified quality, cost,
and time schedules.
Performance
budgeting system;
accountability and
performance-oriented
service contracts;
annual review or
evaluation; value-for-
money audit.
Accountability is not
merely for the money
spent, but for results; the
emphasis is not merely to
be critical of the existing
systems and procedures but
to facilitate the evolution
of alternative systems of
delivery of goods and
services.
Client orientation Government systems
and procedure should
be designed to serve
the needs of the client
groups.
Internal evaluation;
group surveys of
client views.
The public is the final
judge of the quality and
quantity of services
provided by the
government, either directly
or indirectly. The
operational processes of
each agency should be so
designed as to facilitate
interaction with the public.
Source: A. premchand (1998).
85
TABLE 2.12 (CONT): DIMENSION OF PUBLIC EXPENDITURE MANAGEMENT
Categories of
objectives
Broad content Techniques utilized
for achieving
objective
Comments
Political aspects
Political
acceptability
Community
approval of all the
above facets is vital
for the
implementation of
policies.
Legislative
approval; market
approval; donor
approval (where
foreign aid is an
important part of the
budget); broad
support from other
layers of
government.
Government
financial
management has a
significant impact
on the community.
It comes in a variety
of forms and should
not be viewed as
being limited to the
legislature only.
Citizen participation To provide
opportunities to the
community to
participate in certain
spheres of economic
management.
Serving on the
tender or contract
committee; serving
in the evaluation
machinery; ands
serving in the
advisory and related
policy councils.
In several ways, this
is an area that
remains to be
developed fully.
Association of
citizens to look at
issues that transcend
with the financial
aspects. And those
associated with the
street-level
bureaucracy, has
distinct advantages
in paving the way
for social control of
public finances.
Source: A. premchand (1998).
86
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Agiobenebo, T.T. (1998), Public Sector Economics: Theories, Issues, and
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Aigbokam, B.E. (1997), “Fiscal Decentralization, Wagner’s Law and
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Akinkugbe, A. (2004), “Budget Implementation and National Development:
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Anyafo, A.M.O. (1996), Public Finance in a Developing Economy. The
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Bahtia, H.L. (1982), Public Finance, New Delhi: Vikas Publishing.
Balassa, B. (1978). “Exports and economic growth: further evidence,”
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Barro, R. (1989). “Economic growth in a cross section of countries.” NBER
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Buhari, A.L. (1993), ICAN/Polytechnic Public Finance, Ilorin: University
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Castles, F. and Dowrick, S. (1988). “The Impact of Government Spending
Levels on Medium-Term Economic Growth in the OECD, 1960-85.”
Discussion Paper 199 Australian National University.
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Diamond, J. (1989). “Government expenditure and economic growth: an
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Dornbusch, Rudiger and Reynoso, Alejandro. (1989). “Financial factors in
economic development.” American Economic Review
Easterly, W. (1990). “Endogenous growth in developing countries with
government- induced distortions.” Unpublished, World Bank;
August.
Ezekwesili, O. (2004), Due Process: History, Functions, Organisation and
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December2004.
Ezirim, C.B. (2006), Explaining the Size of Public Expenditure in Less
Developed Countries: Theory and Empirical Evidence from Nigeria,
Journal of Bank and Finance, UNEC, vol. 6
Fajingbesi, A.A. and Odusola, A.F. (1999), Public Expenditure and Growth.
NCEMA, Ibadan.
Hiley, M. (1999), “Fiscal Policy within a Simple Macroeconomic Model”.
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Hurilaws, (2007), Budget Analysis II (1999-2007): Test for Progressive
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Khan and Reinhart, C. (1990), “ Private Investment and Economic Growth
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Koester, R.B. and Kormendi, R. (1989). “Taxation, Aggregate Activity,
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91
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 RESEARCH DESIGN
Research design involves the structuring of investigation with the purpose of
identifying variables and their relationships which will enable the obtaining of
data by the researcher to be able to test hypothesis or answer research questions
(Asika, 2004 and Onwumere, 2005,2009).
This study adopted the ex- post- facto research design as well as the analytical
typology.
An ex-post- facto research measures or establishes the relationship
between one variable and another or the impact of one variable on
another (Onwumere, 2009)
Also as an analytical research, econometric and statistical tools were
employed in the evaluation of data with the purpose of establishing
relationship of variables.
The data used were mainly data collated from Central Bank of Nigeria Annual
Report and Accounts, CBN Statistical bulletin, National Bureau of Statistics,
Budget office of the Federation, Office of the Accountant General of the
Federation and Federal Government Ministries.
92
3.2 NATURE AND SOURCES OF DATA
This work adopted the approach by Fajingbesi and Odusola (1999:137) and
Adubi and Obioma (1999:181) in their studies. The research therefore made use
of secondary data. Such data were sourced from National Publications, Budget
Office of the Federation, Federal Ministry of Finance and National Planning
Commission.
The data were of the following forms; Total Public Expenditure on annual basis
from 1980-2007. Total recurrent expenditure from 1980-2007, Total capital
expenditure from 1980-2007. gross domestic product on annual basis as
published in the Central Bank of Nigeria Statistical bulletin from 1980-2007.
Also the publications of National Bureau of Statistics provided data for
investment, capacity utilization and inflation rate for the period 1980-2007.
3.3 POPULATION AND SAMPLE SIZE
The population for this study confined to Fiscal policy variables and
Macroeconomic indicators for the period, 1980-200, While this is technically
possible, selection were made of those macroeconomic indicators that impacts
strongly on the sample variables of this study which include ,GDP ,Public
93
Expenditure ,Inflation Rate, Gross Capital Formation and Industrial Capacity
Utilization.
The respective data were collated from Central Bank of Nigeria Publications,
Budget Office, Ministry of Finance, National Bureau of Statistics and National
Planning Commission. The sample size of the study is the period 1980-2007.
3.4 DESCRIPTION OF RESEARCH VARIABLES
This study employed both dependent and independent variables.
3.4.1 DEPENDENT VARIABLES
The public expenditures were used as the dependent variable. They have
accordingly been used in studies by Fajingbesi and Odusola (1999: 137) and
Ezirim(2006: 85).
3.4.2 INDEPENDENT VARIABLES
The independent variables are as follows:
Investment: The gross capital formation was used as proxy for investment.
Inflation: The inflation rate will be used as a proxy for inflation.
Capacity Utilization: Industrial capacity utilization was used as proxy for
capacity utilization,
94
Economic Growth: The GDP was used as proxy for economic growth and sizes
of the economy.
OTHER RESEARCH VARIABLES
Foreign Direct Investment (FDI)
Exchange Rate (EXR)
Employment rate (EMR)
3.5 REGRESSION MODELS
The models take the simple and multiple least square forms.
For the simple ones, we have
Y = B0 + B1X + U - - -- - - - - - (3.1)
Where Y= Dependent Variable.
X= Explanatory Variable.
B0= Intercept of Y.
B1= Slope Coefficients
U= Stochastic Variables (Gujarati, 1995).
For multiple ones, the general multiple regression model is applicable as follows:
Y = bo + b1X1 + b2X2 +…..+ bnXn + μ ……………………… (3.2)
where
Y is the regress and; the Xs are the regression and the bs the parameters.
The random error term, u, is added to make the model probabilistic rather
95
than deterministic. It is also known as stochastic variable. It is assumed that
for any given set of values of X1, X2, ……, Xn, the random error u has a
normal probability distribution with mean equal to zero and variance equal
to δ2. The random errors are independent (in a probabilistic sense).
The value of the coefficients, b1 determines the contribution of the independent
variable X given that the other X variables are held constant, and b0 is the Y –
intercept. The coefficients b0, b1…., bn are usually unknown because they
represent population parameters (Ozurumba, 2008).
The following steps are taken in developing the model.
i. Hypothesize the form of the model including choice of the independent
variables to be included there in;
ii Estimate the unknown parameters, bo, b1, …., bn,
iii Specify the probability distribution of the random error component, u and
estimate its variance,
iv Check the utility of the model and
v. Use the fitted model of Y or to predict a particular value of Y for given
values of the independent variables, where applicable (Ozurumba, 2008).
96
3.6 MODEL SPECIFICATION
In specifying the models being used in this study, the following alphabets were
applied to denote the respective variables.
Y =GDP PER CAPITA
GE= SIZE OF THE ECONOMY
EXR = EXCHANGE RATE
EMR = EMPLOYMENT RATE
ICU=INDUSTRIAL CAPACITY UTILIZATION
RPE= RECURRENT PUBLIC EXPENDITURE
PCE= PUBLIC CAPITAL EXPENDITURE
INF= INFLATION
INV= INVESTMENT
HYPOTHESIS 1
Public capital expenditure does not have a positive and significance relationship
with size of the economy.
To test this, the model is -
GE = B0 + B1 (PCE) + U1---------- (1)
HYPOTHESIS 11
Recurrent Public expenditure does not have positive and significant impact on
the size of the economy.
97
The applicable model for testing the above hypothesis is -
GE= B0 + B1 (RPE) + U2---------- (2)
HYPOTHESIS 111
Recurrent and public capital expenditure do not have significant impact on
economic growth.
We employ model 3 below to test hypothesis III
G E= B0 + B1 (PCE) + B2 (RPE) + U3----------- (3)
HYPOTHESIS 1V
There is no positive and significant relationship between recurrent public
expenditure and investment in Nigeria.
For hypothesis IV, the model is -
RPE (JNV) = 0 ………………….(4)
HYPOTHESIS V
There is no positive and significant relationship between public capital
expenditure and total; investment I Nigeria.
Model 5 is for testing hypothesis V
PCE (JNV) = 0 ……………….(5)
98
HYPOTHESIS VI
Public capital and recurrent expenditure does not have positive and significant
impact on inflation rate in Nigeria
INF = Bo + B1 (PCE) + B2 (RPE) + U …………………..(6)
HYPOTHESIS vii
Public expenditure does not have positive and significant impact on
industrial capacity utilization in the Nigeria economy.
ICU = Bo + B1 PE + U ………………….(7)
HYPOTHESIS viii
The nature and form of national income accounting does not significantly affect
the nation’s economic health
Y = b0 + b1EXR + b2EMR + b3ICU + b4INF + U……….(8)
This is with the pattern of Demirguc-Kunt and Levine (1996), Levine and
Maksimovic (1996) on the structure of the regression equation
99
3.7 TECHNIQUES FOR ANALYSIS AND FURTHER PARAMETER
TESTS
Simple and multiple techniques are use for testing the models. The regression
parameters are computed using the following formulae:
b1 = ∑X1Y1 - (∑ X1) (∑Y1)
N ∑X12
- (∑X1)2
and
bo = ∑Yi - bi ∑Xi
N
The correlation coefficient (R) will be determined using
R = ∑X1Y1 – (∑X1) (∑Y1)
√ {N∑X12 – (∑X1)
2} (N∑Y
2 – (∑Y)
2}
The coefficient of determination (R2) will be calculated using the formula
R2
= SSR = b1∑XY –N ∑X∑Y
SST ∑Y2 –N (∑Y)
2
The testing of the significance of the multi-variate regression model for this study
was undertaken with the help of the Analysis of Variance table as shown below.
100
TABLE 3.1: ANOVA TABLE
Source of ariable Sum of Squares Degrees of
Freedom
Mean of Square F-ratio
Regression SSR = Y2R2 K MSR = SSR
k
F* = MSR
MSE
Error SSE = Y2- Y2R2 n-k-1 MSE = SSE
n- k-1
Total
SST = Y2- (Y)2
n
n-1
SOURCE: Nworuh, (2001) in Ozurumba, (2008)
101
Where:
SSR = Sum of Squares of Regression
SSE = Sum of Squares of error
SST = Sum of Squares of total variance
K = number of explanatory variable (5)
n = number of observations (31)
In the multiple regressions, the correlation coefficient (R), the coefficient of
determination (R2), the t-ratio and F- ratio were obtained using the electronic
computer.
3.7.1 THE COEFFICIENT OF DETERMINATION (R2)
The multiple coefficient of determination (R2) measures the proportion of
the total variation in the dependent variable (Y) that is the Gross Domestic
Product (GDP), that is explained by the variations in the selected aggregates
of macroeconomic performance (the independent variable) put together.
102
This is computed using the formula:
SSR Explained Variation
R2 = =
SST Total Variation o R2 1
Where:
SST = Total sum of squares
SSR = Regression sum of squares
3.7.2 THE CORRELATION COEFFICIENT(R)
The multiple correlation coefficients (R) measure the strength of association
existing between gross domestic product (GDP) and the selected indicators
of macroeconomic performance.
This is calculated using the following formula:
R = ± R2
Where
–1 R 1
103
3.7.3 THE SIGNIFICANCE TEST
The significance of our multi-variety estimates is tested using a combination
of F-ratio test and the t-test statistics.
3.7.4 THE F-RATIO TEST
The F-test is a test of significance of R2. In other words, it shows whether there is
a significant relationship between the dependent variable Y and the independent
variables X1, X2,….X7. If R2 is found statistically not significant, this implies that
there is no linear relationship between Y and X, that is, the true b’s are zero
(Ozurumba, 2008). While the F-statistic in relation to the F- significant tells us
whether the variable in the model bring significant information. In other words, it
is a test of the models reliability in predicting and explaining the dependent
variable by the independent variables. This is computed using the formula as
indicated on the ANOVA Table.
MSR
F* =
MSE
104
DECISION RULE:
F- RATIO
Having computed the F-value, the null hypothesis (H0) is accepted at = 0.05
significant level if:
F* F1- k, n-k-1 degree of freedom,
Otherwise, Ho is rejected in favor of the alternative hypothesis (HA), for a one-
tail test. Here, F1- k, n-k-1 degree of freedom is the critical value obtained from
the F- distribution table.
3.7.5 THE STUDENT T-TEST
If the F-ratio rejects the null hypothesis, that is accepting that there is a
significant linear relationship existing between the dependent variable and
the set of independent variables, then the student t-test is carried out to find
out which of the independent variables contribute(s) to the significance of
the linear relationship established by the F-ratio. The t-test value is
calculated using the formula:
n – 2
t = R
1 – R2 for n-2 degrees of freedom
105
DECISION RULE:
The null hypothesis (H0), that is, = 0 is accepted at significant level and n-k-
1 degrees of freedom if:
t- calculated t1-/2, n-k-1
Where:
t1-/2, n-k-1 is the critical value obtained from the t-distribution table.
Otherwise, the alternative hypothesis (HA), that is 0 is accepted if:
t-calculated t1-/2, n-k-1.
3.7.6 AUTOCORRELATION TEST USING DURBIN –WATSON
When the error term in one time period is positively correlated with the error
term in the previous time period, we face the problem of autocorrelation. This is
common in time series analysis and leads to downward-biased standard errors
(and, thus, to incorrect statistical tests and confidence intervals).
The presence of autocorrelation can be tested by calculating the Durbin –
Watson Statistic, d, given by equation or SPSS. The calculated value of d ranges
106
between 0 and 4, with no autocorrelation when d is in the neighbourhood of 2
(Koutsoyiannis, 1993).
The analysis of data will be done with a personal computer (PC), which is a
powerful tool that reduces the burden of voluminous calculations. The software
selected for the study is the Software Package for Social Sciences (SPSS).
107
REFERENCES
Adubi, A.A. and Obioma, E.C. (1999), “Public Expenditure Management in
Nigeria”, in Fiscal Policy Planning and Management in Nigeria,
Ibadan: NCEMA,
Asika, N. (2001), Research Methodology in Behavioural Science, Lagos:
Longman, Nigeria Plc.
Barro, R.J. (1991), “Economic Growth in A Gross Section of Countries”, The
Quarterly Journal of Economics, Vol.52, No.2,
Demirguc-Kunt, A and Levine, R (1996), Stock Market Development and
Financial Intermediaries. Stylized Facts, The World Bank Economic
Review, Vol.10. No.2,
Fajingbesi, A.A. and Odusola, A.F. (1999), Public Expenditure and growth.
NCEMA, Ibadan.
Fortune, P. (1998), “Mutual Funds Part 11: Fund Flows and Security
Returns”, NewEngland Economic Review,.
Gallagher, M. (1994), “Government Spending in Africa: A Retrospective of
the 1980’s” Journal of American Economies 3 (1) April.
Granger, C.W. (1969),“Investigating Casual Relations by Econometric
Models and Cross-Special Methods”, Econometrics, Vol.37.
Gujarati, D.N. (1995), Basic Econometrics, Singapore: Mcgrew-Hill Book Co.
Hemming, R. (1991), “Public Expenditure, Stabilization and Structural
Adjustment”, Public Expenditure Handbook: A Guide to Public Policy in
DevelopingCountries, Washington, D.C. IMF.
Levine, R. and Zervos, S. (1996), “Stock Market Development and Long-Run
Economic Growth”, The World Bank Policy Research Paper 15 & 2,
Ogiogio, G.O. (1995), “Government Expenditure and Economic Growth in
Nigeria”. Journal of Economic Management 2 (1), October.
108
Onwumere, J.U.J. (2005), Business and Economic Research Methods,
Lagos: Don- Vinton Limited.
Ozurumba, B.A. (2008), Impact of Public Sector Deficits on Economic
Development of Nigeria, Unpublished Ph.D. Thesis, FUTO, Owerri
Rajan, R.G. and Zingales, L. (1998), “Financial Dependence and Growth”,
American Economic Review, Vol. 88.
Tsauni, A.M.(2007), An Examination of Casual Relationship between
Education Expenditure and Economic Growth in Nigeria. Journal of Social
and Management Sciences,BUK, Vol.12.
109
CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS
4.1 INTRODUCTION
This chapter presents available data on public expenditure trend and those of
some selected aggregates of macroeconomic performance within the study
period. Having specified the models the researcher proceeds with the estimation,
and obtained numerical estimates of the coefficients of the models. These
important statistical aspects are hereby presented and interpreted.
4.2 DATA PRESENTATION
4.2.1GROSS DOMESTIC PRODUCT (GDP)
The GDP as an index of growth and size of an economy has been employed in
many studies such as Ezirim(2006:92),Fajingbesi and Odusola(1999:150). Nominal
GDP is the GDP measured in terms of the price level at the time of measurement
(unadjusted for inflation). Real GDP is the nominal gross domestic product that has
been deflated or inflated to reflect changes in the price level. One way to calculate real
GDP is to create a price index based on data on the price changes that occurred over
various years.
As shown in table 4.2.1a below, the gross domestic product in 1981
110
TABLE: 4.2.1a GDP GROWTH RATES
YEAR GDP %GROWTH
NGN'M
1980 49,632.3 ---
1981 47,619.7 -4.23
1982 49,069.3 2.95
1983 53,107.4 7.60
1984 59,622.5 10.93
1985 67,908.6 12.20
1986 69,147.0 1.79
1987 105,222.8 34.29
1988 139,085.3 24.35
1989 216,797.5 35.85
1990 267,550.0 18.97
1991 312,139.7 14.29
1992 532,613.8 41.39
1993 683,869.8 22.12
1994 899,863.2 24.00
1995 1,933,211.6 53.45
1996 2,702,719.1 28.47
1997 2,801,972.6 3.54
1998 2,708,430.9 -3.45
1999 3,194,015.0 15.20
2000 4,582,127.3 30.29
2001 4,725,086.0 3.03
2002 6,912,381.3 31.64
2003 8,487,031.6 18.55
2004 11,411,066.9 25.62
2005 14,572,239.1 21.69
2006 18,564,594.7 21.51
2007 20,657,317.7 10.13
SOURCE: (1) National Bureau of Statistics-National Accounts Survey (2007)
(2) Central Bank of Nigeria, Annual Report and Accounts(various years)
111
and 1990 at current basic prices stood at N47,619.67million and N267,549.98
respectively. It eventually rose to N11,411,066.90 million, N14,572,239.11
million and N18,564,594.73 million in 2004, 2005 and 2006 respectively. Also
as reflected in table 4.2.1b, the gross domestic product at 1990 constant basic
prices stood at N205, 222.05 million and N267, 549.98 million in 1981 and
1990 respectively. It rose to N527, 576.03 million, N561,931.40 million and
N595,821.61 million in 2004, 2005 and 2006 respectively.
The economy recorded a sluggish growth averaging about 2.62% for the two
decades 1981-2000. However since 2003, the economy has been experiencing
appreciable growth. For instance, in 2003, 2004, 2005 and 2006, it grew
appreciably by 10.23%, 10.48%, 6.51% and 6.03% respectively, in real
terms,(National Bureau of Statistics,2007)
The Implicit price deflator of the gross domestic product at basic prices stood
at 23.20 and 100.00 in 1981 and 1990 respectively. It however moved to
2,162.92, 2,593.24 and 3,115.80 in 2004, 2005 and 2006 respectively.
Economic growth is the expansion of the output of the economy or the
expansion of the National Income (NI), Anya (2002).
112
We can then use the index in each year to adjust nominal GDP to real GDP for
that year. The implicit price index, or GDP deflator can then be found by
dividing nominal GDP by real GDP, and then multiplying by 100.
113
TABLE.4.2.1b: GROSS DOMESTIC PRODUCT AT 1990 CONSTANT BASIC PRICES
Activity Sector 2001 2002 2003 2004 2005
1. Agriculture
1.1 Crop production 162,147.52 168,884.33 180,706.23 192,452.16 206,178.40
1.2 Livestock 11,793.41 12,360.56 12,879.00 13,716.14 14,643.86
1.3 forestry 2,606.58 2,624.85 2,664.25 2,837.43 3,005.35
1.4 fishing 6,112.50 6,499.36 6,763.13 7,202.74 7,636.00
2. Mining And
Quarrying
1,124.85 1,173.70 1,238.09 1,372.41 1,503.16
2.1 Crude Petroleum and
Natural Gas 112,417.40 106,002.10 131,336.60 135,670.71 136,345.54
2.2 Coal Mining 0.16 0.1 0.1 0.11 0.12
2.3 Metal Ores 6.36 6.39 6.15 6.82 7.56
2.4 Oil Refining 562.71 518.37 567.58 624.34 686.77
2.5 Cement 309.83 313.15 325.63 358.19 397.83
3. Manufacturing 14,318.76 15,892.19 16,776.59 18,454.25 20,220.45
4. Public Utility
4.1 Electricity 12,383.46 15,921.43 16,466.09 18,252.54 19,439.86
4.2 Water 488.07 524.67 567.75 629.35 695.43
5 Building &
Construction
6,106.72 6,371.97 6,929.52 7,622.47 8,544.48
6. Transportation
6.1 Road Transport 9,896.74 11,741.10 11,879.74 12,580.64 13,385.91
6.2 Rail & Pipelines 1.36 1.41 1.48 1.57 1.67
6.3 Water 488.07 524.67 567.75 629.35 695.43
6.4 Air 222.19 264.46 283.97 300.72 318.17
7 Telecommunication 2,207.36 3,236.10 4,627.60 6,015.91 7,851.66
7.1 Post 175.82 286.71 263.32 291.89 323.56
7.2 Broadcasting 311.32 331.5 346.08 383.63 415.08
8. Wholesale And Retail
Trade
55,110.13 58,682.62 62,062.74 68,082.83 77,283.06
9. Hotel And estaurants 1,574.74 1,682.50 1,760.49 1,951.49 2,155.35
10. Finance and Insurance
10.1 Financial nstitutions 17,348.83 22,452.84 20,377.30 20,886.73 21,430.31
10.2 Insurance 556.38 720.07 581.25 644.31 714.21
11. Real Estate and Business
Services
11.1 Real Estate 6,020.68 6,201.30 6,387.34 7,080.32 7,865.61
11.2 Business Services
(Not Health or Education) 507.69 540.6 564.37 625.6 658.75
1.3 Public Administration) 3,015.44 3,561.30 3,561.30 3,947.67 4,105.58
12. Community Social and
Personal Services
12.1 Private Non Profit
Organizations 12.63 14.92 14.92 16.54 18.33
12.2 Other Services 2616.06 3009.45 3048.87 3379.65 3734.51
13. Producers of Government
Services
13.1 Education 681.73 735.36 787.09 872.48 964.53
13.2 Health 178.59 180.02 183.7 203.63 223.99
GDP Constant Basic
Price
431,783.18 451,785.67 495,007.17 527,576.03 561,931.40
Source: National Bureau of Statistics
114
4.3 ANALYSIS OF RECURRENT AND CAPITAL EXPENDITURE
a) Recurrent Expenditure:- In 1980, the recurrent expenditure of the Federal
Government was N4805.2 million or 32.1% total expenditure and accounted for
9.7 percent of the GDP. It increased to N4846.7 million and N5506 million in
1981 and 1982 respectively, while the percentages share of GDP moved to 10.7
percent in 1982. Between 1984 and 2007, recurrent expenditure continued to
grow up in nominal terms from N5827.5 million to N1,589,270 million at the
end of 2007. While the recurrent expenditure /GDP ratios continued to drop
from 9.2% in 1984 to 7.7% in 2007. (see table 4.3a and 4.3b respectively)
115
TABLE 4.3a: RATE OF GROWTH OF RECURRENT, CAPITAL AND TOTAL
EXPENDITURES ON GDP
(N million)
Year GDP Total TE as% Recurrent RE as% RE as% Capital CE as% CE as%
N’m Expend. GDP Expend. TE GDP Expen. Of TE GDP
(TE) N’m (RE) (CE)
1980 49630 14968.6 30.2 4805.2 32.1 9.7 10163.4 67.9 20.5
1981 50460 11413.7 22.6 4846.7 42.5 9.6 6567 57.5 13.0
1982 51570 11923.2 23.1 5506 46.2 10.7 6417.2 53.8 12.4
1983 56710 9636.5 17.0 4750.8 49.3 8.4 4885.7 50.7 8.6
1984 63010 9927.6 15.8 5827.5 58.7 9.2 4100.1 41.3 6.5
1985 71370 13041.1 18.3 7576.4 58.1 10.6 5464.7 41.9 7.7
1986 72130 16203.7 22.5 7676.9 47.4 10.6 8526.8 52.6 11.8
1987 106890 22018.7 20.6 15646.2 71.1 14.6 6372.5 28.9 6.0
1988 142660 27749.5 19.5 19409.4 69.9 13.6 8340.1 30.1 5.8
1989 222460 41028.3 18.4 25994.2 63.4 11.7 15034.1 36.6 6.8
1990 267060 60268.2 22.6 36219.6 60.1 13.6 24048.6 39.9 9.0
1991 285630 66584.4 23.3 38243.5 57.4 13.4 28340.9 42.6 9.9
1992 549800 92797.4 16.9 53034.1 57.2 9.6 39763.3 42.8 7.2
1993 697100 191228.9 27.4 136727.1 71.5 19.6 54501.8 28.5 7.8
1994 911400 160893.2 17.7 89974.9 55.9 9.9 70918.3 44.1 7.8
1995 197770 248768.1 125.8 127629.8 51.3 64.5 121138.3 48.7 61.3
1996 2833200 337417.6 11.9 124491.3 36.9 4.4 212926.3 63.1 7.5
1997 2801972.6 428215.2 15.3 158563.5 37.0 5.7 269651.7 63.0 9.6
1998 2708430.9 487113.4 18.0 178097.8 36.6 6.6 309015.6 63.4 11.4
1999 3194015 947690 29.7 449662.4 47.4 14.1 498027.6 52.6 15.6
2000 4582127.3 701050.9 15.3 461600 65.8 10.1 239450.9 34.2 5.2
2001 4725086 1017996.5 21.5 579300 56.9 12.3 438696.5 43.1 9.3
2002 6912381.3 1018178.1 14.7 696800 68.4 10.1 321378.1 31.6 4.6
2003 8487031.6 1225988.3 14.4 984300 80.3 11.6 241688.3 19.7 2.8
2004 11411067 1384000 12.1 1032700 74.6 9.0 351300 25.4 3.1
2005 14572239 1743200 12.0 1223700 70.2 8.4 519500 29.8 3.6
2006 18564595 1842587.7 9.9, 1290201.9 70.0 6.9 552385.8 30.0 3.0
2007 20657318 2348593 11.4 1589270 67.7 7.7 759323 32.3 3.7
SOURCE: (1) National Bureau of Statistics – National Accounts Survey (2007)
(2) Central Bank of Nigeria, Statistical Bulletin(2008)
116
Table 4.3b NIGERIA FEDERAL GOVERNMENT CAPITAL, RECURRENT AND TOTAL EXPENDITURE: 1980- 2007
(N MILLION)
YEAR CAPITAL EXPEN. % GROWTH IN RECURRENT EXP. %GROWTH IN TOTAL EXPEND. %GROWTH IN
CAPITAL EXP. RECURRENT EXP TOTAL EXPEN.
1980 10163.4 4805.2 14968.6
1981 6567.0 -54.8 4846.7 0.9 11358.9 -31.8
1982 6417.2 -2.3 5506.0 12.0 11920.9 4.7
1983 4885.7 -31.3 4750.8 15.9 9605.2 -24.1
1984 4100.1 -19.2 5827.5 18.5 9908.4 3.1
1985 5464.7 25.0 7576.4 23.1 13066.1 24.2
1986 8526.8 35.9 7676.9 1.3 16239.6 19.5
1987 6372.5 -33.8 15646.2 50.9 21984.9 26.1
1988 8340.1 23.6 19409.4 19.4 27773.1 20.8
1989 15034.1 44.5 25994.2 25.3 41072.8 32.4
1990 24048.6 37.5 36219.6 28.2 60305.7 31.9
1991 28340.9 15.1 38243.5 5.3 66599.5 9.5
1992 39763.3 28.7 53034.1 27.9 92826.1 28.3
1993 54501.8 27.0 136727.1 61.2 191255.9 51.5
1994 70918.3 23.1 89974.9 52.0 160916.3 -18.9
1995 121138.3 41.5 127629.8 29.5 248809.6 35.3
1996 212926.3 43.1 124491.3 2.5 337460.7 26.3
1997 269651.7 21.0 158563.5 21.5 428236.2 21.2
1998 309015.6 12.7 178097.8 11.0 487126.1 12.1
1999 498027.6 38.0 449662.4 60.4 947728.0 48.6
2000 239450.9 -108.0 461600.0 2.6 700942.9 -35.2
2001 438696.5 45.4 579300.0 20.3 1018041.9 31.1
2002 321378.1 -36.5 696800.0 16.9 1018141.6 0.0
2003 241688.3 -33.0 984300.0 1.8 925955.3 -10.0
2004 351300.0 31.2 1032700.0 33.7 1384031.2 33.1
2005 519500.0 32.4 1223700.0 15.6 1743232.4 20.6
2006 552385.8 6.0 1290201.9 5.2 1842593.7 5.4
2007 759323.0 27.3 1589270.0 18.8 2348620.3 21.5
SOURCE: (1) National Bureau of Statistics – National Accounts of Nigeria (2007)
(2) Central Bank of Nigeria, Statistical Bulletin(2008)
117
b). Capital Expenditure:- The capital expenditure of the federal government, as
indicated in table 4.3a and 4.3b, stood at N10163.4 million or 67.9 percent of total
expenditure, while the capital expenditure/GDP ratio was 20.5 percent. The capital
expenditure continued to fall up to N4100.1 million in 1984, also capital expenditure
to GDP ratio fell to 6.4 percent in 1984. Capital expenditure fell persistently from
1980 up to 1985 until the beginning of the structural adjustment programme (SAP) in
Nigeria. A clear indication of the foreign exchange impact on the capital budget and
particularly external debt services, capital expenditure increased continually between
1986 and 2007. It rose from N8,526.8 million in 1986, representing 52.6 percent of
total expenditure, to N7,59,323.0 million in 2007 and representing 32.3 percent of
total expenditure. The capital expenditure to GDP ratio dropped greatly from 11.8
percent in 1986 to 3.7 percent in 2007 ( table 4.3a and 4.3b).
As shown in table 4.3a and 4.3b, 1980 and 1983 witnessed fall in both capital and
recurrent expenditures.
Starting from 1986 which happens to be the SAP period there were considerable in
crease in both capital and recurrent expenditure the sum of N7,696.9 million was spent
as recurrent expenditure in 1986 representing 47.4% of Federal Government Total
expenditure. By the
118
end of 1993, recurrent expenditure rose to N136,727.10 million representing 71.5% of
total Federal Government expenditures as against 58.1% of total expenditures in 1985
before the commencement of the SAP. Capital expenditure accounted for N54501.8
million in 1986 or 52.6% of total expenditures before coming down to N8,526.8
million or 28.5% of total expenditures in 1993.
There was continual increase in public expenditures between 1980 and
1993 Total public expenditures rose considerably from N14,968.6 in
1980 to N2348620.3 million in 2007, greater percentage of growth in
total expenditures has been attributed to increase in transfer payments,
especially debt services payments and pensions. (see table 4.4a)
Despite the oil windfalls, extra-budgetary expenditures have raised fast
and thus creating budget deficit.
Many factors have been attributed to be responsible for the increase in
public expenditures. In addition to debt service obligations, other
expenditure heads include the transition programme, sundry project and
other extra budgetary expenditures for the execution of projects, which
include financing of ECOMOG in Liberia, donation, among others.
Throughout the period 1980-2007 recurrent expenditure forms larger
proportion of the total government expenditure compared to capital
expenditure as indicated in table 4.3a and 4.3b. It is necessary to
emphasis here that the scope for limiting or reducing recurrent
119
expenditure is limited by the fact that a large proportion of the recurrent
expenditure is caused by increase in expenses on emoluments, pension
and gratuities and debt service obligations.
An analysis of the capital versus recurrent expenditure profiles for the
period 1980 - 2007 reveals that the Federal Government favoured
increase in recurrent expenditure over these years. The period 1980-1983
happens to be the only time the capital expenditure exceeded recurrent
expenditures .For the rest of the period covered in this study i.e.1984-
2007,recurrent expenditure have been showing higher percentage
increases on total expenditure with the exception of 1996 ,1997,1998 and
1999 when capital expenditures exceeded recurrent expenditures .The
years of 2002,2003,2004,2005,2006 and 2007 reveals the doubling of
recurrent expenditures over capital expenditures.
120
4.4 FUNCTIONAL ANALYSIS OF TOTAL PUBLIC EXPENDITURE
As shown in table 4.4a below, total public expenditure is disaggregated into
some functional categories, such as administration, economic services, social
and community services and transfer payments.
This is necessary to highlight the relative shares of transfer payments and
productive activities. In general terms, transfer payment are not considered to be
directly productive as they represent payment either for work done in the past or
for debt service which represent outlay for credit received in the past (Ojo and
Okunroumu, 1992: 229). In 1980, the total expenditure on administration,
comprising general administration, defence and internal security, stood at
N3418.5 million, which represents 22.8 percent of the total expenditure of the
federal Government expenditure, while transfer payments accounted for 12.3
percent.
Economic services, which represent outlays on agriculture, construction,
transportation and communication took 43.1 percent, while expenditure on
social and community services, such as expenses incurred on education, housing
and other services, accounted for 21.8 percent share of Total Federal
Government expenditure as shown in table 4.4a below, while transfer payment
were still minimal at 12.3 percent share of total expenditures in 1980. This
pattern of favouring productive expenditures by Government
121
changed when government revenue started to decline, consequently there were
increase in public sector borrowing which helped to maintain the high level of
outlay on administration, economic services, social and community services.
Starting from 1984, there were high increases on transfer payments indicating
50.4 percent, 49.5 percent and 62.6 percent in 1984, 1985 and 1986 respectively
(see table 4.4a). This pattern of increases in transfer payments as percentage of
total expenditure rose up 71.6% and 75.5 in 1991 and 1992 respectively. As a
result, transfer payments generally and debt services in particular, have become
a major segment of government expenditure in Nigeria. Thus, up to 2007,
transfer payments maintain a high level of 33.4 percent of total public
expenditure.
122
Table: 4.4a Functional Classification of Total Federal Government Expenditure: 1980-2007
N million YEAR TOTAL
EXPENDITURE
ADMINIS-
TRATION
%
SHARE
ECONOMIC
SERVICES
% SOCIAL &
COMMUNITY SERVICES
% TRANSFERS %
1980 14968.5 3418.5 22.8 6449.7 43.1 3264.4 21.8 1836 12.3
1981 11413.7 2895.2 25.4 4128.8 36.2 2155 18.9 2234.7 19.6
1982 11302.9 2467.5 21.8 2887.5 25.5 1692.2 15.0 4255.7 37.7
1983 10164.5 3666.1 36.1 2670.7 26.3 1930.9 19.0 1896.8 18.7
1984 9927.6 2940 29.6 983.2 9.9 1005.6 10.1 4998.8 50.4
1985 13040.9 3097.8 23.8 1208.1 9.3 2286.2 17.5 6448.8 49.5
1986 16223.7 2940.5 18.1 1613.6 9.9 1517.4 9.4 10152.2 62.6
1987 22018.7 7862.5 35.7 3252.6 14.8 1088.1 4.9 9815.5 44.6
1988 27749.5 7676.4 27.7 3349.9 12.1 3840.2 13.8 12883 46.4
1989 41028.3 8888 21.7 5345.3 13.0 6074.9 14.8 20720.1 50.5
1990 60268.2 9460.1 15.7 5099.4 8.5 5492 9.1 40216.7 66.7
1991 66584.4 10298.8 15.5 4448.4 6.7 4168.6 6.3 47668.6 71.6
1992 93835.5 13973 14.9 5477.1 5.8 3494.9 3.7 70890.5 75.5
1993 136645.4 26447.8 19.4 23000.7 16.8 12382.7 9.1 74814.2 54.8
1994 156837.2 29319.9 18.7 31012.7 19.8 15079.9 9.6 81424.7 51.9
1995 254038 42095.7 16.6 49067.1 19.3 23036.4 9.1 139838.8 55.0
1996 282969.6 61986.4 21.9 69422.2 24.5 26343.4 9.3 125217.6 44.3
1997 428215.2 110882.1 25.9 177407.1 41.4 28232.6 6.6 111693.4 26.1
1998 487113.4 89943.9 18.5 212724 43.7 46143.2 9.5 138302.3 28.4
1999 947690 139961.3 14.8 344032 36.3 55001.8 5.8 408694.9 43.1
2000 701,059 174578.6 24.9 141324.9 20.2 86767.6 12.4 298388.3 42.6
2001 1018026 230064.9 22.6 312768.9 30.7 132970.4 13.1 342221.4 33.6
2002 1188715 405313.4 34.1 281244.3 23.7 221898.9 18.7 280258 23.6
2003 1225957 395807.4 32.3 194013.9 15.8 158302.2 12.9 477833.2 39.0
2004 1384001 444618.6 32.1 226503.5 16.4 164423.2 11.9 548455.9 39.6
2005 1743240 606285.9 34.8 329343.2 18.9 223007.8 12.8 584603.1 33.5
2006 1942588 707422.5 36.4 341894.5 17.6 272850.4 14.0 620420.4 31.9
2007 2348620.3 785412.4 33.4 451418.19 19.2 328044.89 14.0 783717.48 33.4
Source: (1) Central Bank of Nigeria Statistical Bullent(2008)
123
4.5 Analysis of the Fiscal Operations of Federal Government of
Nigeria
As indicated in table 4.5a below, the fiscal operations of the Federal
Government between 1980 and 2007 resulted in overall surplus in only two
years (that is 1995 and 196), while there were fiscal deficits in the remaining
years “The growth and persistence of fiscal deficit in Nigeria in recent times has
been attributed to lack of fiscal discipline on the part of the Government
(Ozurumba, 2008: 12). Most of the time, if not all, the realized revenue were
often above budgetary estimates, still extra-budgetary expenditures were rising
so high and resulting in ever bigger deficits. Financing the fiscal deficit mainly
through the banking system, most especially the Central Bank’s Ways and
Means Facility, has resulted in rapid growth of domestic liquidity, with its
consequence of exerting pressure on prices, interest rate, and exchange rate of
the Naira (see table 4.5a on financing of fiscal deficit). Also the after-mount of
this scenario is the bursting of prescribed target of monetary and credit
aggregates above the average annual target. As shown in table 4.6a, the federal
Government achieved a surplus of N1000 million and N32049.4 million in 1995
and 1996 respectively. The fiscal deficit rose from N1,975.2 million in 1980 to
N101397.5 million in 2006 ( Table 4.5a).
124
The growing imbalance between the revenue and expenditure of the Federal
Government and the resulting deficit is a reflection of fiscal indiscipline on the
part of Government.
125
Table: 4.5a:
Fiscal Operations of the Federal Government of Nigeria: 1980-2007
(N million)
1980 1981 1982 1983 1984 1985 1986
total federally collected
revenue 15233.5 13290.5 11433.7 10508.7 11253 15050.4 12595.8
oil revenue 12353.3 8564.4 7814.9 7253 8269.2 10923.7 8107.3
non-oil revenue 2880.2 4726.1 3618.8 3255.7 2984.1 4126.7 4488.5
Federation account 14746.5 10182.8 9884.9 9798.5 10672 13750.2 11868.3
Federal government
retained revenue 12993.3 7511.6 5819.1 6272 7267.2 10001.4 7969.4
total expenditure 14968.5 11413.7 11923.2 9636.5 9927.6 13041.1 16223.7
recurrent expenditure 4805.2 4846.7 5506 4750.8 5827.5 7576.4 7969.9
capital expenditure 10163.3 6567 6417.2 4885.7 4100.1 5464.7 8526.8
Current surplus(+)/deficit(-) 8188.1 2664.9 313.1 1521.2 1439.7 2425 272.5
% of GDP 16.1 2.6 0.3 1.3 1.2 1.7 0.2
Overall surplus(+)/deficit(-) -1975.2 -3902.1 -6104.1 -3364.5 -2660.4 -3039.7 -8254.3
% of GDP -3.9 -3.8 -5.5 -2.8 -1.2 -2.1 -5.7
Financing: 1975.2 3902.1 6104.1 3364.5 2660.4 3039.7 8354.3
Foreign (net) 255.3 464.4 263.5 1106.9 1184.5 1045.9 708.1
Domestic (net) 387.1 4200.8 3402 7057 2928.2 571.2 475.5
banking system (net) 150.7 3018 3989.2 5296.3 2370 785.6 475.2
of which
CBN -122.9 3624.1 2989.2 3271.2 1418.9 -567.6 6042.7
Deposit money banks
non Bank Public 236.4 1182.8 412.8 1760.7 558.2 -214.4 0.3
other funds 1332.8 -763.1 2438.6 -4799.4 -1452.1 1422.6 7070.7
source: Central Bank of Nigeria, Statistical Bullent(2008)
126
Table: 4.5a (cont.)
Fiscal Operations of the Federal Government of Nigeria: 1980-2007
N million
sources 1987 1988 1989 1990 1991 1992 1993
total federally collected
revenue 25380.6 27596.7 53870.4 98102.4 100992 190453.2 192769
oil revenue 19027 19831.7 39130.5 71887.1 82666 164078.1 162102
non-oil revenue 6553.6 7765 14739.9 26215.3 18325 26375.1 30667
Federation account 24692.2 26770.3 46860.3 68064.2 54000 77800 106799
Federal government
retained revenue 16129 15588.6 25893.6 38152.1 30829 53264.9 126071
total expenditure 22018.7 27749.5 41028.3 60268.2 66584 92797.4 191229
Recurrent expenditure 15646.2 19409.4 25994.2 36219.6 38244 53034.1 136727
capital expenditure 6372.5 8340.1 15034.1 24048.6 28341 39763.3 54501.8
Current surplus(+)/deficit(-) 482.8 3820.8 -10326 1932.5 -7414.3 238.8 -53234
% of GDP 0.2 -1.4 -2.6 0.4 -1.3 0 -4.7
Overall surplus(+)/deficit(-) -5889.7 -12160.9 -15134.7 -22116.1 -35755 -39532.5 -101735
% of GDP -2.9 -4.4 -3.7 -4.4 -6.2 -4.3 -9.5
Financing: 5889.7 12160.9 15134.7 22116.1 35755 39532.5 107735
Foreign (net) 832.7 1918.7 5719 980.6 2972.6 -11859.6 16963.5
Domestic (net) 6465.6 8361.8 -5797.8 6092.6 32112 46716.7 91136
banking system (net) 2809.7 6102.4 -9236.4 2727.7 31107 33598.9 89402
of which
CBN 590.9 7473.7 -6477.4 -1498 18431 46433.4 62383.6
Deposit money banks
non Bank Public 3655.9 2259.4 3438.6 3364.9 1005.3 13117.8 1734
other funds -1408.6 1880.4 15213.5 15042.9 670.2 4675.4 -364.2
source: Central Bank of Nigeria, Statistical Bullent(2008)
127
Table: 4.5a (cont.)
Fiscal Operations of the Federal Government of Nigeria: 1980-2007
N million
Sources 1994 1995 1996 1997 1998 1999 2000
total federally collected
revenue 201910.8 459987.3 523597 582811.1 463609 949187.7 1906.2
oil revenue 160192.4 324547.6 408783 416811.1 324311 72422.2 1591.7
non-oil revenue 41718.4 135439.7 114814 166000 139298 224765.4 314.5
Federation account 110461 161998.9 179000 208000 257331 576801.4 1262.5
Federal government
retained revenue 90622.6 249768.1 325144 351262.3 353724 662585.3 597.3
total expenditure 160893.2 248768.1 337217.6 428215.2 487113 947690 701.1
Recurrent expenditure 89974.9 127629.8 124491.3 158563.5 178098 449662.4 461.6
capital expenditure 70918.3 121138.3 212926.3 269651.7 309016 498027.6 239.5
Current surplus(+)/deficit(-) 647.7 122138.3 244075.7 264651.7 175626 212922.9 135.7
% of GDP 0 4.1 5.9 6.2 4.3 4.4 0
Overall surplus (+)/deficit(-) -70270.6 1000 32049.4 -5000 133389
-
285104.7 -103778
% of GDP -4.8 0 0.8 -0.1 -3.3 -5.9 -1.5
financing: 70270.6 -1000 -37049.4 5000 133389 285104.7 103777
Foreign (net) 8390.8 22455.4 13382.6 16605.6 16606 21040.8 0
domestic (net) 60247.6 7102.2 -32049.4 -8382.6 116784 264065.9 103447
banking system (net) 40900.1 17819.6
-
153143.2 -62880.5 108991 172638.1 73137
of which
CBN 41253 7312.6 -52288.4 12795 17485 - -16210
Deposit money banks 89346.9
non Bank Public 19347.5 -10717.4 9953.7 2243.4 -51049 -18560.7 30310.3
other funds 1632.2 -30557.6 103314.7 52254.5 12898 109986.5 330
Source: Central Bank of Nigeria, Statistical Bullent(2008)
128
Table: 4.5a (cont.)
Fiscal Operations of the Federal Government of Nigeria: 1980-2007
N million
Sources 2001 2002 2003 2004 2005 2006 2007
total federally collected
revenue 2231.6 1731.8 2575.1 3920.5 5547.5 5965.1 5715.6
oil revenue 1707.6 1230.9 2074.3 3354.8 4762.4 5287.6 4462.9
non-oil revenue 903.5 501 500.8 565.7 785.1 677.5 1200.8
Federation account 1427.4 1606.1 2011.6 2657.2 3033.9 3219.1 3878.5
Federal government
retained revenue 797 716.6 1023.2 1253.6 1660.7 1836.6 2333.7
total expenditure 1018 1018.2 1226 1426.2 1822.1 1938 2450.9
recurrent expenditure 579.3 696.8 984.3 1032.7 1223.7 1290.2 1589.3
capital expenditure 438.7 321.4 241.7 351.3 519.5 552.4 759.3
Current surplus(+)/deficit(-) 217.6 20 39 220.8 437 546.4 744.4
% of GDP 0 0 0 0 0 0 0
overalls plus(+)/deficit(-)
-
221048.9
-
301401.6
-
202724.7 172601.3 -161406
-
101397.5 -117.2
% of GDP -3.1 -3.8 -2 -1.5 -1.1 -0.5 0
financing: 221048.9 301401.6 202746.4 172620 161400 101251.4 117.2
Foreign (net) 0 0 0 0 0 0 -
domestic (net) 118720 149026.7 163746.4 46500 143500 45000 212.3
banking system (net) 136734.1 60794.5 134246.4 0 0 0 159.8
of which
CBN 225685.5
-
200173.5 94046.4 0 0 0 0
Deposit money banks -88951.4 260968 40200 0 0 0 159.8
non Bank Public -18014.1 88232.2 29500 46500 143500 45000 40.2
other funds 102328.9 152374.9 39000 126120 17900 56251.4 95.1
source: Central Bank of Nigeria, Statistical Bullent(2008)
129
4.6 FINANCING FISCAL DEFICITS IN NIGERIA
In Nigeria, deficits are financed through foreign loans, domestic loans and other
funds (drawing down of cash balances). The domestic loans are further divided
into loans from non-banking system, (Ozurumba, 2008: 120). The sum of
N255.3 million and N464.4 million represent foreign financing of deficit in
1980 and 1981 respectively. This amount jumped to N1106.9 and N1184.5
million in 1983 and 1984 respectively (see table 4.6a). It was only in year 2000
when there was no evidence of foreign loan in financing the entire deficit of
N103777.3 million from the figures indicated in table 4.6a domestic financial
markets had been the main source of financing the deficit in Nigeria, with the
Central Bank accounting for the major part of credit to the Federal Government.
The impact of financing fiscal deficits through reliance on internal sources,
especially through the Central Bank could be noticeable. “The financing of the
fiscal deficit by borrowing from the Central Bank is highly inflationary and
tends to induce macroeconomic instability. In addition, it affects private sector
activities and the level of public debt which must be repaid in the future,” (Ojo
and Okunrounmu, 1992: 236).
The major impact of fiscal deficit, financed by internal source, mainly by
borrowing from the Central Bank, is an increase in credit expansion and money
supply in the economy. The expenditure of such deficit finance will
130
create increase in aggregate demand, which will likely be in excess of
supply of goods and services. The result will invariably accelerate inflationary
pressures in the economy. Ojo and Okunrounmu (1992: 236) argue that “the
Nigerian experience is that for most of the years when the Federal Government
borrowed heavily from domestic source to finance its fiscal deficit, credit
expansion exceeded the targets stipulated in the monetary and credit guidelines
issued as part of the budgetary process”.
NOTE: (-) Indicates “deficit”, (+) indicates “surplus”
131
Table 4.6a: Financing of Nigeria’s Overall Fiscal Deficits, 1980 – 2006
(N Million). Year Overall
Budget
Surplus /
Deficit
Foreign
loan
Domestic Banking
Systems
Non-
Banking
Public
Other
Funds
1 2 3 4 5 6 7
1980 -1975.2 255. 367.1 150.7 236.4 +1332.8
1981 -3902.1 464.4 4200.8 3018.0 1182.8 -763/1
1982 -6104.1 263.5 3402.0 3989.2 412.8 +2438.6
1983 -3364.5 1106.9 7057.0 5296.2 17607 -4799.4
1984 -2660.4 1184.5 2928.2 2370.0 558.2 -1452.3
1985 -3039.9 1045.9 5712 785.6 -2144.4 +1422.6
1986 -8254.3 708.1 475.5 275.2 0.3 +7070.7
1987 -5889.7 832.7 6465.6 2809.7 365.9 -1408.6
1988 -12160.9 1918.u7 8361.8 6102.4 2259.4 +1880.4
1989 -14134.7 5719.0 -5797.5 -9236.4 3438.6 +15213.5
1990 -22116.1 980.6 6092.6 2727.7 3364.9 +15042.9
1991 -35755.2 2972.2 32112.4 31107.1 1005.3 +670.2
1992 -39532.5 -11859.6 46716.7 35598.9 13117.8 +4675.4
1993 -107735.3 16963.5 91136.7 89402.0 1734.0 -364.2
1994 -70270.6 8390.8 60247.6 40900.1 19347.5 +1632.2
1995 +1000.0 22455.4 7102.2 17819.6- 10717.4 -30557.6
1996 +37049.4 7825.4 -143189.5 -153143.2 9953.7 +98314.7
1997 +5000.00 13382.6 -60637.1 -62880.5 2243.4 +52254.5
1998 -133389.3 16605.6 103885.7 108990.5 -5104.8 +12898.0
1999 -285104.7 21040.8 264063.9 172638.1 -18560.7 +109986.5
2000 -103777.3 3130250.9 103777.3 78688.9 24758.4 +330.0
2001 -221,048.9 3176291.0 118,720.0 919205.8 97768.2 +199261.5
2002 -301,4016 3932884.8 1166000.0 980000.3 186000.4 +460229.5
2003 -202724.7 4478329.3 1329600.0 1114220.0 215460.0 +500430.0
2004 -1420000 4890269.6 1370325.1 1072531.9 297793.2 +669070.2
2005 -1614000 2695072.2 1525906.6 1134647.6 391259.0 +726226.6
2006 -101398.0 - 45000 0 45000 56251.4
Source: (1) Central Bank of Nigeria Statistical Bulletin, and Annual Reports
and Accounts, (various years).
(2) Ozurumba (2008)
NOTE: (-) Indicates “deficit”, (+) indicates “surplus”
132
TABLE:4.7(a) SELECTED MACROECONOMIC INDICATORS
YEAR GDP GDP % GROWTH GROSS FIXED INV/GDP %
AV.CAPACITY UTILIZATION
% GROWTH INFLATION
NGN'M CAPITAL FORMATION RATE
1980 49,632.30 10,841.23 21.84 70.1 9.9
1981 47,619.70 -4.2 18,220.59 38.26 73.3 4.37 20.9
1982 49,069.30 3 17,145.82 34.94 63.6 -15.25 7.7
1983 53,107.40 7.6 13,335.33 25.11 49.7 -27.97 23.2
1984 59,622.50 10.9 9,149.76 15.35 43 -15.58 39.6
1985 67,908.60 12.2 8,799.48 12.96 37.1 -15.9 5.5
1986 69,147.00 1.8 11,351.46 16.42 38.8 4.38 5.4
1987 105,222.80 34.3 15,228.58 14.47 40.4 3.96 10.2
1988 139,085.30 24.3 17,562.21 12.63 42.4 4.72 38.3
1989 216,797.50 35.8 26,825.51 12.37 43.8 3.2 40.9
1990 267,550.00 19 40,121.31 15 40.3 -8.68 7.5
1991 312,139.70 14.3 45,190.23 14.48 42 4.05 13
1992 532,613.80 41.4 70,809.16 13.29 38.1 -10.24 44.5
1993 683,869.80 22.1 96,915.51 14.17 37.2 -2.42 57.2
1994 899,863.20 24 105,575.49 11.73 30.4 -22.37 57
1995 1933211.6 53.5 141,920.24 7.34 29.3 -3.79 72.8
1996 2702719.1 28.5 204,047.61 7.55 32.5 9.77 29.3
1997 2801972.6 3.5 242,899.79 8.67 30.4 -6.78 8.5
1998 2708430.9 -3.5 242,256.20 8.94 32.4 6.17 10
1999 3194015 15.2 231,661.69 7.25 34.6 6.36 6.6
2000 4582127.3 30.3 331,056.73 7.22 36.1 4.16 6.9
2001 4725086 3 372,135.65 7.88 42.7 15.46 18.9
2002 6912381.3 31.6 499,681.53 7.23 54.9 22.22 12.9
2003 8487031.6 18.6 865,876.46 10.2 56.5 2.83 14
2004 11411067 25.6 863,072.62 7.56 55.7 -1.44 15
2005 14572239 21.7 804,400.82 5.52 54.8 -1.64 17.9
2006 18564595 21.5 1546525.7 8.33 53.3 -2.81 8.2
2007 20657318 10.1 1915346.8 9.27 54.8 2.74 5.4
Source: (1) National Bureau of Statistics – National Accounts Survey (2007)
133
Table 4.7(b) SELECTED BASIC NATIONAL INCOME ACCOUNTS DATA
Year GDP PER
CAPITA (N)
EXCHANGE
RATE (N/ $)
EMPLOYMENT
RATE
AV. CAPACITY
UTILISATION (R)
INFLATION
RATE
1980 600.1 0.54 3.6 70.1 9.9
1981 581.3 0.64 4.5 73.3 20.9
1982 618.4 0.67 4.1 62.6 7.7
1983 662.2 0.75 6.6 49.7 23.2
1984 681.5 0.81 5.1 43.0 39.6
1985 756.1 1.00 3.9 37.1 5.5
1986 744.2 3.12 4.7 38.8 5.4
1987 1073.7 4.41 3.8 40.4 10.2
1988 1383.8 5.35 4.7 42.4 38.3
1989 2408.4 7.65 6.0 43.8 40.9
1990 1,042 9.00 6.5 40.3 7.5
1991 1069 9.87 6.9 42.0 13.0
1992 1066 9.9 6.6 38.1 44.5
1993 1069 17.29 6.3 37.2 57.2
1994 1060 22.06 8.0 30.4 57.0
1995 1041.5 21.99 8.2 29.3 72.8
1996 1051.8 81.02 6.6 32.46 29.3
1997 1056.1 82.00 6.8 30.4 8.5
1998 1051.0 84.4 6.8 32.4 10.0
1999 1075.9 91.8 6.9 34.6 6.6
2000 1046.8 101.7 5.3 36.1 6.9
2001 59,388.0 111.9 6.8 42.7 18.9
2002 65,232.0 121.0 7.0 54.9 12.9
2003 80,320.1 129.3 7.1 56.5 14.0
2004 89,866.1 133.5 7.2 55.7 15.0
2005 111,569.3 132.1 6.7 54.8 17.9
2006 132,017.0 128.7 6.5 53.30 8.2
2007 158,123.0 125.83 6.5 54.60 5.4
SOURCE: 1. Central Bank of Nigeria Annual Report and Statement of Accounts
(various years)
2. National Bureau of Statistics –National Accounts Survey(2007)
134
4.8 TEST OF HYPOTHESES
In this section, our earlier stated hypotheses for the study are tested.
4.8.1 HYPOTHESIS ONE
To test the hypothesis, we restate it in null and alternative forms as follows:
Ho: Public Capital expenditure does not have a positive significant
impact on size of the Nigerian economy
Hi: Public Capital expenditure has a positive significant impact on size of
the Nigerian economy.
The relevant model for testing this hypothesis as stated in chapter three
is
Ge = bo+biPCE+U…………….. (1a)
where;
Ge= Gross Domestic Product
PCE= Public Capital expenditure
U= Stochastic
135
A summary of the Non-Log linear computer results is indicated in equation 1b
below:
Ge = -565232.353+23.915PCE… ……………(1b)
(t = 9.548)
R2 = 0.778
_
R2 = 0.770
F = 91.159
DW = 0.775
The above equation 1b indicates that 77.8% of variations in GDP (size of the
economy) as show by R2 value, are caused by public capital expenditure. The
coefficient of Public Capital Expenditure is positively signed. Again its t –
value is greater than 2 (i.e. 9.548 > 2) showing that the impact of Public Capital
Expenditure on GDP is significant.
Also the F – value is significant since the calculated value of 91.159 is greater
than the critical value of 4.44 (i.e. at Fo . 05).
On the basis of the above, since the Public Capital Expenditure coefficient is
positively signed in the equation and t-value is also significant, the null
hypothesis is rejected and the alternative hypothesis accepted.
136
Thus, public capital expenditure has a significant positive impact on Gross
Domestic product (Size of the economy).
4.8.2 HYPOTHESIS TWO
To test the hypothesis, we restate it in null and alternative forms as follows:
Ho: Recurrent public expenditure does not have positive and significant
impact on the size of the Nigerian economy.
Hi: Recurrent public expenditure has a positive and significant impact on
the size of the Nigeria economy.
From the analysis of our earlier stated model in chapter three and
application of relevant data for this hypothesis, that is;
Ge = bo + bi RPE + U……………………(2a),
Where:
Ge = Growth in size of the economy (GDP)
RPE = Recurrent public expenditure
U = Stochastic error term
137
The following summarised computer results were obtained ( i.e
Non-log linear results).
Ge = - 217805.030 + 12.475 RPE………………..2b
(t = 28.427)
R2 = 0.969
_
R2 = 0.968
F = 808.075
DW = 1.172
The above equation as shown by R2 value indicates that 96.9% of variations in
the GDP (Size of the economy) are caused by recurrent public expenditure. The
RPE is positively signed, which means it has a positive impact on GDP and its t
– value of 28.42 is greater than 2 (28.42>2) showing that the impact is
significant. The calculated F – value of 808.075 is greater than the critical F –
value of 4.44
Accordingly, the null hypothesis is rejected and the alternative hypothesis
accepted. We conclude by these results that recurrent public expenditure has a
significant positive impact on size of the economy.
4.8.3 HYPOTHESIS THREE
To test the hypothesis, we restate it in null and alternative forms as follows:
Ho: Recurrent and public capital expenditure do not have significant
impact on size of the Nigerian economy.
138
Hi: Recurrent and public capital expenditure have significant impact
on size of the Nigerian economy.
The analysis here is based on our earlier stated model in chapter three for this
hypothesis, that is,
Ge = bo + bi RPE + b2 PCE + U……………………(3a)
The following summarised n on-log linear computer results were obtained: GDP
= - 144179.162 + 13.149 RPE – 1.596 PCE
(t = 12.513) (t=-0.710)
R2 = 0.969
_
R2 = 0.967
F = 396.585
DW= 1.111
The above equation indicates that 96.9% of variations in GDP (Size of the
Nigerian economy) as shown by the R2 value, are caused by both recurrent and
public capital expenditure. The RPE is positively signed, while the PCE is
negatively signed, showing that both variables produce different results when
combined together in the linear equation and when stated separately. It has also
proved that huge recurrent expenditure do suppress the impact of capital
expenditure in the economy. The t – value of the recurrent expenditure is
greater than 2 (i.e. 12.513>2) showing that its impact is
139
significant. The t-value of the coefficient of public capital expenditure is
significant and even negatively signed. The implication of the above is that
neither the null nor the alternative hypothesis can be fully accepted or rejected.
While on the basis of the recurrent expenditure variable, the alternative
hypothesis is accepted; on the basis of capital expenditure the alternative
hypothesis is rejected. The one to accept is rather the null hypothesis. In this
way, when the two independent variables are used in same model, their results
are different. In addition, the F – value is significant since the calculated
value of 396.585 is greater than the critical value of 3.39 (i.e. at Fo.05).
On the basis of the basis of the above, the null hypothesis is rejected and the
alternative hypothesis accepted. Thus, recurrent and public capital expenditure
do have significant impact on the size of the Nigerian economy.
4.8.4 HYPOTHESIS FOUR
To test the hypothesis, we restate it in null and alternative forms as follows:
Ho: There is no positive relationship between recurrent public expenditure
and investment (Proxied by gross fixed capital formation) in Nigeria.
140
Hi: There is positive relationship between recurrent public expenditure an
investment (proxy by gross fixed capital formation) in Nigeria.
From the analysis of our earlier stated model in chapter three for this
hypothesis i.e.
RPE (INV) = 0 …… (4)
The computer results obtained indicates that there is positive correlation
coefficient of .953 which is very close to 1 proving the existence of strong
positive relationship between recurrent expenditure and investment in
Nigeria.
Based on this fact, the null hypothesis is rejected and the alternative
hypothesis accepted. Thus, recurrent public expenditure has positive
relation with investment in Nigeria.
4.8.5 HYPOTHESIS FIVE
To test the hypothesis, we restate it in null and alternative forms as follows:
Ho: There is no positive relationship between public capital expenditure
and investment in Nigeria
Hi: There is positive relationship between public capital expenditure and
investment in Nigeria.
141
The equation for this hypothesis and model as stated in chapter three ere
as follows;
PCE (INV) = 0 ….. (5)
The computer results obtained indicates that there is a positive correlation
coefficient of .856 which is very close to one. This also means that there is
strong positive relationship between public capital expenditure and
investment in Nigeria.
4.8.6 HYPOTHESIS SIX
To test the hypothesis we restate it in null and alternative forms as follows:
Ho: Public capital and recurrent expenditure do not have positive and
significant impact on inflation rate in Nigeria.
Hi: Public capital and recurrent expenditure do have positive and
significant impact on inflation rate in Nigeria.
From the analysis of our earlier stated model
(INF = bo + bi PCE + b2 RPE + U….6)
INF = 26.973-2.87E -005PCE – 1.14E – 007 RPE ….6
(t = -.737) (t=-.006)
142
In chapter three for this hypothesis. The following summarised computer
results were obtained, i.e. non-log linear results:
R2 = .110
_
R2 = .039
F = 1.550
DW= 0.970
The above equation indicates that 11% of variations in inflation rate as shown
by R2
value are caused by public capital and recurrent expenditure. Both PCE
and RPE are negatively sighed showing that they have negative impact on
inflation rate and their t – values are less than 2 proving that the impact is not
significant.
4.8.7 HYPOTHESIS SEVEN
To test the hypothesis, we restate it in null and alternative forms as follows:
Ho: Public expenditure does not have positive and significant impact on
industrial capacity utilization in the Nigerian economy.
Hi: Public expenditure does have positive and significant impact on
industrial capacity utilization in the Nigerian economy.
143
From the analysis of our earlier stated model (ICU = bo + bi PE + U) in
Chapter three for this hypothesis, the following summarised computer
results were obtained, i.e. non-log linear results.
ICU = 42.379 + 7.33E – 006 PE….(7)
(t = 1.929)
R2 = 0.125
_
R2 = 0.092
F = 3.721
DW= 0.198
The above equation indicates that 12.5% of variations in industrial capacity
utilizations as shown by R2 value are caused by public expenditure. The PE is
positively sighed showing it has a positive impact on ICU and its t – value is
less than 2 (i.e. 1.929<2) showing that the impact is not significant.
At the same time, the equation is significant since the calculated f-value of
3.721 is more than the critical F – value of 3.39.
144
4.8.8 HYPOTHESIS EIGHT
To test the hypothesis we restate it in null and alternative forms as follows:
Ho: The nature and form of national income accounting does not
significantly affect the nation’s economic health
Hi: The nature and form of national income accounting do significantly
affect the nation’s economic health.
As shown in table 4.7(b), page 131, National Income accounting in its
form and nature measures the aggregate economic activity. It
comprises, among others, such macroeconomic variables as exchange
rate, employment rate, average capacity utilization and inflation rate as
its indices.
GDP per capita is the summary index of the relative economic well-being
of the people in different nations and also as one of the goals of Human
Development Index (HDI) which measures standard of living.
This hypothesis tests the extent to which the nations economic health is
ascertained by these indices.
The model to test this hypothesis is as stated in chapter three, which is:
Y = bo + b1EXR + b2EMR + b3ICU + b4INF + U
Where: Y = GDP per Capita
EXR = Exchange Rate
145
EMR = Employment Rate
ICU = Industrial Capacity Utilization
INF = Inflation Rate
U = Error Term
Y = -92288.8 + 639.88EXR + 1857.66EMR + 1539.0811CU
+218.57INF+U
(t = 4.356) (t = 0.292) (t = 3.077) (t = 0.581)
From the analysis of our earlier stated model in chapter three and the
data in table 4.7b, the following summarised computer results were
obtained.
R2 = 0.719
R2 = 0.670
F = 14.725
DW = 0.376
The above equation is significant since the calculated F-value of
14.725 is more than the critical F- value of 2.80
Based on this fact, the null hypothesis is rejected and the alternative
hypothesis accepted.
Thus, the nature and form of national income accounting do
significantly affect the nation’s economic health.
146
References
Ojo, M.O and Okunrounmu, T.O. (1992), “Why fiscal policies Matter in
African” Countries Economic and Financial Review, CBN
vol. 30 No 4.
Ozurumba, B.A. (2008), Impact of Public Sector Deficits on Economic
Development of Nigeria, Unpublished Ph.D. Thesis, FUTO, Owerri
National Bureau of Statistics –National Accounts survey (2007).
The National Accounts of Nigeria, 1973-1975, Federal Ministry of National
Planning, Lagos, Nigeria
Anyanwu, J.C., Oyefusi, A. and Oaikhenan, H. (1997), The structure
of the Nigeria Economy (1960-1997)
Central Bank of Nigeria, Annual Report and Statement of Accounts (2006-2008].
147
CHAPTER FIVE
5.0. SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS.
5.1. SUMMARY OF FINDINGS.
1. This study aims to shed some further empirical light on the issue of
public expenditure ability to promote economic growth by focusing on an
open economy. The findings are particularly interesting. Nigeria
experienced major increases in public expenditure during the Period
1980—2007
The additional spending undertaken by Nigerian authorities was partly
financed through increased government borrowing, which resulted into
budget deficit and public debt. The data in table 4.5a reveals the nature of
the extra government spending. Its biggest part was devoted to higher
recurrent spending and transfers.
The study has given insights regarding the output effects of these fiscal
developments by means of examining the existence and nature of
relationship between Nigerian economic growth and the categories of
public expenditure.
2. The observation over the period 1980-2007 covered in this study is that
the Federal Government expenditure inclined very strongly in
148
favour of recurrent expenditure in 19 out of the 28 years covered. This
unhealthy scenario is attributed largely to the huge debt service obligation
and expenditure in respect of the transition programmes (Anyanwu,et
al,1997:257).
The economy cannot be expected to be better-off development-wise
with higher levels of recurrent expenditure distributed largely to
payment of salaries and overhead costs(Anyafo,1996:250). Between
1970 and 1995, the ratio of potentially productive public expenditure (i.e.
capital spending) averaged 9.7 per cent .This is far below the average of
21 and 16-17 per cent for Africa countries and other developing regions
as espoused by Collier and Gunning(1996). “This might have contributed
to the disappointing growth performance in the country”(Fajingbesi and
Odusola,1999:140).
In Nigeria, while recurrent expenditure increased slightly in 1981, capital
expenditure fell by a reasonable margin of 35% .Both recurrent and
capital expenditure declined in 1983 but the rate of reduction was higher
in capital expenditure than in the recurrent spending.
Econometric regression was carried out to estimate elasticity of GDP
with respect to different types of public expenditure.
149
Data from the table 3 shows that the composition of public expenditure
changes through out the period 1980 – 2007.
There was reduction in total public expenditure in 1981, 1982 and 1983,
thus indicating -10.37, -27.64 and -25.0 respective over these years.
There were more cut in capital expenditure than recurrent expenditure.
Recurrent expenditure of N7,096.0 representing 45.9% was incurred in
1986, during the SAP period. By 1993 recurrent expenditure had risen to
N136, 177.08 million or 76.80% of total federal expenditure.
3. There is a high concentration on recurrent expenditure at the expense of
capital programmes that would naturally enhance economic growth and
development. Ever in the provision of recurrent social services there are
obvious cases of neglect leading to poor delivery of services and delay in
the payment of salaries and meeting of contractual obligations.
The study observes the existence of relationship between economic
growth and government expenditure. Thus Public expenditure contributes
to growth.
150
The data used in this model are inflation rate, GDP, total expenditures.
They all derived from the Statistical Bulletin and the Annual Report and
Statement of Accounts of the Central Bank of Nigeria.
As shown in table 4.3a, both recurrent and capital expenditure generate
positive impact on real output (GDP).
Expectedly, the impact of capital expenditure is more predominant.
5.2 DISCUSSION OF FINDINGS
1. The results obtained in testing hypothesis one confirms that 77.8% of
variation in GDP (size of the economy) as shown by R2 value are caused
by public capital expenditure. The coefficient of public capital
expenditure is positively signed.
Again its t-value is greater than 2 (i.e., 9.548 > 2) showing that the impact
of public capital expenditure on GDP is significant. The results from the
model
Ge = bo + bi PCE + u ----(1a)
Support the opinion of scholars (i.e. mainly those who subscribe to
Keynesia Tradition), who look upon the state as instrumental factor in
conditioning economic activity. “According to this tradition other social
expenditure such as health, housing and transfers contribute towards
productivity as well as play an important role in stabilizing
151
aggregate demand which is one of the key variables in promoting
economic growth”; (Alexion, 2009:11).
5. Macroeconomic performance has a significant impact on the expenditure
side of the budget via spending on transfers, sect-oral investments, like-
wise; fiscal policies and performance have a significant effect on
macroeconomic conditions.
6. Solid and stable macroeconomic performance contributes greatly to the
government’s ability to formulate and implement sound fiscal policy and
achieve a healthy sustainable fiscal performance.
7. Imprudent and poorly designed fiscal policies generates significant
aggregate inbalance (annual deficits and accumulation of debt) and/or
unbalanced allocation of public sector resource across sectors will
ultimately undermine macroeconomic performance, just as a weak or
highly unstable macroeconomic will lead to fiscal difficulties.
8. This modelling framework affords us the opportunity of getting the
feedback effects of other variable on government expenditure.
Evidence from the results showed that inflation produce some dampening
effects on real output and capital expenditure.
152
Another interesting result from the work is the effect of government
expenditure on output. The findings show that real capital expenditure
positively and significantly affected real output while the effect of real
recurrent expenditure was relatively marginal.
9. In situations where public expenditures are not properly managed, they
usually create distortions which retard, rather than promote economic
growth. This is typically the case for Nigeria, where, despite the huge
resources that accrue to the nation during the boom era and the tremendous
increase in public expenditure during the period, there was little to account
for it.
We have witnessed a lot of wastage in public resources, with little or no
transparency and accountability in public expenditure.
“This points to the conclusion that the manner and style by which public
expenditure is managed determine, to a large extent, its success or otherwise
in achieving the desired growth and development objectives”. (Adubi and
Obioma, 1999:186).
153
5.3 CONCLUSION
The findings show that both recurrent and capital expenditure have significant
positive impact on gross domestic product (size of the economy). This means that
decreasing or reducing capital expenditure will have negative implication on
growth of the economy. The findings also proved that huge recurrent
expenditures do suppress the impact of capital expenditure in the economy. This
is an issue which cannot be neglected by policy makers in the economy. This in
line with the findings of Maku (2009: 10) that public expenditure activities-like
electricity; telecommunication, health, education, transport, water, sanitation and
irrigation are expected to contribute to economic growth; whereas government
consumption spending is anticipated to be growth retarding. Thus, public
expenditure on social and economic infrastructure is expected to have positive
impact on economic growth. This study has also proved that both recurrent and
capital expenditure do not have significant impact on inflation rate in Nigeria,
indicating that there are many other exogenous variables that impact positively
on inflation rate in Nigeria. National income accounting has significantly served
to provide the necessary macroeconomic variables. The study though confirming
such theories as Wagner’s law of increasing state activities and Keynesian
approach according to which government spending is an important policy tool to
be used to ensure
154
a reasonable level of economic activity, it equally exposes the potentials of these
variables for economic growth in our setting if appropriately utilised.
National Income Accounting refers to the measurement of aggregate economic
activity, particularly national income and its components, such as gross
domestic product (GDP) which is the total naira value of final output.
GDP per capita calculations attempt to give additional information about how
we are doing as an economy. It is a better measure of the standard of living for
citizens living in the same countries over time or for comparing standard of
living between citizens of different countries.
However, international comparisons for GDP per capita are some what suspect
because of varying national income accounting system as well as fluctuations of
foreign exchange rates. Also international comparisons of GDP are difficult
because data from other countries may be unreliable.
5.4 RECOMMENDATIONS
1. A sustained growth depends on the quality of infrastructures put in place.
Thus, government should avoid unwarranted cuts of capital expenditure,
the quality of recurrent expenditure is equally important for the
management of development projects hence government expenditure on
capital building and utilization should be enhanced.
155
2. Ensuring that due process is followed before awarding any form of
contracts for which public funds are to be channelled to. This is necessary
to minimize the leakages in government finances.
3. Various tiers of government – need to demonstrate a strong commitment
to fiscal discipline if it is to be taken seriously.
5.5 CONTRIBUTION TO KNOWLEDGE
With special respect to this work’s contribution to knowledge, we recall that Wagner’s
law states that as per income rises in industrialised countries, the relative share of the
public sector in national output will also rise. An important thing to note is that this
law finds applicability in developed countries, our work has shown that this law also
applies to Nigeria which is a developing country and one in which industrialization is
yet to have pride of place. Thus, this law finds applicability irrespective of whether a
country is industrialised, industrialising or not, so far, as evident from our study.
Reasonable measures of economic development (national income) and state activity
(public expenditure) can through the employment of econometric estimation, isolate
the effects of a few variables on public spending.
There are in general six different formulations of Wagner’s hypothesis. These
are:
1 Peacock-Wiseman “traditional” version G = f (GDP)
2 Pryor version C = f (GDP)
156
3 Goffman version G = f (GDP/N)
4 Musgrave version G/GDP = f (GDPR/N)
5 Gupta/Michas version G/N = f (GDP/N)
6 Peacock-Wiseman “share” version G/GDP = f (GDP)
where G is nominal total government expenditure, GDP is nominal Gross
Domestic Product,
GDPR is real Gross Domestic Product, N is the total population size, and C is
government consumption expenditure.
The first formulation was employed by Peacock and Wiseman (1961),
Musgrave (1969), and Goffman and Mahar (1971). The second functional form
was formulated and tested by Pryor (1968). The third formulation was
suggested and formulated by Goffman (1968) and Mann(1980). The fourth
was utilized by Musgrave (1969), Murthy (1993), and Ram (1987).
Gupta (1967) and Michas (1975) considered the fifth formulation and the sixth
formulation was suggested and tested by Mann (1980).
All of the above functional forms have been employed to test Wagner’s
hypothesis.
This study has modified these models and developed new models called “Expanding
Activity” models which can be used for the prediction of the impact of categories of
157
public expenditure on gross domestic product (GDP).They also predict an increasing
relative share for the public sector in the total economy as per capita income grows.
These models are:
1. GE = f (PCE)……………… (i)
2. GE = f (RPE)……………….(ii)
3. GE = f (PCE +RPE +U)…….(iii)
where;
GE = Gross Domestic Product
PCE = Public Capital Expenditure
RPE = Recurrent Public Expenditure
U = Stochastic error term.
The models capture the distinguishing features of the two categories of public
expenditure in Nigeria.
158
APPENDIX I – REGRESSION RESULTS ON GDP AND CAPITAL
EXPENDITURE MODEL 1
Regression
Descriptive Statistics
Mean Std. Deviation N
GDP 3814480.0964 5798844.68210 28
Capital Expenditure 183140.2357 213890.59476 28
Correlations
GDP Capital Expenditure
Pearson Correlation GDP 1.000 .882
Capital Expenditure .882 1.000
Sig. (1-tailed) GDP . .000
Capital Expenditure .000 .
N GDP 28 28
Capital Expenditure 28 28
Model Summary(b)
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .882(a) .778 .770 2783781.90088 .775
a Predictors: (Constant), Capital Expenditure
b Dependent Variable: GDP
ANOVA(b)
Model Sum of Squares df Mean Square F Sig.
1 Regression 706432707009029.000 1 706432707009029.000 91.159 .000(a)
Residual 201485483463936.400 26 7749441671689.860
Total 907918190472965.000 27
a Predictors: (Constant), Capital Expenditure
b Dependent Variable: GDP
Coefficients(a)
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) -565232.353 697988.261 -.810 .425
Capital Expenditure 23.915 2.505 .882 9.548 .000
a Dependent Variable: GDP
R2 = 0.778
Ř2
= 0.770
F = 91.159
DW = 0.775
GDP = -565232.353 + 23.915PCE
(t = 9.548)
From the above tables, there is a positive correlation between GDP and Capital Expenditure (with Pearson
Correlation coefficient of 0.882).
159
77.8% of the predicator (i.e. Capital Expenditure) fits into the model and considering a regression coefficient
(R) of 0.882, the variables fit into the model. Since the calculated F-value (91.159) is greater than the critical
F-value (df = 1, 26) (9.41), the null hypothesis should be rejected and the alternate accepted.
This is further validated with the t-value (9.548) which is greater than 2.0.
160
APPENDIX II – REGRESSION RESULTS ON GDP AND RECURRENT
EXPENDITURE
MODEL 2
Regression
Descriptive Statistics
Mean Std. Deviation N
GDP 3814480.0964 5798844.68210 28
Recurrent Expenditure 323305.5429 457642.84589 28
Correlations
GDP Recurrent Expenditure
Pearson Correlation GDP 1.000 .984
Recurrent Expenditure .984 1.000
Sig. (1-tailed) GDP . .000
Recurrent Expenditure .000 .
N GDP 28 28
Recurrent Expenditure 28 28
Model Summary(b)
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .984(a) .969 .968 1043327.77839 1.172
a Predictors: (Constant), Recurrent Expenditure
b Dependent Variable: GDP
ANOVA(b)
Model Sum of Squares Df Mean Square F Sig.
1 Regression 879616336290965.000 1 879616336290965.000 808.075 .000(a)
Residual 28301854182000.730 26 1088532853153.875
Total 907918190472965.000 27
a Predictors: (Constant), Recurrent Expenditure
b Dependent Variable: GDP
Coefficients(a)
Model Unstandardized Coefficients Standardized Coefficients T Sig.
B Std. Error Beta
1 (Constant) -217805.030 242893.448 -.897 .378
Recurrent Expenditure 12.472 .439 .984 28.427 .000
a Dependent Variable: GDP
R2 = 0.969
Ř2
= 0.968
F = 808.075
DW = 1.172
GDP = -217805.030 + 12.475RPE
(t = 28.427)
From the above tables, there is a positive correlation between GDP and Capital Expenditure (with Pearson
Correlation coefficient of 0.984).
161
96.9% of the predicator (i.e. Capital Expenditure) fits into the model and considering a regression coefficient
(R) of 0.984, the variables fit into the model. Since the calculated F-value (808.075) is greater than the
critical F-value (df = 1, 26) (9.41), the null hypothesis should be rejected and the alternate accepted.
This is further validated with the t-value (28.427) which is greater than 2.0.
162
APPENDIX III – REGRESSION RESULTS ON GDP, CAPITAL AND
RECURRENT EXPENDITURE
MODEL 3
Regression
Descriptive Statistics
Mean Std. Deviation N
GDP 3814480.0964 5798844.68210 28
Capital Expenditure 183140.2357 213890.59476 28
Recurrent Expenditure 323305.5429 457642.84589 28
Correlations
GDP Capital Expenditure Recurrent Expenditure
Pearson Correlation GDP 1.000 .882 .984
Capital Expenditure .882 1.000 .907
Recurrent Expenditure .984 .907 1.000
Sig. (1-tailed) GDP . .000 .000
Capital Expenditure .000 . .000
Recurrent Expenditure .000 .000 .
N GDP 28 28 28
Capital Expenditure 28 28 28
Recurrent Expenditure 28 28 28
Model Summary(b)
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .985(a) .969 .967 1053420.65606 1.111
a Predictors: (Constant), Recurrent Expenditure, Capital Expenditure b Dependent Variable: GDP
ANOVA(b)
Model Sum of Squares df Mean Square F Sig.
1 Regression 880175813507473.000 2 440087906753736.600 396.585 .000(a)
Residual 27742376965492.650 25 1109695078619.706
Total 907918190472965.000 27
a Predictors: (Constant), Recurrent Expenditure, Capital Expenditure b Dependent Variable: GDP
Coefficients(a)
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) -144179.162 266263.063 -.541 .593
Capital Expenditure -1.596 2.248 -.059 -.710 .484
Recurrent Expenditure 13.149 1.051 1.038 12.513 .000
a Dependent Variable: GDP
R2 = 0.969
Ř2
= 0.967
F = 396.585
DW = 1.111
GDP = -144179.162 -1.596PCE + 13.149RPE
(t = 12.513)
163
From the above tables, there is a positive correlation between GDP and Capital Expenditure as well as GDP and
Recurrent Expenditure (with Pearson Correlation coefficients of 0.882 and 0.984 respectively).
96.9% of the predicators (i.e. Recurrent and Capital Expenditures) fits into the model and considering a regression
coefficient (R) of 0.984, the variables fit into the model. Since the calculated F-value (808.075) is greater than the
critical F-value (df = 1, 26) (9.41), the null hypothesis should be rejected and the alternate accepted.
This is further validated with the t-value (12.513) which is greater than 2.0.
164
APPENDIX IV – REGRESSION RESULTS ON RECURRENT EXPENDITURE
AND GROSS FIXED CAPITAL FORMATION
MODEL 4
Pearson Correlation
Recurrent Expenditure Gross Fixed Capital Formation
Recurrent Expenditure Pearson Correlation 1 .953(**)
Sig. (2-tailed) .000
N 28 28
Gross Fixed Capital Formation Pearson Correlation .953(**) 1
Sig. (2-tailed) .000
N 28 28
** Correlation is significant at the 0.01 level (2-tailed).
Spearman’s rho Correlations
Recurrent Expenditure Gross Fixed Capital Formation
Recurrent Expenditure Correlation Coefficient 1.000 .960(**)
Sig. (2-tailed) . .000
N 28 28
Gross Fixed Capital Formation Correlation Coefficient .960(**) 1.000
Sig. (2-tailed) .000 .
N 28 28
** Correlation is significant at the 0.01 level (2-tailed).
From the above tables, there is a strong positive correlation between Recurrent Expenditure and Gross Fixed
Capital Formation (with a Pearson’s correlation of 0.953 and a Spearman’s Correlation of 0.960).
Thus, for every positive change in one of the variables, there is a corresponding positive change in the other
variable.
165
APPENDIX V – REGRESSION RESULTS ON GROSS FIXED CAPITAL
FORMATION AND CAPITAL EXPENDITURES
MODEL 5
Pearson Correlations
Gross Fixed Capital
Formation Capital Expenditure
Gross Fixed Capital Formation Pearson Correlation 1 .856(**)
Sig. (2-tailed) .000
N 28 28
Capital Expenditure Pearson Correlation .856(**) 1
Sig. (2-tailed) .000
N 28 28
** Correlation is significant at the 0.01 level (2-tailed).
Spearman’s rho Correlations
Gross Fixed Capital Formation Capital Expenditure
Gross Fixed Capital Formation Correlation Coefficient 1.000 .943(**)
Sig. (2-tailed) . .000
N 28 28
Capital Expenditure Correlation Coefficient .943(**) 1.000
Sig. (2-tailed) .000 .
N 28 28
** Correlation is significant at the 0.01 level (2-tailed).
From the above tables, there is a strong positive correlation between Gross Fixed Capital Formation and
Capital Expenditure (with a Pearson Correlation of 0.856 and a Spearman’s Correlation of 0.943).
Thus, for every positive change in one of the variables, there is a corresponding positive change in the other
variable.
166
APPENDIX VI – REGRESSION RESULTS ON INFLATION RATE, CAPITAL
AND RECURRENT EXPENDITURES
Model 6
Regression Descriptive Statistics
Mean Std. Deviation N
Inflation Rate 21.6857 18.60467 28
Capital Expenditure 183140.2357 213890.59476 28
Recurrent Expenditure 323305.5429 457642.84589 28
Correlations
Inflation Rate Capital Expenditure Recurrent Expenditure
Pearson Correlation Inflation Rate 1.000 -.332 -.302
Capital Expenditure -.332 1.000 .907
Recurrent Expenditure -.302 .907 1.000
Sig. (1-tailed) Inflation Rate . .042 .059
Capital Expenditure .042 . .000
Recurrent Expenditure .059 .000 .
N Inflation Rate 28 28 28
Capital Expenditure 28 28 28
Recurrent Expenditure 28 28 28
Model Summary(b)
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .332(a) .110 .039 18.23679 .970
a Predictors: (Constant), Recurrent Expenditure, Capital Expenditure b Dependent Variable: Inflation Rate ANOVA(b)
Model Sum of Squares df Mean Square F Sig.
1 Regression 1031.105 2 515.552 1.550 .232(a)
Residual 8314.510 25 332.580
Total 9345.614 27
a Predictors: (Constant), Recurrent Expenditure, Capital Expenditure b Dependent Variable: Inflation Rate Coefficients(a)
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) 26.973 4.610 5.852 .000
Capital Expenditure -2.87E-005 .000 -.330 -.737 .468
Recurrent Expenditure -1.14E-007 .000 -.003 -.006 .995
a Dependent Variable: Inflation Rate
167
R2 = 0.110
Ř2
= 0.039
F = 1.550
DW = 0.970
GDP = 26.973 – 2.87E-005PCE – 1.14E-007RPE
(t = 5.852)
Regression Descriptive Statistics
Mean Std. Deviation N
Inflation Rate 21.6857 18.60467 28
Capital Expenditure 183140.2357
213890.59476 28
Correlations
Inflation Rate Capital Expenditure
Pearson Correlation Inflation Rate 1.000 -.332
Capital Expenditure -.332 1.000
Sig. (1-tailed) Inflation Rate . .042
Capital Expenditure .042 .
N Inflation Rate 28 28
Capital Expenditure 28 28
Model Summary(b)
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .332(a) .110 .076 17.88265 .970
a Predictors: (Constant), Capital Expenditure b Dependent Variable: Inflation Rate ANOVA(b)
Model Sum of Squares df Mean Square F Sig.
1 Regression 1031.091 1 1031.091 3.224 .084(a)
Residual 8314.523 26 319.789
Total 9345.614 27
a Predictors: (Constant), Capital Expenditure b Dependent Variable: Inflation Rate Coefficients(a)
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) 26.977 4.484 6.017 .000
Capital Expenditure -2.89E-005 .000 -.332 -1.796 .084
a Dependent Variable: Inflation Rate
R2 = 0.110
Ř2
= 0.076
F = 3.224
DW = 0.970
GDP = 26.977 – 2.89E-005PCE
(t = 6.017)
168
Regression Descriptive Statistics
Mean Std. Deviation N
Inflation Rate 21.6857 18.60467 28
Recurrent Expenditure 323305.5429
457642.84589 28
Correlations
Inflation Rate Recurrent Expenditure
Pearson Correlation Inflation Rate 1.000 -.302
Recurrent Expenditure -.302 1.000
Sig. (1-tailed) Inflation Rate . .059
Recurrent Expenditure .059 .
N Inflation Rate 28 28
Recurrent Expenditure 28 28
Model Summary(b)
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .302(a) .091 .056 18.07564 .946
a Predictors: (Constant), Recurrent Expenditure b Dependent Variable: Inflation Rate ANOVA(b)
Model Sum of Squares df Mean Square F Sig.
1 Regression 850.666 1 850.666 2.604 .119(a)
Residual 8494.948 26 326.729
Total 9345.614 27
a Predictors: (Constant), Recurrent Expenditure b Dependent Variable: Inflation Rate Coefficients(a)
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) 25.651 4.208 6.096 .000
Recurrent Expenditure -1.23E-005 .000 -.302 -1.614 .119
a Dependent Variable: Inflation Rate
R2 = 0.091
Ř2
= 0.056
F = 2.604
DW = 0.946
GDP = 25.651 – 1.23E-005RPE
(t = 6.096)
169
APPENDIX VII – REGRESSION RESULTS ON AVERAGE INDUSTRIAL
CAPACITY UTILIZATION AND PUBLIC EXPENDITURE
MODEL 7
Regression
Descriptive Statistics
Mean Std. Deviation N
Average Industrial Capacity Utilization 44.9357 11.95483 28
Public Expenditure 348729.9857 577016.42227 28
Correlations
Average Industrial Capacity Utilisation Public Expenditure
Pearson Correlation Average Industrial
Capacity Utilisation 1.000 .354
Public Expenditure .354 1.000
Sig. (1-tailed) Average Industrial
Capacity Utilisation . .032
Public Expenditure .032 .
N Average Industrial
Capacity Utilisation 28 28
Public Expenditure 28 28
Model Summary(b)
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .354(a) .125 .092 11.39442 .198
a Predictors: (Constant), Public Expenditure
b Dependent Variable: Average Industrial Capacity Utilisation
ANOVA(b)
Model Sum of Squares df Mean Square F Sig.
1 Regression 483.132 1 483.132 3.721 .065(a)
Residual 3375.652 26 129.833
Total 3858.784 27
a Predictors: (Constant), Public Expenditure
b Dependent Variable: Average Industrial Capacity Utilisation
Coefficients(a)
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) 42.379 2.528 16.761 .000
Public Expenditure 7.33E-006 .000 .354 1.929 .065
a Dependent Variable: Average Industrial Capacity Utilisation
R2 = 0.125
Ř2
= 0.092
F = 3.721
DW = 0.198
AICU = 42.379 + 7.33E-006PE
(t = 1.929)
170
From the above tables, there is a weak correlation between PE and Inflation Rate (with Pearson Correlation
coefficient of 0.354).
12.5% of the predicator (i.e. Public Expenditures) fits into the model and considering a regression coefficient
(R) of 0.354, the variables do not fit into the model. Since the calculated F-value (3.721) is lesser than the
critical F-value (df = 1, 26) (9.41), the null hypothesis should be accepted.
This is further validated with the t-value (1.929) which is lesser than 2.0.
171
APPENDIX VIII- REGRESSION RESULTS ON GDP PER CAPITA , EXCHANGE RATE, EMPLOYMENT RATE, INDUSTRIAL CAPACITY UTILIZATION AND INFLATION RATE
MODEL 8
Regression
Regression
Descriptive Statistics
25630.51 46674.16180 28
51.3679 53.92562 28
6.0393 1.29796 28
44.8914 11.89381 28
21.6857 18.60467 28
GDP Per Capita
Exchange Rate
Employment Rate
Industrial Capacity
Utilization
Inf lat ion Rate
Mean Std. Dev iation N
Correlations
1.000 .769 .307 .406 -.283
.769 1.000 .508 .085 -.341
.307 .508 1.000 -.378 .329
.406 .085 -.378 1.000 -.343
-.283 -.341 .329 -.343 1.000
. .000 .056 .016 .073
.000 . .003 .333 .038
.056 .003 . .024 .044
.016 .333 .024 . .037
.073 .038 .044 .037 .
28 28 28 28 28
28 28 28 28 28
28 28 28 28 28
28 28 28 28 28
28 28 28 28 28
GDP Per Capita
Exchange Rate
Employment Rate
Industrial Capacity
Utilization
Inf lat ion Rate
GDP Per Capita
Exchange Rate
Employment Rate
Industrial Capacity
Utilization
Inf lat ion Rate
GDP Per Capita
Exchange Rate
Employment Rate
Industrial Capacity
Utilization
Inf lat ion Rate
Pearson Correlation
Sig. (1-tailed)
N
GDP Per
Capita
Exchange
Rate
Employment
Rate
Industrial
Capacity
Utilization Inf lat ion Rate
172
Model Summaryb
.848a .719 .670 26798.88621 .376
Model
1
R R Square
Adjusted
R Square
Std. Error of
the Estimate
Durbin-
Watson
Predictors: (Constant), Inf lation Rate, Employ ment Rate, Industrial
Capacity Utilization, Exchange Rate
a.
Dependent Variable: GDP Per Capitab.
ANOVAb
4E+010 4 1.058E+010 14.725 .000a
2E+010 23 718180302.1
6E+010 27
Regression
Residual
Total
Model
1
Sum of
Squares df Mean Square F Sig.
Predictors: (Constant), Inf lation Rate, Employment Rate, Industrial Capacity
Utilization, Exchange Rate
a.
Dependent Variable: GDP Per Capitab.
Coefficientsa
-92288.8 45042.111 -2.049 .052
639.880 146.887 .739 4.356 .000
1857.661 6362.303 .052 .292 .773
1539.075 500.141 .392 3.077 .005
218.569 376.149 .087 .581 .567
(Constant)
Exchange Rate
Employment Rate
Industrial Capacity
Utilization
Inf lat ion Rate
Model
1
B Std. Error
Unstandardized
Coeff icients
Beta
Standardized
Coeff icients
t Sig.
Dependent Variable: GDP Per Capitaa.
R
2 = 0.719
^
R2 = 0.670
F = 14.725
DW = 0.376
173
GDP Per Capita = -92288.8 + 639.88EXR + 1857.66EMR + 1539.08ICU + 218.57INF
(t=4.356) (t=0.292) (t=3.077) (t=0.581)
From the tables above, there is a strong positive relationship between GDP Per Capita and Exchange
Rate; while there is a weak positive relationship between GDP Per Capita and Industrial Capacity
Utilization and Employment Rate. There is also a weak negative relationship between GDP Per
Capita and Inflation Rate.
The coefficient determination R2 shows that 71.9% of fluctuations in GDP Per Capita are accounted
for by the model, while 28.1% of variations is accounted for by factors outside the model. Exchange
Rate is the most significant of the variables, followed by Industrial Capacity Utilization. The F value
of 14.725 is significant at 5% level of significance, thus we reject H0 and conclude that the nature of
national income accounting does have a significant impact on the nation’s economic health.
174
APPENDIX IX
FISCAL
RESPONSIBILITY
ACT,
2007
175
FISCAL RESPONSIBILITY ACT 2007
ARRANGEMENT OF SECTIONS
Sections:
PART I ESTABUSHMENT, FUNCTIONS, POWER OF THE FISCAL
RESPONSIBILITY COMMISSION.
1. Establishment of the Fiscal Responsibility Commission
2. Responsibility, powers and functions of the commission
3. Unction’s of the Commission
4. Establishment, fund for the Commission
5. Composition of the Commission
6. Tenure of office
7. Power of the Commission
8. Cessation of membership
9. Emoluments etc. of members
10. Submission of annual report of the Commission.
PART II - THE MEDIUM-TERM EXPENDITURE FRM4E WORK
11 Medium-term Expenditure
12. Aggregate expenditure ceiling
13. Reparation of Medium Expenditure Framework
14. Time limit for presentation of medium-term Expenditure Framework to Federal
executive Council
15. Publication of medium-Term expenditure Framework work in the Gazette
16. Adjustment to the medium-Term expenditure Framework
17. Assistance to state and Local Government
PART III-The ANNUALBUDGET
18. Annual budget. to be derived ‘from medium-term expenditure Framework
19. Annual budget to be accompanied by certain documents
20. Application of part III to- state and Local Governments.
PART IV - BUDGET PLANNING OF CORPOPATIONS AND
OTHER RELATED AGENCIES
21. Preparation of estimate of revenue and expenditure by corporation etc.
22. Operation surplus and general reserved fund
23. Classification of corporation operating surplus
24. Cessation of application of Party 1V
176
PART V - BUDGETARY EXECUTION AND ACHIEVEMENT OF TARGETS
25. Annual cash plan
26. Disbursement Schedule.
27. Power of minister to approve virement.
28. Power to rebuilt further commitments
29. Restriction on the grant of tax relief.
30. Responsibility of the budget office to monitor and report on implementation.
31. Application of part v to state and Local Government.
PART VI - PUBLIC REVENUES
32. Forecast and collection of public revenues
33. Revenue forecast
34. Executive to breakdown estimated revenue.
PART VII - SAVINGS AND ASSET MANAGEMENT
35. Penalty for non-compliance with Part VI
PART VIII - PUBLIC EXPENDITURE
36. Conditions for increasing government expenditure.
37. Conditions for increasing personal expenditure.
38. All contracts to Comply with rules and guidelines:
39. Effect of violation of public expenditure rules
40. Application of Part VIII to State and Local Governments
PART IX - DEBT AND INDEBTEDNESS
41. Framework for debt management.
42. Limit consolidated debt of Federal, State and Local, governments.
43. Servicing of external debt. V
V PART X BORROWING
44. Conditions of borrowing and verification of compliance with limit
45. Leniency financial institutions
46. Prohibition against C8N In Its relation with Government agencies and Parastatls.
47. Power of the minister to grant guarantees.
177
- AR1 XI - TRANSPARENCY AND ACCOUNTABILITY
48. Fiscal transparency of audited accounts by all arms of Government.
49. Publication of audited accounts by all arms of Government.
50. Publication of summarized report on budget execution.
PART XII - ENFORCEMENT
51. Enforcement
PART XIII - MISCELLANEOUS PROVISIONS
52. Government securities as collateral to guarantee loans.
53. Restriction on utilization of proceeds Of sale of public assets etc.
54. Technical and financial assistance to States and Local Governments.
55. Power of president to make regulations.
PART XIV - INTERPRETATION
56. Interpretation.
57. Operation
FISCAL RESPONSIBILITY ACT, 2007
2007 ACT NO. 31
An Act to provide for prudent management of the Nation Resources, ensure Long-Tern,
Macro-Economic stability of the National Economy secure greater accountability arid
transparency n Fiscal operations within a Medium Term Fiscal Policy Framework, and the
establishment of the Fiscal Responsibility Commission to ensure the promotion and
enforcement of the Nations Economic objectives; and for related matters
[30th Day of Jul 2007]
ENACTED by the National Assembly of the Federal Republic of
Nigeria:
Commencement
178
PART I - ESTABUSHMEN] FUNCTIONS AND POWERS OF THE FISCAL
RESPONSIBILI1Y COMMISSZON
1. (1) There shall be established, a body to be known as the Fiscal Responsibility
Commission (in this Act referred to as ‘the Commission’).
(2) The Commission shall be a body corporate with perpetual succession and a
common seal and may sue and be. sued In its corporate name.
2. (1) For the purpose of performing its functions under this Act, the Commission shall
have power to:
(a) compel any person. or government Institution to disclose information
relating to public revenues and expenditure; and
(b) cause an investigation into whether any person n has violated any provisions
of this Acts
(2) If the Commission is satisfied that such a person has committed any punishable
offence under this Act violated any provisions of this Act, the Commission shall
forward a report or the investigation to the Attorney-General of the Federation for
possible Prosecution.
3. (1) The commission shall:
(a) Monitor and enforce the provisions of this Act and by so doing, promote the
economic objectives contained In section 16 of the Constitution
(b) Disseminate such standard practices including international good practice that
will result in greater efficiency if the allocation arid management of public
expenditure, revenue collection, debt control and transparency in fiscal
matters:
(c) Undertake fiscal and financial studies, analyze and diagnosis and disseminate the
result to the general public:
(d) make rules for carrying out Its functions under this Act; and
(e) perform any other function consistent with the promotion of the objectives of this Act.
(2) The commission shall be Independent in the performance of its functions.
(3) The provisions of Public Protection. Act shall apply to the members of the
Commission in discharge of their functions under this Act.
4. (1) The Commission shall establish and maintain a Fund from which shall be defrayed
all expenditure incurred by the Commission.
Establishment of fiscal responsibility Commission.
Responsibility powers and functions of the Commission.
Functions of the Commission.
Establishment of Funds for the Commission.
179
(2) There shall be credited to the Fund established pursuant to - subsection (1) of
this section, the budgetary allocation from the Federal Government and
grants from any other source.
5. (1) The Commission shall consist-of:
(a) a chairman, who shall be the Chief executive and accounting officer of the
commission;
(b) one member representing:
(I) the organized private sector
(ii) Civil Society engaged In causes relating to probity, transparency and
good government:
(iii) organized labour,
(c) a representative of the. Federal Ministry of Finance of a level not below the
rank it Director; and
(d) one member to present each of the following six geopolitical zones of the
country, that is: North Central, North-East North-West, South-East,
South West, and South-South.
(2) All members of the Commission shall be persons of proven integrity and must
possess appropriate qualifications with not less than 10 years cognate post
qualification experience.
(3) The Chairman and other members of the Commission other than ex-office
members shall be appointed by the President subject. to confirmation by the
Senate.
(4) The Chairman arid members representing the six geo-political zones shall full
time members.
6. The Chairman and members of the Commission shall hold office for a single term of
5 years.
Composition of the Commission.
Tenure of office
180
7. The Commission shall have power to:.
(a) formulate and provide general policy guidelines for the discharge of the functions of
the Commission;
(b) superintend the implementation of the policies of the Commission;
(c) appoint for the Commission, such numbers of employees as may in the opinion of the
Commission be expedient and necessary for the proper and efficient performance of
the. functions of the
Commission;
(d) determine the terms arid conditions of service In the Commission, including
disciplinary measures for the employees of the commission;
(e) fix the remuneration, allowances and benefits of the employees of the Commission as
approved by the Salaries and Wages Commission;
(f) do other things, which in its opinion are necessary to ensure the efficient performance
of the functions of
the Commission; and
(g) regulate its proceedings and make standing orders with respect to the holding of its
meetings, notices to be given, the keeping of minutes of its proceedings and such
other matters as the Commission may, from time to time, determine. V
8. (1) Notwithstanding the provisions of section 5 (2) of this Act, a member of the
Commission shall cease to hold officer if
(a) he becomes bankrupt or makes a compromise
With his creditors;
(b) he is convicted of a felony or any offence involving dishonesty, corruption or fraud;.
(c) he become incapable of carrying out the functions of Pis office either by reason of an
infirmity of mind or body;
(d) the President is satisfied that It is not in the interest of the Council or the interest of
the public that the member should continue in office and the President removes him
from office;
(e) he has been found guilty of violation of the code of conduct or serious misconduct in
relation to his duties;
(f) he resigns his appointment by a notice under his hand, addressed to the President: or
(g) In the case of a person becomes a member by virtue of the office he occupies, he
ceases to hold such office for whatever reason.
(2) Where a vacancy occurs In the membership of the etc of 15 commission, It shall be
filled by the appointment of a Successor member to hold office for the remainder of
the term of office of his predecessor, provided that the successor shall represent the
same interest as his predecessor.
Power of the commission
Cessation of membership
Emoluments etc of membership
181
9. (1) There shall be paid to the Chairman of the Cornish such salaries allowances and
benefits as the Revenue Mobilization Allocation and Fiscal Commission may from
time to time, approve.
(2) There shall be paid to other members of the Commission such sitting allowances and
benefits as may be determined by the Revenue Mobilization Allocation and Fiscal
commission may, from time to time, approve.
10. The Commission shall prepare and submit to the National Assembly not later than
30th-June in each financial year; a report of its activities including all cases of
contravention Investigated the during the preceding financial year, and shall include
in the report a copy of its audited accounts for the preceding financial year.
PART II - THE MEDIUM-TERM EXPENDURE FRAMEWORK
11. (1) The Federal Government after consultation with the States shall
(a) not later than six months from the commencement of this Act, cause to be prepared
and laid before the National Assembly, for their’‘ consideration a Medium Term.
Expenditure, Framework for the next three financial. years; and
(b) thereafter, not later than four months before the Commencement of the next financial
year, cause te be prepared a medium-Term Expenditure Framework for the next three
financial years.
(2) The frame-work so laid shall be considered for approval with such modifications If
any, as the National Assembly finds appropriate by a resolution of each House of the
National Assembly.
The Medium-Term Expenditure Framework shall contain:
(a) a Macro-economic Framework setting out the macro economic projections, the n”
three financial years, the underlying assumptions for those projections and an
evaluation and analysis of the macroeconomic projections for the preceding three
financial years;
(b) a Fiscal Strategy Paper setting out:
(i) The Federal Government’s medium-term financial objectives,
(Ii) the polices of the Federal Government for the medium-term relating to taxation,
recurrent (non-debt) expenditure, debt expenditure capital expenditure, expenditure,
borrowings and other liabilities, lending and Investment, contain:
Submission of annual report of the commission
Middle term expenditures
182
(a)
(iii) the strategic; economic, social and developmental priorities of the Federal
Government for the next three financial years,
(lv) an explanation of how the financial objectives, strategic, economic, social and
development priorities ,and fiscal measures set out pursuant to sub-paragraphs (i), (II)
an I (iii) of this paragraph relating to the economic objectives set out In section 16 of
the Constitution;
(c) an expenditure and revenue framework setting out:
(I) estimates of aggregate revenues for the Federation for each financial years, based on
the predetermined Commodity Reference Price adopted and tax revenue projections,
(ii) aggregate expenditure projection for the federation for each financial year In the next
three financial years, and
(iii) aggregate tax expenditure projection for the Federation for each financial year in the
next three financial years, and
(lv) minimum capital expenditure floor for Federation for each financial year in the next
three financial years:
Provided that, the estimates and expenditures provided under paragraph (d) of
this subsection shall be:
(i) based on reliable and consistent data certified In accordance with section 13 (2)
(b) of this Act;
(ii) targeted at achieving the macro-economic projection set out in subsection (2) (a)
of this section;
(iii) consistent with and derive from the underlying assumptions contained in the Macro-
economic framework, the objectives, policies, strategic priorities and explanations in
the Fiscal Strategy paper;
(d) a Consolidated Debt Statement setting out and describing the
fiscal significance of the debt liability of the Federal Government
and measures to reduce any such liability; and
(e) a Statement describing the nature and fiscal significance of contingent liabilities and
quasi-fiscal activities and measures to offset the crystallization of such liabilities.
12. The estimates of:
(1) Aggregate expenditure and the aggregate amount appropriated by the National
Assembly for each financial year shall not be more. than the estimated aggregate
revenue plus a deficit, not exceeding three per cent of the Estimated Gross Domestic
Aggregate expenditure calling
183
Product. or any sustainable percentage as may be determined by the National
Assembly for each financial year.
(2) Aggregate expenditure for financial year may exceed the ceiling imposed by the
provisions of subsection (1) of this section, If in the opinion of the President there is a
clear and present threat to national security or sovereignty of the Federal Republic of
Nigeria.
13. (1) The Minister shall be responsible for the preparation of the Medium-Term
Expenditure Framework.
(2) In preparing the draft Medium-Term Expenditure Term Framework, the Minister:
(a) may hold public consultation, on the Macro-economic - Framework, the Fiscal
Strategy Paper, the Revenue and Expenditure Framework, the strategic, economic,
social and developmental priorities of government, and such other matters as the
Minister deems necessary:
Provided that, such consultations shall be open to the public, the press and any
citizens or authorized representatives of organization, names of citizens, who may
attend and be heard
(b) Shall seek inputs form the:
(i) National Planning Commission,
(ii) Joint Planning Commission,
(iii) National Commission on Development Planning,
(iv) National Economic Commission,
(v) National Assembly
(vi) Central Bank of Nigeria,
(vii) National Bureau of Statistics,
(viii) Revenue. Mobilization Allocation and Fiscal Commission,
(ix) any other relevant statutory body as the Minister may determine; and
(c) Shall consider and reflect as may be deemed appropriate the input of the
bodies and persons referred to in subsection (a) and (b) of this section.
14. (1) The Minister shall before the end of the second quarter of each financial
year, present the Medium-Term Expenditure Framework to the Federal
Executive Council for consideration and endorsement.
(2) The Medium-term Expenditure Framework as endorsed by the Federal executive
Council shall take effect upon approval by a resolution of each house of the National
Assembly.
Preparation of middle term expenditure framework
Time limit for preparation of middle term expenditure framework to federal executive council
184
15. The Medium Term expenditure Framework as approved by the National Assembly
shall be published in the Gazette.
16. (1) Subject to subsection (2) of this section, the president may cause adjustments to be
made to a Medium-Term Expenditure -Expenditure Framework.
(2) Any adjustment to a Medium-Term Expenditure Framework shall be limited to:
(a) the correction of manifest error, and
(b) changes in the fiscal Indicators, which in the opinion of the President are significant.
17. States and Local Governments which so desire shall be and assisted by the Federal
Government to manage their fiscal Governments affairs within the medium-term
framework.
PART III – THE ANNUAL BUDGET
18. Notwithstanding anything to the contrary contained in this Act any other law, the
Medium-Term Expenditure Framework shall:
(1) Be the basis for the preparation of the estimates of revenue and expenditure required
to be prepared and laid before the National Assembly under sectlon.81 (1) of
Constitution.
(2) The sectoral and compositional distribution of the estimates of expenditure referred to
in subsection (1) of this section shall be consistent with the medium term
developmental priorities set out in the Medium Term expenditure Framework.
19. The estimates of revenue and expenditure (in the Act referred to as the annual budget
shall be accompanied by:
(A) A copy of the underlying revenue and expenditure profile for the next two years;
(b) a report setting out actual and budgeted revenue and expenditure and detailed analysis
of the performance of the budget for the 18 months up to June of the preceding
financial year;
Publication of middle term expenditure framework in the Gazette
Adjustment to the medium term expenditure framework
Assistance to states and local Governments.
Annual budget to be derived from medium term expenditure framework.
Annual budget to accompanied by certain documents.
185
(c) A revenue framework broken down into monthly collection targets prepared on the
basis of the predetermined Reference Commodity Price as contained In Medium-
Term Expenditure Framework;
(d) Measures on cost, cost control and evaluation of result of programmes financed with
budgetary resources;
(e) a Fiscal Target Appendix derived from the underlying Medium-Term Expenditure
Framework setting out the following targets for that financial year:
(i) target inflation rate,
(ii) target fiscal account balances,
(ill) any other development target deemed appropriate; and
(f) a Fiscal Risk Appendix evaluating the fiscal and other related risks to the annual
budget and specifying measures to be taken to offset the occurrence of such risks.
20. In preparing their annual budget, States and Local Governments may adopt the
provisions of this Part with such and modification as may be appropriate and
necessary.
PART IV - BUDGETARY PLANNING OF CORPORATIONS AND OTHER
RELATED AGENCIES
21. (1) The Government corporations and agencies and government owned companies listed in
the Schedule to this Act (In this Act referred to as the corporations) shall, not later
than 6 months from the commencement of this Act and for every three financial years
thereafter and not later than the end of the second quarter of every year, cause to be
prepared and submitted to the. Minister their Schedule estimates of revenue and
expenditure for the next three financial years.
(2) Each of the bodies referred to in subsection (1) of this section shall submit to the
Minister not later than the end of August In each financial year:
(a) An annual budget derived from the estimates
submitted in pursuance of subjection (1) of this
section; and
(b) projected operating surplus which shall be prepared in line with acceptable accounting
practices.
Application of part III to states and local governments.
Preparation of estimate of revenue and expenditure by corporation etc.
Schedule
186
(3) The Minister shall cause the estimates submitted in pursuance of subsection (2) of this
section to be attached as part of the Appropriation Bill to be submitted to the National
Assembly.
22. (1) Notwithstanding the provisions of any written law surplus and governing they
corporation, each corporation shall establish a general reserve fund and shall allocate
thereto at the end of fund each financial year, one-fifth of its operating surplus forth
year.
(2) The balance of the operating surplus shall be aid to the Consolidated Revenue Fund of
the Federal Government, not later than one month following the statutory dead line
for publishing each corporation’s accounts.
23. (1) The Corporation’s surpluses be classified as a Federal Treasury Revenue.
(2) Where a corporation’s result Is a deficit, the deficit shall be classified as the
corporation’s loss fur the fiscal year.
(3) Each corporation shall, not later than three months after the end of Its financial year,
cause to be prepared and published Its audited financial reports In accordance with
such rules as may be prescribed from time to time.
24. The provisions of sections 20, 21 and 22 shall cease to apply to any of the
corporations from the time of its privatization.
PART V - BUDGETARY EXECUTIVE AND
ACHIEVEMENT OF TARGETS
25. (1) The Federal Government shall cause to be drawn up in each financial year, an
Annual Cash Plan which shall be prepared by the office of the Accountant-General of
the federation.
Operating surplus and general reserve funds.
Classification of operation operating surplus
Classification of application of part IV.
Annual cash plan
187
(2) The Annual Cash Plan $hall be prepared In advance of the financial year setting out
projected monthly cash flows and shall be revised periodically to reflect actual cash
flows.
26. The Minister, shall within 30 days of the enactment of the Appropriation Act, prepare
and publish a disbursement Schedule derived from the Annual Cash Plan for the
purpose of implementing the Appropriation Act.
27. (1) The sums appropriated for a specific purpose shall be used solely
for the purposes specified in the Appropriation to Act
(2) Without prejudice to subsection (1) of this section, the Ministry may in
exceptional circumstances and in the overall public interest, recommended for
the approval of the National’ Assembly virements from sub-head of account,
without exceeding the - amount appropriated to such head of account.
28. (1) Where by the end of three months, after the enactment of the Appropriation Act,
the Minister determines that the targeted revenues may be insufficient to fund the
heads of expenditure In the Appropriation Act, the Minister shall, within the next 30
days of such determination take appropriate measures to restrict further commitments
and financial operation according to the criteria set in the Fiscal Risk Appendix
(2) Where the target revenue are re-established, either in part or in full, the
appropriations for which further commitments were restricted shall be restored
proportionately.
(3) The provisions of subsections (1) and (2) of this section shall not apply to statutory or
constitutional expenditure.
29. (1) Any proposed tax expenditure hall be accompanied by an evaluation of its
budgetary and financial implications in the year it becomes effective and in the three
subsequent years, and shall only be approved by the Minister, if it does not adversely
impair the revenue estimates in the annual budget or if it Is accompanied by
countervailing measures during, the period mentioned in this subsection through
revenue Increasing measures such as tax rate raises and expansion of the tax base.
(2) The provisions of this section shall not apply to;
(a) changes in the rates of the taxes mentioned in section 163 of the Constitution; and
(b) debt cancellation in an amount lower than the cost of collection.
Disbursement schedule
Power of minister to approve virements
Power to restrict further commitments.
Restriction on the grant of tax relief.
188
30. (1) The Minister of Finance, through the Budget Office of the Federation, shall
monitor and evaluate the implementation of the Annual Budget, assess the attainment
of fiscal targets and report thereon on a quarterly basis to the Fiscal Responsibility
Council and the Joint Finance Committee of the National Assembly.
(2) The Minister of Finance shall, cause the report prepared pursuant to subsection (1) of
this section to be published in the mass and ‘electronic and on Ministry of Finance
website, not later than 30 days after end of each quarter.
31. In implementing their annual budgets, States and Local Governments may adopt the
provisions of this Part with such modifications may be appropriate and necessary.
PART VI - PUBUC REVENUES
32. Any fund due to the Federation from any tier of government may be set off by the
Federation in or towards payment or remittance of any sum due to that tier of
government from the Federation.
33. The Executive Arm of the Federal Government shall, at least 30 days before the
deadline for the submission of its budget proposals, place at the disposal of the
National Assembly, the revenue estimate fb7the following year, including the net
current revenue and the respective memorandum items.
34. Estimated revenue shall be broken down by the Executive Arm of Government into
monthly collection targets, including, where applicable, a separate description of
measures to combat tax fraud and evasion.
PART VII - SAVINGS AND ASSET MANAGEMENT
35. (1) Where the reference commodity price rise above the predetermined level, the
resulting excess proceeds shall be saved in accordance with the provisions of
subsection (2) of this section.
(2) The savings of each Government in the Federation in pursuance to subsection (1) of
this section shall be deposited in a separate account which shall form part of the
Responsibility of the budget office to monitor and report on implementation
Application of part V to states and local governments.
Forecast and collection of public revenue
Revenue forecast.
Executive to breakdown estimated revenue.
Penalty for not compliance with part VI
189
respective Governments Consolidated Revenue Fund to be maintained at the Central
Bank of Nigeria by each Government.
(3) The Central Bank of Nigeria shall, in consultation with the Minister of Finance, the
state Commissioners of Finance, and Local Government Treasurers, invest, for and on
behalf of the Governments In tile Federation, the savings of each Government and
such investment can be undertaken in a consolidated manner, provided that, the shares
of each Government and income due to them from the investment are dearly
identified.
(4) The Central Bank of Nigeria in the discharge. of its obligation under subsection (3) of
this section shall, observe the lipids and conditions imposed by safety and prudential
considerations and the need to maintain macro-economic stability and such safety and
prudential conditions are to be agreed upon with Minister of Finance, Stat
Commissioners of Finance, and Local Government Treasurers.
(5) No Government in the Federation shall have access to the savings made in pursuance
to subsection (2) of this section, unless the reference commodity price falls below the
predetermined level for a period of three consecutive months.
(6) The augmentation referred to in subsection (5) of this section shall be limited to such
sums that will bring the revenue of government to the level contained in its budget
estimates.
(7) Notwithstanding the provisions of subsections (5) and (6) of this section and subject
to agreement by Federal and state Governments In the Federation, a proportion of the
savings may be appropriated in the following year for the capital project and
programmes.
PART VIII - PUBUC EXPENDITURES
36. (1) The creation, expansion or improvement in government action which result in an
expenditure Increase shall be accompanied by:
(a) an estimates of the budgetary or financial impact in the year it becomes effective and
in the two subsequent years; and
(b) a statement by the person requesting for the expenditure, stating that the increase is
consistent with the Appropriation Act and the Medium-Term Expenditure
Framework.
Conditions for increasing government expenditure
190
(2) The provisions of this section shall not apply to expenditures deemed inconsequential
and shall apply to State and local Government only to the extent to which they have
adopted these provisions.
37. The granting of any advantage or increase of remuneration, the creation of posts or
allocation of career structures and admission of personnel on any account by bodies
and entities including foundations established and maintained by the Federal
Government shall only be effected If, there is a prior budgetary allocation sufficient to
cover the estimated expenditure.
38. All contracts with regards to the exclusion of annual budget; shall comply with the
rules and guidelines on:
(a) procurement and award of contracts; and
(b) due process and certification of contract.
39. Any violation of the requirements in sections 36, 37 and
38 shall be an offence.
40. In incurring public expenditures, States and Local Governments may adopt the
provisions of this Part with such modifications as may be appropriate and necessary.
PART IX - DEBTAND INDEBTEDNESS
41. (1) The framework for debt management during the Financial year shall be based on
the following rules:
(a) Government at all tiers shall only borrow for capital expenditure and human
development, provided that, such borrowing shall be on concessional terms with low
interest rate and with a reasonable long amortization period subject to the approval of
the appropriate legislative body where necessary; and
(b) Government shall ensure that the level of public debt as a proportion of national
income is held at a sustainable level as prescribed by the -National Assembly from
time to time on the advice of the Minister.
(2) Notwithstanding the provisions of subsection 1 (a) of this section and subject to the
approval of the National Assembly, the Federal Government may borrow from the
capital market.
(3) Non-compliance with the provisions of this section shall make the action taken an
offence.
Conditions for increasing personnel expenditure
All contracts to comply with rules and guidelines.
Effect of violation of public expenditure rules.
application of part VIII to states and local governments.
Framework for debt management.
191
42. (1) The President shall within 90 days from the commencement of this Act and with
advice from Minister of Finance subject to approval of National Assembly, set overall
limits for the amounts of consolidated debt of the Federal, State Governments
pursuant to the provisions of items 7 and 50 of Part I of the Second Schedule to the
Constitution and the limits and conditions approved by the National Assembly, shall
be consistent with the rules set in this Act and With the fiscal policy objectives in the
Medium Term-Fiscal Framework
(2) Outstanding judgment debts not paid shall be considered part of the consolidated
debts for the purpose of application of the respective limits set in pursuance of this
section.
(3) For the purpose of verifying compliance with the limits specified pursuant to this
section, the Commission shall, at the end of each quarter, determine the amount of the
consolidated debt of each tier of government.
(4) The Commission shall publish, on a quarterly basis, a list of the Governments in the
Federation that have exceeded the limits of consolidated debt, indicating the amount
by which the limit was exceeded.
(5) Where at the. end of any quarter, the consolidated debt of the Federal, State or Local
Governments exceeds the respective limits, it shall be brought within the limit not
later than the end of the three subsequent quarters with a minimum of 25 p. cent
reduction in the first quarter.
(6) Violators of the limits specified pursuant to this section shall:
(a) be prohibited from borrowing from internal or external sources, except for the
refinancing of existing debts; and
(b) bring the debt within the established limited by restricting funding commitments
accordingly.
(7) Where non-compliance with the limit specified pursuant to this section persist after
the time limited by subsection (5) of this section, the affected tier of Government shall
also be prohibited from receiving grants from any other. Government in the
Federation
(8) Whenever the fundamentals of the proposals referred to in this section are changed
due to economic instability or change in monetary or exchange policies, the President
shall submit to the National Assembly a request for a review of the current limits.
Limit of consolidated debt of Federal, States and Local Governments
192
43. (1) Servicing’ of external debts shall be the direct responsibility of the Government
that incurred the debt.
(2) The cost of servicing federal Government guaranteed loans shall be deducted at
source from the share of the debtor Government from the Federation Account’
PART X – BORROWING
44. (1) Any Government In the Federation or its agencies and corporations desirous of
borrowing shall specify the purpose for which the borrowing is intended and present a
cost- benefit analysis, detailing the economic and social benefits of the purpose to
which the Intended borrowing Is to be applied.
(2) Without prejudice to subsection (I) of this section, each borrowing shall comply with
the following conditions:
(a) the existence of prior authorization in the Appropriation or other Act or Law for the
purpose for which the borrowing is to be utilized; and.
(b) the proceeds such borrowing shall solely be applied towards long-terms capital
expenditures.
(3) Noting in this section shall be construed to authorize borrowing In excess of the limits
set out in section 44 of this Act.
(4) The Commission shall verify on a quarterly basis, compliance with the limits and
conditions for borrowing by each Government in the Federation.
(5) Without prejudice to the specific responsibilities of the National Assembly and.
Central Bank of Nigeria, the Debt Management Office shall maintain comprehensive,
reliable and current electronic database of internal and external public debts,
guaranteeing public access to the information.
45. (1) All banks and financial institutions shall request and
obtain proof of compliance with the provisions of this Part before
lending to any Government in the Federation.
46. (1) The Central Bank of Nigeria in its relations with Government agencies and
parastatals shall be subject to the following prohibitions:
(a) Purchasing fresh issues of government securities on thc date of its primary issue in the
market, except in the circumstances under subsection (2)of this section;
Servicing of external debt
Conditions for borrowing and verifications of compliance with limits.
Conditions for borrowing
Prohibition against CBN in its relation with government agencies and parastatals
193
(b) Exchanging on a temporary basis, the debt securities of any Government in the
Federation for Federal public debt securities and fo’rd purchase or sale of such
securities when the final result Is similar to an exchange; or
(c) Granting guarantees on behalf of any Government in the Federation.
(2) The Central Bank of Nigeria may only underwrite securities issued by the Federal
Government, which is rolled over, to refinance maturing securities.
(3) The underwriting permitted under; subsection (2) of this section shall be offset
through a public auction at market determined rate.
47. (1) Subject to the provisions of this Part, the Minister may with the approval of the
Federal Executive Council, grant guarantees on behalf of any Government In the
Federation.
(2) Any guarantee granted by the Minister shall be conditional upon the provision of a
counter-guarantee ii an amount equal to or higher than the guarantee obligation,
provided that, there are no overdue obligations form the requesting Government in the
federation to the guarantor and its controlled, corporations and such guarantee shall
also be in compliance with the following:
(a) counter-guarantee shall only be accepted from State or Local Governments; and
-
(2) Lending by banks and financial Institutions in. contravention of this Part shall be
unlawful.
(8) Whenever the fundamentals of the proposals referred to in this section are changed
due to economic instability or change in monetary or exchange policie5, the President
shall submit to the National Assembly a request for a review of the current limits.
(2) Any guarantee granted by the Minister shall be conditional upon the provision of a
counter-guarantee i an amount equal to or higher than the guarantee obligation,
provided that, there are no overdue obligations form the requesting Government in the
federation. To the guarantor and it’s controlled. Corporations and such guarantee shall
also be in compliance with the following:
(a) counter-guarantee shall only be accepted from State or Local Governments; and
b) the counter-guarantee required by the Federal Government from State or Local
Government or by State from Local Government, may consist in the appropriation of
tax revenue directly collected and resulting from statutory transfers and the guarantor
shall be authorized to retain such revenue and use the respective amount to repay
overdue debts.
Power of the minister to grant guarantees.
194
(3) In the case of foreign currency borrowing, Federal Government guarantee shall be a
requirement and no State, Local Government of Federal Agency shall, on its own
borrow externally.
(4) Any guarantee provided in excess of the debts limits set pursuance to section 44(1) of
this Act shall be an offence.
PART XI - TRANSPARENCY AND ACCOUNTABILITY
48. (1) The Federal Government shall ensure that its fiscal and financial affairs are
conducted In a transparent manner and accordingly ensure full and timely disclosure
and wide publication all transactions and decisions involving public revenues and
expenditures and their implications for its finances.
(2) The National Assembly shall ensure transparency during the preparation and
discussion of the Medium-Term expenditure Framework, Annual Budget and the
Appropriation Bill.
49. (1) The Federal Government shall publish their audited accounts not later than six
months following the end of the financial year.
(2) Federal Government shall, not later than two years following the commencement of
this Act and thereafter, not later than 7 months following the end of each financial
year, consolidate and publish in the mass media, its audited accounts tor the previous
year.
(3) The publication of general standards for the consolidation public accounts shall be the
responsibility of the office of the Accountant-General of the Federation.
50. The Federal Government through its budget within 30 days after the end of each
quarter, publish a summarized report on budget execution in such form as may be
prescribed by the Fiscal Responsibility Commission and not later than 6 months after
the end of the financial year, a consolidated budget execution report showing
implementation against physical and financial performance targets shall be published
by the Minister of Finance for submission to the National Assembly and
dissemination to the public.
PART XII –ENFORCEMENT
Fiscal transparency.
Publication of bulleted account.
Publication of summarized report on budget execution.
195
51. A person shall have legal capacity to enforce the provisions of this Act by obtaining
prerogative orders or other remedies at the Federal High Court, without having to
show any special or particular interest
PART XIII - MISCELLANEOUS PROVISIONS
52. Government securities, provided that, they are duly listed Guarantee loans or other
financial transactions under the law for their loans economic values as defined by the
Ministry.
53. The proceeds derived from the sale or transfer of public properties and rights over
public assets shall not be used t fin3nce recurrent and debt expenditure, provided that,
such proceeds may be used to liquidate existing liabilities directly charged against
such properties or assets.
54. The Federal Government may provide technical and financial assistance to States and
Local Government that adopt similar fiscal responsibility legislation along the same
lines as this Act for the modernization of their respective tax, financial and asset
administration.
55. The President shall, in addition to any other power, to conferred on him under this
Act, make regulations generally for the purposes of carrying into effect the provisions
of this Act
56. In this Act Appropriation Act’ means an Act or Law passed by the National or State
Assembly or Local Government authorizing spending from the Consolidated Revenue
Fund and includes a Supplementary Appropriation Act or law; “Appropriation Bill”
means the Bill referred to in sections 59 the Constitution of the Federal Republic of
Nigeria, 1999; “Aims of Government” means the Executive, Legislature and
Judiciary; “Borrowing term means any financial obligation arising from:
(i) any loan including principal, interest, fees of such loan;
(ii) the deferred payment for property, goods or services;
(iii) bonds, debentures, notes or similar Instruments;
(iv) letters of credit and reimbursement obligations respect thereto;
(v) trade or hankers’ acceptance;
(vi) capitalized amount of obligations under Leases entered into primarily as a method of
raising financing or of financing the acquisition of the asset leased;
(vii) agreements providing for swaps, ceiling rates, ceiling and floor rates, contingent
participation or other hedging mechanisms with respect to the payment of interest or
the convertibility of currency and
Enforcement.
Government security as collateral to guarantee loans.
Restriction on utilization of proceeds of sales of public assets etc.
Technical and financial assistance to states and local government.
Power of the
196
(viii) a conditional sale agreements, capital lease or other little retention agreement;
“Budget Call Circular” means a circular:
(I) requesting the submissions in a prescribed form, of the revenue and expenditure
estimates of ministries, extra-ministerial departments, and other executing agencies of
Government for the next financial year; and
(ii) giving details guidelines and instructions on the perpetration of the estimates and
expenditure in a manner consistent with the medium term developmental priorities set
out In the Medium Term Expenditure Framework;
“Capital Expenditure” means spending or an asset that lasts for more than one
financial year and expenses associated with the acquisition of such assets;
“concessional terms” means the terms of the loan must be at an interest rate not
exceeding 3 percent;
“consolidated debt7 means the aggregate of the outstanding financial obligations of
Government including those of its Parastatals and agencies at any point in time arising
from:
(i) borrowing money including principal, interest, fees of such
borrowed money,
(ii) the deferred payment for property, goods or services.
(iii) bonds, debentures, note or similar instruments,
(iv) letters of credit and reimbursement obligations with respect thereto,
(v) Guarantees,
(vi) trade or banker’s acceptances,
(vii) capitalized amounts of obligations under leases entered into primarily as a method of
raising financing or of financing the acquisition of the asset leased,
(viii) agreements providing for swaps, ceiling rates, ceiling and floor rates, contingent
participation or other hedging mechanisms with respect to the payment of interest or
the convertibility of currency and
(ix) a conditional sale agreement, capital lease or other little retention agreement;
“Cost-benefit-analysis” means an analysis that compares the cost of undertaking a service,
project or programme with the benefits that citizens are likely to derive from it;
“Fiscal Risk Appendix” An explanatory attachment that provide a set of indicator that can be
used to measure local fiscal risk;
“Fiscal Risk Target ”A provides numerical target for each risk indicator wit which a fiscal
entity will be considered fiscally healthy.
“Fiscal Year” has the meaning ascribed in the Constitution;
197
“Fiscal Policy Objectives” means the goals set by Government for attainment of set targets
for a given period;
“Government Owned Company” means a statutory corporative Government agency and a
company. in which Government controlling interest;
“Medium-Term Expenses Framework” means the document referred to and the content of
which is prescribed in section 1 of this Act; -
“Minister” means the Minister charged with the responsibility for finance;
“Net debt” means the Consolidated Debt less what is owed to Government, its Parastatals
and agencies at any point in time;
“President” means the President of the Federal Republic of Nigeria;
“Public Debt Securities” means public debt represented by securities issued by the Federal
Government (including those of the Central Bank of Nigeria), the State and Local
governments;
“Public Expenditure” means outlays other than those resulting into debt reduction;
“Public revenue” all moneys received by a Government in the Federation;
“Quarter” means one quarter of a financial year and quarterly shall be construed
accordingly;
“Recurrent Expenditure” means normal overhead and administrative .expenses and
personnel cost Including salaries, emoluments and other beqerits of employees;
“Reference Commodity price” means such price as may be determined by the President
subject to the approval of the National Assembly;
‘Refinancing of debt securities” means issuance of securities to repay the existing debt;
“State financial institution” means any financial institution in which one or more state
government has controlling shares;
“State” shall be construed to include the Federal Capital Territory;
“Tax expenditure projections” means the projected amount expected to be utilized in the
granting of tax relief or tax holiday;
‘Tax revenue projections” means the projected collectible tax or revenue within a particular
planning period; and
‘Tier’s of Government” means the. Federal, State and
Local Governments;
57. This Act. may be cited as the Fiscal Responsibility Act,
2007.
SCHEDULE
USE OF CORPORATIONS, AGENCIES AND
GOVERNMENT-OWNED COMPANIES
1. Nigerian National Petroleum Corporation.
198
2. Nigeria Deposit Insurance Corporation.
3. Bureau of Public enterprises.
4. National Agency for Science and Engineering Infrastructure.
5. Nigerian Soda) Insurance Trust Fund.
6. Corporate Affairs Commission.
7. National clearing and Forwarding Agency.
8. Nigeria Unity Line. V
9. Nigerian Airspace Management Agency.
10. Nigerian Shippers Council.
11 National Maritime Authority. V
12. Raw Material Research and Development Council.
13. Nigerian Civil Aviation Authority.
14. National Sugar Development Council.
15. Nigerian Postal Service.
16. Nigerian Ports Authority.
17. Federal Airport Authority of Nigeria.
18. Nigeria Mining Corporation.
19. Nigeria Re-Insurance.
20. Niger dock Nigeria Plc. V
21. Securities and Exchange Commission.
22. National Insurance Corporation of Nigeria
23. Nigeria Re-insurance Corporation.
24. Nigerian Telecommunication.
25. National Automotive Council.
26. Nigerian Tourism Development
27. National Communication Commission.
28. National Agency for Food & Drug Administration & Control.
29. Nigerian Customs Service.
30. Federal Inland Revenue Service.
31. Central Bank of Nigeria.
Any other corporation, agency or government-owned company that may be in duded
by Minister through a local notice.
EXPLANATORY MEMORANDUM
This Act, among other things, establishes the Fiscal Responsibility Commission
charged with the responsibility of monitoring and enfolding the provisions of this Act
to ensure greater accountability, transparency and prudence in the management of the
Nation’s resources by the Federal Government, Government-owned corporations or
199
companies and agencies as provided for under sections 13, 16 (1) and (2) and Item 60
of the Exclusive Legislative List s set out in Part 1 of the Second Schedule to the 1999
Constitution of the Federal Republic of Nigeria and provides incentives to encourage
States and Local Government pass similar fiscal responsibility legislation.
I certify, in accordance with Section 2 (1) of the Acts Authentication Act, CAP. A2,
Laws of the Federation of Nigeria 2004, that this is a true copy of the Bill passed by
the both Houses of the National Assembly.
NASIRIJ IBRAHIM ARAB,
Clerk to the National Assembly
the day of July, 2007
200
SCHEDULE TO FISCAL RESPONSIBILITY BILL, 2007
(1)
SHORT TITLE
OF THE BILL
Fiscal
Responsibility
Bill, 2007
(2)
LONG TITLE OF THE
BILL
An Act to provide for
prudent management
of the Nations
resources, ensure long-
term macro-economic
stability of the national
economy, secure
greater accountability
and transparency in
fiscal operations within
a medium term fiscal
policy framework, and
the establishment of
the
Fiscal Responsibility
commission to ensure
the promotion and
enforcement of the
Nations economic
objectives:
(3)
SUMMARY OF THE
CONTENTS
OF THE BILL
The Bill provides for
prudent management of
the Nation’s resources.
ensure long-term macro-
economic stability of the
national economy, secure
greater accountability and
transparency In fiscal
operations within a
medium term fiscal policy
framework, and the
establishment of the
Fiscal Responsibility
Commission to ensure the
promotion and
enforcement of the
Nation’s economic
Objectives.
(4)
DATE PASSED BY
THE SENATE
21st February. 2007.
DATE PASSED BY
THE HOUSE OF
REPRESENTATIV ES
30th Day of May,
2007
I certify that the Bill has been carefully compared by me with the decision reached by the
National Assembly and found by me to be true and correct decision of the Houses and is
in accordance with the provisions of the Acts Authentication Act Cap. AZ, Laws of the
Federation of Nigeria, 2004.
NASIRU IBRAHIM ARAB,
Clerk to the National Assembly
19th Day of July, 2007
UMARU MUSA YARADUA, GCFR
President of the Federal Republic of Nigeria
30th Day of July, 2007.
201
APPENDIX X PUBLIC PROCUREMENT ACT, 2007
ARRANGEMENT OF
SECTION:
PART I - ESTABLISHMENT OF NATIONAL COUNCIL ON
PUBLIC PROCUREMENT
1. Establishment of the National Council on Public Procurement and its
membership.
2. Functions of the Council.
PART II - ESTABLISHMENT OF THE BUREAU OF
PUBLIC PROCUREMENT
3. The establishment of the Bureau of Public Procurement.
4. Objectives of the Bureau.
5. Function of the Bureau.
6. Powers of the Bureau.
7. Director General and Staff of the Bureau.
8. Principal Officers of the Bureau.
9. Other staff of the Bureau.
10. Staff regulations.
11. Pension provisions.
12. Funds of the Bureau.
13. Financial year, budgeting and annual report.
14. Legal proceedings.
PART III - SCOPE OF APPLICATION
15. Scope of application.
PART IV - FUNDAMENTAL PRINCIPLES FOR PROCUREMENTS
16. Fundamental Principles for Procurement.
PART V - ORGANISATION OF PROCUREMENTS
17. Approving authority.
18. Procurement planning.
19. Procurement implementation
20. Accounting officer.21. Procurement planning committee.
202
22. Tenders board.
23. Pre-qualification of bidders.
24. Open competitive bidding.
PART Xl- CODE OF CONDUCT
57. Code of conduct for public procurement.
PART XII - OFFENCES
58. Offences relating to public procurement.
PART XIII - MISCELLANEOUS
59. Miscellaneous.
60. Interpretation.
61. Short title
PUBUC PROCUREMENT ACT, 2007
2007 ACT No. 14
An Ad to establish the National Council on Public Procurement and the
Bureau of Public Procurement as the Regulatory Authorities Responsible for
the Monitoring and Oversight of Public Procurement; Harmonizing the
existing Government Policies and practices by regulating, setting standards and
developing the Legal Framework and Professional Capacity for Public
Procurement in Nigeria; and for Related Matters. Commence
[4th Day of June, 2007]
ENACTED by the National Assembly of the Republic of Nigeria:
PART I - ESTABLISHMENT OF NATIONAL COUNCIL ON
PUBLIC PROCUREMENT
1. (1) There is established the National Council on Public of the
Procurement (In this Act referred to as “the Council)
(2) The Council shall consist of: -
(a) the Minister of Finance as Chairman;
(b) the Attorney-General and Minister of Justice of the membership.
federation;
(c) the secretary to the Government of the Federation;
(d) the Head of service of the Federation;
(e) Economic Adviser to the President;
Establishment of the National Council on public procurement and its membership
Commencement
203
(f) Six part-time members to represent;
(i) Nigeria Institute of Purchasing and Supply Management;
(ii) Nigeria Bar Association;
(iii) Nigeria As-nation of Chambers of Commerce, Industry, Mines and
Agriculture:
(iv) Nigeria Society of Engineers;
(v) Civil Society;
(vi) the Media; and
(g) the Director-General of the Bureau who shall be the secretary of the Council.
(3) Notwithstanding the provisions of section (2), the Council; may co-opt
any person to attend its meeting but the person so co-opted shall not have
a casting vote or be counted towards quorum.
(4) The Chairman and other members of the Council shall be appointed by the
President
(5) Subject to subsection (2) of this section, a member of the Council being:
(a) the holder of an elective office under the Constitution of Nigeria, shall
hold office for a period he remains so elected and no more; and
(b) the Director-General of the Bureau, shall hold office on such terms and
conditions as may be specified in his letter of appointment.
2 The Council shall
(a) Consider, approve and amend the monetary and prior review thresholds
for the application of the provisions of this Act by procuring entities;
(b) consider and approve policies on public procurement;
(c) approve the appointment of the Directors of the Bureau;
(d) receive and consider, for approval, the audited accounts of the Bureau of
Public Procurement; and
(e) ”approve changes in the procurement process to adapt to Improvements In
modern technology”
(f) give such other directives and perform such other functions as may be
necessary to achieves the objectives of this Act.
PART II - ESTABLISHMENT OF THE BUREAU OF PUBLIC
PROCUREMENT,
3. (1) There is established an agency to be known as the Bureau of Public
Procurement in this Act referred to as “the Bureau
(2) The Bureau:
Functions of the council
The establishment of the Bureau of Public procurement
204
(a) shall be a body corporate with perpetual succession and a common seal;
(b) may sue and be sued in its corporate name; and
(c) may acquire, hold or dispose of any property, movable or immovable for
the purpose of carrying out any of its
function under this Act. Objectives
4. The objectives of the Bureau are: Of the
(a) the harmonization of existing government policies and bureau practices on
public procurement and ensuring probity, accountability and transparency
in the procurement process.
(b) the establishment of pr1dng standards and benchmarks;
(c) ensuring the application of fair, competitive, transparent, value-for-money
standards and practices for the procurement and disposal of public assets
and services; and
(d) the attainment of transparency, competitiveness and professionalism in the
public sector procurement system.
5. The Bureau shall Functions
(a) formulate the general policies and guidelines relating to public sector
procurement for the approval of the Council
(b) publicize and explain the provisions of this Act:
(c) subject to thresholds as may be set by the Council, certify Federal
procurement prior to the award of contract;
(d) supervise the implementation of established procurement policies;
(e) monitor the prices of tendered items and keep a national database of
standard prices;
(f) publish the details of major contracts in the procurement journal;
(g) publish paper and electronic editions of the procurement journal and
maintain an archival system for the procurement journal;’
(h) maintain a national database of the particulars and classification and
categorization of federal contractors and service providers;
(i) collate and maintain in an archival system, all federal procurement plans
and information;
(j) undertake procurement research and surveys;
(k) organize training and development programmes for procurement
professionals;
(I) periodically review the socio-economic effect of the policies on
procurement and advise the Council accordingly;
Objectives of the Bureau
Functions of the Bureau
205
(m) prepare and update standard biding and contract documents;
(n) prevent fraudulent and unfair procurement and where necessary apply
administrative sanctions;
(o) review the procurement and award of contract procedures of every entity
to which this Act applies;
(p) perform procurement audits and submit such report to the National
Assembly bi-annually;
(q) Introduce, develop, update and maintain related database and
technology;
(r) establish a single internet portal that shall, subject to section 16 (21) to this
Act serve as a primary and definitive source of all Information on
government procurement containing all public sector procurement
Information at all times; and
(s) Co-ordinate relevant training programs to build Institutional capacity.
6. (1) The Bureau shall have the power to:
(a) Enforce the monetary and prior review thresholds set by the Council for
the application of the provisions of this Act by the procuring
entities;
(b) subject to the paragraph (a) of this subsection, Issue certificate of “No
Objection” for Contract Award” within the prior review threshold for all
procurements within the purview of this Act;
(c) from time to time stipulate to all procuring entities, the procedures and
documentation pre-requisite for the Issuance of certificate of ‘No
Objection’ under this Act;
(d) where a reason exist:
(i) cause to be inspected or reviewed any procurement transaction to ensure
compliance with the provisions of this Act,
(ii) review and determine whether any procuring entity has violated any
provision of this Act;
(e) debar any supplier, contractor or service provider that contravenes any
provision of this Act and regulations made pursuant to this Act;
(f) maintain a national database of federal contractors and service providers
and to the exclusion of all procuring entities prescribe classifications and
categorizations for the companies on the register;
(g) maintain a list of firms and persons that have been debarred from
participating in public procurement activity and publish them in the
procurement journal;
(h) call for such information, documents, records and reports in respect of any
aspect of any procurement proceeding where a breach, wrongdoing,
Power of the Bureau
206
default, mismanagement and or collusion has been alleged, reported or
proved against a procuring entity or service provider;
(i) recommend to the Council, where there are persistent breaches of this Act
or regulations made under this Act for:
(i) the suspension of officers concerned with the procurement or disposal
proceeding in issue;
(ii) the replacement of the head or any of the members of the procuring or
disposal unit of any entity or the Chairperson of the Tenders Board as the
case may be;
(iii) the discipline of the Accounting Officer of any procuring entity;
(iv) the temporary transfer of the procuring and disposal function of a
procuring and disposing entity to a third party procurement agency or
consultant; or
(v) any other section that the Bureau may consider appropriate;
(j) call for the production of books of accounts, plans, documents and
examine persons or parties in connection with any procurement
proceeding;
(k) act upon complaints in accordance with the procedures set out in this Act;
(I) nullify the whole or any part of any procurement proceeding or award
which is in contravention of this Act;
(m) do such other things as are necessary for the efficient performance of its
functions under this Act;
(2) The Bureau shall serve as the secretariat for the Council.
(3) The Bureau shall, subject to the approval of the Council, have power to:
(a) enter into contract or partnership with any company, firm or person which
in its option will facilitate the discharge of its functions;
(b) request for and obtain from any procurement entity information including
reports, memoranda and audited accounts, and other Information relevant
to Is functions under this Act; and
(c) liaise with relevant bodies or institutions national and International for
effective performance of its functions
under this Act.
7. (1) There shall be for the Bureau, a Director-General who shall be
appointed by the President, on the recommendation of the Council after
competitive selections.
(2) The Director-General shall be:
Director General and Staff of the Bureau
207
(a) the Chief Executive and accounting officer of the Bureau;. (b) responsible
for the execution of the policy and day to day administration of the affairs
of the Bureau; and
(c) a person who possesses the relevant and adequate professional
qualification and shall have been so qualified for a period of not less than
15 years:
(3) The Director-General shall hold office:
(a) for a term of 4 years in the first instance and may be reappointed for a
further term of 4 years and no more; and
(b) on such terms and conditions as may be specified in his letter of
appointment.
(4) Without prejudice to the provisions of this Act, the Director General of the
Bureau may be removed form office at the instance of the President on the
basis of gross misconduct of financial impropriety, fraud, and manifested
incompetence proven by the Council.
8. (1) The Council shall appoint the principal officer for the Bureau after
competitive selection process
(2) The principal officers appointed under Section 9 (1) of this Section shall
each have the requisite qualification and experience required for the
effective performance of the functions of their respective Departments and
the Bureau as specified under this Act.
(3) The Council shall have power to modify the operational structure of the
Bureau as may be necessary to enhance the Bureau’s duties and functions
under this Act.
9. (1) The Council may appoint such officers and other employees as may,
from time to time, deem necessary for the purpose of the Bureau.
(2) Subject to the Pension Reform Act, the terms and conditions of service
(including remuneration, allowances, benefits and pensions) of officers
and employees of the Bureau shall be as determined by this Council.
(3) Without prejudice to the general of subsection this section, the Council
shall have power to appoint either on transfer or on recommend from any
public service in the Federation, such number of employees as may, be
required to assist the Bureau in the discharge of any of its functions under
the Act and persons so employed shall be remunerated (including
allowances) as the Council may consider appropriate.
Principal officers of the Bureau
Other Staff of the Bureau
Staff Regulations
208
10. (1) The Council may, subject to the provisions of this Act and within six
months of the inauguration, make staff regulations relating generally to the
conditions of service of the employees of the Bureau and without
prejudice to the foregoing, such regulations may provide for:
(a) the appointment, promotion and disciplinary control (including
dismissal) of employees of the Bureau; and
(b) appeal by such employees against dismissal or other disciplinary
measures.
(2) Until such regulations are made, any instrument relating to the
conditions of service of officers in the civil service of the
Federation shall be applicable.
11. Employees of the Bureau shall be entitled to pensions, and other
retirement benefits as prescribed under the pension Act.
12. (1) The bureau shall establish and maintain a Fund, to be approved by the
Council into which shall be paid and credited:
(a) the sums appropriated by the National Assembly for the running of the
Bureau;
(b) all subventions, fees and charges for service rendered or publications
made by the Bureau; and
(c) all other assets which may, from time to time, accrue to the Bureau.
(2) The Bureau shall charge its fund to meet all its expenditure.
(3) The Council may make regulations for the Bureau:
(a) specifying the manner in which assets or the funds of the Bureau are to be
held, and regulating the marking of payment into and out of the fund: and
(b) requiring the keeping of proper accounts and records for the purpose of the
fund in such form as may be specified inthe rules.
(4) The Bureau may, from time to time, apply the proceeds of the fund for:
(a) the cost of administration of the Bureau;
(b) the payments of salaries, fees and other remuneration, employees of the
Bureau or experts or professionals appointed by the Bureau;
(c) the maintenance of any property acquired by or vested in the Bureau; and
(d) any matter connected with all or any of the functions of the Bureau under
this Act.
(e) the payments of salaries, fees and other remuneration, of employees of the
Bureau or exports or professional appointed by the Bureau; and
Pension provision
Funds of the bureau
209
(f) any expenditure connected with all or any of the function of the Bureau
under this Act.
13. (1) The financial year of the Bureau shall be the same as that of the
Federal” Government.
(2) Not later than 6 months before the end of the financial year, the Bureau
shall submit to the Council an estimate of its expenditure and projected
income during the text succeeding year.
(3) The Bureau shall keep proper account and records of its receipts,
payments assets and liabilities and shall in respect of each financial year
prepare a statement of account in such form as the Council may direct.
(4) The Bureau shall within 6 months after the end of the financial year to
which the accounts relates cause the accounts to be audited in accordance
with guidelines supplied by the Auditor-General of the Federation.
(5) The Bureau shall at the end of each financial year, prepare and submit to
the council a report in such forms as shall accurately capture all activities
of the Bureau during the preceding year and shall include in the report a
copy of the audited accounts of the Bureau for that year.
14. (1) Subject to the provisions of this Act, no suit shall be commenced
against the Bureau before the expiration of 30 days after written notice of
an intention to commence the suit shall have been served upon the Bureau
by the intending plaintiff or his agent; and the notice shall clearly and
explicitly state:
(a) the cause of action;
(b) the particulars of the claim;
(c) the name and address of legal practitioner of the intending plaintiff; and
(d) the relief being sought.
(2) The Director-General of the Bureau,
. its officers, employees or agents shall not personally be subject to any
action, claim or demand by, or any person in respect of anything done or
omitted to be done in exercise of any functions or power conferred by this
Act upon the Bureau, its Director-General, officers, employees or agents.
(3) A member of the Bureau or the Director-Genera! or any officer or
employee of the Bureau shall be indemnified out of the assets of the
Bureau against any liability incurred by him in defending any proceeding,
whether civil or criminal, if the Proceeding is brought against him in his
capacity as a member, Director- Genera!, officer or other employee of the
Bureau.
Financial year budgeting and annual report
Legal proceedings.
210
(4) A notice, summons or other documents required or authorized to be served
upon the Bureau under the provisions of this Act or any other law or
enactment may be served by delivering it to the Director-General or by
sending it by registered post and addressed to the Director-General at the
principal office of the Bureau.
PART - SCOPE OF APPLICATION
15. (1) The provisions of this Act shall apply to all procurement of goods,
works, and service carried out by:
(a) the Federal Government of Nigeria and all procurement entities;
(b) all entities outside the foregoing description which derive at least 35% of
the fund appropriated or proposed to be appropriated for any type of
procurement described in this Act from the Federation share of
Consolidated Revenue Fund.
(2) The provisions of this Act shall not apply to the procurement of special
goods, works and services involving national defence or national security
unless the President’s express approval has been first sought and obtained.
PART IV - FUNDAMENTAL PRINCIPLES FOR PROCUREMENTS
16. (1) Subject to any exemption allowed by this Act, all public procurement
shall be conducted:
(a) subject to the prior review thresholds as may from time to time be set by
the Bureau pursuant to Section 7 (1) (a)-(b);
(a) based only on procurement plans supported by prior budgetary
appropriations and no procurement proceedings shall be formalized until
the procuring entity has ensured that funds are available to meet the
obligations and subject to the threshold in the regulations made by the
Bureau, has obtained a “certificate of ‘No Objection’ to Contract Award”
from the Bureau;
(C) by open competitive biding;
(d) in a manner which is transparent, timely, equitable for ensuring
accountability and conformity with this Act and regulations deriving there
from;
(e) with the aim of achieving value for money and fitness for purpose;
(f) in a manner which promotes competition, economy and efficiency; and
Scope of application
Fundamental principal for procurement
211
(g) in accordance with the procedures and timeline laid down In this Act and
as may be specified by the Bureau from time to time.
(2) Where the Bureau has set prior review thresholds in the procurement
regulations, no funds shall be disbursed from the Treasury of Federation
Account or any bank account of any procuring entity for any procurement
falling above the set thresholds unless the cheque, payments or other form
of request for payments accompanied by a certificate of “No Objection” to
an award of contract duly issued by the Bureau.
(3) For all cases where the Bureau shall set a prior review thresholds, the
Bureau shall prescribe by regulation, guidelines and conditions precedent
to the award of certificate of “No Object/on,” under this Act.
(4) Subject to the prior review thresholds as may be set by the Bureau, any
procurement purported to be awarded without a “Certificate of ‘No
Objection’ to Contract Award” duly Issued by the Bureau shall be null and
void.
(5) A supplier, contractor or service provider may be a natural person, a legal
person or a combination of the two. Suppliers, contractors or service
providers acting jointly are jointly and severally liable for all obligations
and or responsibility arising from this Act and the non-performance or
improper performance of any contract awarded pursuant to this Act.
(6) All bidders In addition to requirements contained In any solicitation
documents shall:
(a) possess the necessary:
(i) professional and technical qualifications to carry out particular
procurements;
(ii) financial capability;
(iii) equipment and other relevant infrastructure;
(iv) shall have adequate personnel to perform the obligations
of the procurement contracts.
(b) possess the legal capacity to enter into the procurement
Contract:
(c) not be In receivership, the subject of any form of insolvency or bankruptcy
proceedings or the subject of any form of winding up petition or
Proceedings;
(d) not have fulfilled all its obligations to pay taxes, pensions and social
security contributions;
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(e) not have any director who has been convicted in any country for any
criminal offence relating to fraud or financial impropriety or criminal
misrepresentation or falsification of facts relating to any matter;
(f) accompany every bid with an affidavit disclosing whether or not any
officer of the relevant committees of the procurement entity of Bureau is a
former or present director, shareholder or has any pecuniary interest In the
bidder and confirmed that all information presented in its bid are true and
correct in all particulars.
(7) The procuring entity may require a bidder to provide documentary
evidence or other Information it considers necessary proof that the bidders
is qualified In accordance with this Act and the solicitation documents and
for this purpose any such requirements shall apply equally to all bidders.
(8) Whenever, It is established by a procuring entity or the Bureau that any or
a combination of the situations set out exists, a bidder may have its bid or
tender excluded from any particular procurement proceeding if:
(a) there Is verifiable evidence that any supplier, contractor or consultant has
given or promised a gift of money or any tangible item, or has promised,
offered or given employment or any other benefit, item or a service that
can be quantified in monetary terms to a current or former employee of a
procuring entity or the Bureau, in an attempt to influence any action, or
decision making of any procurement activity;
(b) a supplier, contractor or consultant during the last three years prior to the
commencement of the procurement proceedings. in issue, failed to
perform or to provide due care in performance of any public procurement;
(c) the bidders is in receivership or is the subject of any types of insolvency
proceedings or If being a private company under the Companies and
Allied Mater Act, is controlled by a person or persons who are subject to
any bankruptcy proceedings or who have been declared bankrupt and or
have made any compromises with their creditors within two calendar years
prior to the initiation of the procurement proceedings;
(d) the bidder is in arrears regarding payment of due taxes, charges, pensions
or social insurance contributions, unless such bidders have obtained a
lawful permit with respect to allowance, deference of such outstanding
payments or payment thereof In installments;
(e) the bidders has been validly sentenced for a crime committed in
connection with a procurement proceeding, or other crime committed to
gain financial profit;
213
(f) the bidder has in its management or is in any portion owned by any person
that has been validity sentence for a crime committed in connection with a
procurement proceedings, or other crime committed to gain financial
profit; and
(g) the bidder fails to submit a statement regarding Its dominating or
subsidiary relationships with respect to other parties to the proceedings
and persons acting on behalf of the proclaiming entity participating in
same proceedings or whom remains in subordinate relationship with other
participants to the proceedings.
(9) In such cases the procuring entity shall inform the Bureau, and person
referred to In subsection (8) (a)-(g) of this section, In writing that the bid
or tender in question has been excluded and the grounds for the exclusion
and to keep a record of same in the file pertaining to the public
procurement proceeding in question.
(10) All communications and documents issued by procuring entitles arid the
Bureau shall be in English language.
(11) AII communications regarding any matter deriving from this Act or
proceedings of public procurement shall be in writing or such other form
as may be stipulated by the Bureau.
(12) Every procuring entity shall maintain both file and electronic records of all
procurement proceedings made within each financial year and the
procurement records shall be maintained for a period often years from the
date of the award.
(13) Copies of all procurement records shall be transmitted to the Bureau not
later than 3 months after the end of the financial year and shall
(a) Information identifying the procuring entity and the contractors;
(b) the date of the contract award;
(c) the values of the contract;
(d) the detailed records of the procurement proceedings.
(14) All unclassified procurement records shall be open to inspection by the
public at the cost of Copying and certifying the documents plus an
administrative charge as may be prescribed from time to time by the
Bureau.
(15) The criteria Stipulated as the basis upon which suppliers or contractors
would be evaluated shall not be charged in the course of any procurement
Proceedings.
(16) The burden of providing fulfillment of the requirements for participation
In any procurement Proceedings shall lie on the supplier or contractor.
214
(17) A contract shall be awarded to the lowest evaluated responsive bid from
the bidders substantially responsive to the bid solicitation.
(18) Notwithstanding Subsection (16) of this Section, the Bureau may refuse to
issue ‘certificate of “No Objection” to Contract Award’ on the ground that
the price is excessive.
(19) Pursuant to subsection (17) of this section, the Bureau may direct either
that the procurement proceedings be entirely cancelled or that the
procuring entity conduct are-tender.
(20) Pursuant to Subsection (18) of this section, the Bureau may either direct
that the procurement proceedings be entirely cancelled or that the
procuring entity conduct a re-tender.
(21) The accounting officer of a procuring entity and any officer to whom
responsibility is delegated are responsible and accountable for any actions
taken or omitted to be taken either in compliance with or in contravention
of this Act.
(22) The accounting officer of a procuring entity has the responsibility to
ensure that the provisions of this Act and the regulations laid by the
Bureau are complied with, and concurrent approval by any Tenders Board
shall not absolve the accounting officer form accountability for anything
done in contravention of us Act or the regulation laid down hereunder.
(23) Procurement and disposal decisions of a procuring entity shall be taken in
strict adherence to the provisions of this Act and any regulations as from
time to time the laid down by the Bureau.
(24) Persons who have been engaged in preparing for a procurement or part of
the proceedings thereof may neither bid for the procurement in question or
any part thereof either as main contractor or sub-contractors nor may they
cooperate in any manner with bidders in the course of preparing their
tenders.
(25) A procuring entity shall not request or stipulate that a bidder should
engage a particular subcontractor as a requirement for participating in any
procurement proceedings.
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(26) All procurement contracts shall contain provisions for arbitral proceedings
as the primary forms of dispute resolution.
(27) The values in procurement documents shall be stated in Nigerian currency
and where stated In a foreign currency shall be converted to Nigerian
currency using the exchange rate of the central Bank of Nigeria valid on
the day of opening at ender or bid.
(28) All procurement contract shall contain warranties for durability of goods,
exercise of requisite skills in service provision and use of genuine
materials and inputs In execution.
PART V - ORGANISATION OF PROCUREMENTS
17. Subject to the monetary and prior review thresholds for procurements in
this Act as may from time to time be determined by the Council, the
following shall be the approving authority for the conduct of public
procurement:
(a) in the case of:
(i) a government agency parastatal, or corporation, a Parastatals Tender
Board; and Approving authority.
(ii) a ministry or extra-ministerial entity, the Ministerial Tender Board.
18. Subject to regulations as may from time to time be made by the Bureau
under the direction of the Council, a procuring entity shall plan its
procurement by:
(a) preparing the needs assessment and evaluation;
(b) identifying the goods, work or services required;
(c) carrying appropriate market and statistical surveys and on the basis
prepare an analysis of the cost implications of the proposed procurement;
(d) aggregating its requirements wherever possible, both within the procuring
entity and between procuring entities, to obtain economy of scale and
reduce procurement cost;
(e) integrating its procurement expenditure into its yearly budget;
(f) prescribing any method for effecting the procurement subject to the
necessary approval under this Act; and
(g) ensuring that the procurement entity functions stipulated in this section
shall be carried out by the Procurement Planning Committee.
Approving Authority
Procurement planning
216
19. Subject to regulations as may from time to time be made by the Bureau
under direction of Council, a procuring entity shall, in implementing its
procurement plans:
(a) advertise and Solicit for bids in adherence to this Act guidelines as may be
issued by the Bureau from time to time;
(b) to Invite two credible persons as observers in every procurement process,
one person each representing a recognized;
(i) private sector professional organization whose expertise is relevant to the
particular goods or service being procured, and
(ii) non-government organization working in transparency, accountability and
anti-corruption areas, and the observers shall not intervene in
The procurement process but shall have right to submit their observation
report to any relevant agency or body including their own organizations or
associations;
(c) receive, evaluate and make a selection of the bids received in adherence to
this Act and guidelines as may be issued by the Bureau from time to time;
(d) obtain approval of the approving authority before making an award;
(e) debrief the bid losers on request;
(f) resolve complaints and disputes If any;
(g) obtain and confirm the validity of any performance guarantee;
(h) obtain a “Certificate of’ No Objection’ to Contract Award” from the
Bureau within the prior review threshold as stipulated In Section 3 (a) of
this Act;
(i) execute all Contract Agreements; and
(j) Announce and publicize the award In the format stipulated by this Act and
guidelines as may be Issued by the Bureau from time to time.
20. (1) The accounting officer of a procuring entity shall be the Accounting
person charged with line supervision of the conduct of all procurement
processes; in the case of ministries the Permanent secretary and in the case
of extra-ministerial departments and corporations the Director-General or
officer of co-ordinate responsibility.
(2) The accounting officer of every procuring entity shall have overall
responsibility for the planning of, organization of tenders, evaluation of
tenders and execution of all procurements and in particular shall be
responsible for:
(a) ensuring compliance with the provisions of this Act by his entity and
liable in person for the breach or contravention of this Act or any
regulation made hereunder whether or not the act or omission was carried
Procurement implementation
Accounting officer
217
out by him personally or any of his subordinates and Its shall not be
material that he had delegated any function, duty or power to any person
or group of persons;
(b) constituting the Procurement Committee and its decisions;
(c) ensuring that adequate appropriation is provided specifically for the
procurement in the Federal budget; (d) integrating his entity’s
procurement expenditure into its yearly budget:
(e) ensuring that no reduction of values or splitting of procurement! is carried
out such as to evade the use of the appropriate procurement method;
(f) constituting the Evaluation Committee;
(g) liaising with the Bureau to ensure the implementation of Its regulations.
21. (1) For each financial year procuring entity shall establish a Procurement
Planning Committee.
(2) The Procurement Planning Committee shall consist of:
(a) the accounting officer of the procurement entity or his representative who
shall chair the Committee;
(b) a representative of:
(i) the procurement unit of the procuring entity who shall be the Secretary,
(ii) the unit directly in requirement of the procurement,
(iii) the financial unit of the procuring entity, (iv) the planning, research and
statistics unit of the procuring entity,
(v) technical personnel of the procuring entity with expertise In the subject
matter for each particular procurement, and
(vi) the legal unit of the procuring entity.
22. (1) There Is hereby established by this Act in each procuring entity a
tenders board (In this Act referred to as “the Tenders Board”).
(2) Subject to the approval of the Council, the Bureau shall from time to time
prescribe guidelines for the membership of the Tenders Board.
(3) The Tenders Board shall be responsible for the award of procurements of
goods, works and services within the threshold set In the regulations.
(4) In all cases where there is a need for prequalification, the Chairman of the
Tenders Board shall constitute a technical sub-committee of the Tenders
Board charged with the responsibility for the evaluation of bids which
shall be made up of professional staff of the procuring entity and the
Procurement planning committee
Tender Board
218
Secretary of the Tenders Board who shall also be the Chair of the
Evaluation Sub-committee.
(5) The decision of the Tenders Board shall be communicated to the Minister
for implementation.
23. (1) Where a procuring entity has made a decision with respect: to the
minimum qualifications of suppliers, contractors or service providers by
requesting interested persons to submit applications, to pre-qualify, it shall
set out precise criteria upon which it seeks to give consideration to the
applications and in reaching a decision as to which supplier, contractor or
service provider qualifies, shall apply only the criteria set out In the
prequalification documents and no more.
(2) Procuring entities shall supply a set of prequalification documents to each
supplier, contractor or consultant that request them, and the price that a
procuring entity may charge for the prequalification documents shall
reflect only the cost of printing and provision to suppliers or contractors
and consultants.
(3) The prequalification document shall include:
(a) instructions to prepare and submit prequalification application;
(b) a summary of the main terms and conditions required for the procurement
contract to be entered into as 9 result of the procurement proceedings;
(c) any documentary evidence or other information that must be submitted by
suppliers, contractors or consultants to demonstrate their qualifications;
(d) the manner and place for the submission of applications to pre-qualify and
the deadline for the submission, expressed as a specific date and time
which allows sufficient time for suppliers, contractors or consultant to
prepare and submit their applications, taking into account the reasonable
need of the procuring entity; and
(e) any other requirement that may be established by the procuring entity in
conformity with this Act and procurement regulations relating to the
preparation and submission of applications to pre-qualify and to the
prequalification proceedings.
(4) The procurement entity shall respond to any request by a supplier,
contractor or consultant for clarification of the prequalification documents
Prequalification of bides
219
if the request is made at least ten days before the deadline for the
submission of applications to pre-qualify.
(5) The response by the procuring entity shall be given within a reasonable
time and in any event within a period of at most seven working days so as
to enable the supplier, contractor or consultant to make a timely
submission of its application to pre-qualify.
(6) The response to any request that might reasonably be expected. to be of
interest to other supplier, contractor or consultant shall, without
identifying the source of the request, be communicated to other suppliers
or contractors or consultants provided with the prequalification documents
by the procuring entity.
(7) A procuring entity shall promptly notify each supplier, contractor or
consultant which submitted an application to pre-qualify of whether or not
it has been pre-qualified and shall make available to any member of the
general public upon request, the names of the suppliers, contractors or
consultants who have been pre-qualified.
(8) Suppliers, contractors or consultants who have been pre-qualified may
participate further in the procurement proceedings.
(9) The procuring entity shall upon request communicate to suppliers,
contractors or consultants who have not been pre-qualified, the grounds
for disqualification.
(10) The procuring entity may require a supplier, contractor or service provider
who has been pre-qualifies to demonstrate its qualifications again in
accordance with the same criteria used to pre-qualify the supplier,
contractor consultant.
(11) The procuring entity shall promptly notify each supplier, contractor or
service provider requested to demonstrate its qualifications again whether
or not the supplier, contractor or consultant has done so to the satisfaction
of the procuring entity.
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(12) The procuring entity shall disqualify any supplier, contractor or service
provider who fails to demonstrate its qualification again if requested to do
so.
PART VI- PROCUREMENT METHODS
(GOODS AND SERVICES)
24. (1) Except as provided by this Act, all procurements of goods and works
by all procuring entities shall be conducted by open competitive bidding.
(2) Any reference to open competitive biding in this Act means the process by
which a procuring entity based on previously defined criteria, effects
public procurements by offering to every interested bidder, equal
simultaneous information and opportunity to offer the goods and works
needed.
(3) The wining bid shall be that which is the lowest evaluated responsive bid
which has been responsive to the bid with regards to work specification
and standard.
25. (1) Invitations to bid may be either by way of National Competitive
Bidding or International Competitive Bidding and the Bureau shall from
time to time set the monetary thresholds for which procurements shall fall
under either system.
(2) Every invitation to an open competitive bid shall:
(i) in the case of goods and works under International Competitive Bidding,
the invitation for bids shall be advertised In at least two national
newspapers and one relevant internationally recognized publication, any
official websites of the procuring entity and the Bureau as well as the
procurement journal not less than six weeks before the deadline for
submission of the bids for the goods and works,
(ii) in the case of goods and works valued under National Competitive
Bidding, the Invitation for bids shall be advertised on the notice board of
the procuring entity, any official web sites of the procuring entity, at least
two national newspapers, and in the procurement journal not less than six
weeks before the deadline for submission of the bids for the goods and
works.
Open competitive bidding
Invitation to bid.
221
26. (1) Subject to the monetary and prior review thresholds as may from time
to time be set by the Bureau all procurements valued in excess of the
prescribe& by the Bureau shall require a bid security in an amount not
more than 2% of the bid price by way of a bank guarantee issued by a
reputable bank acceptable to the procuring entity.
(2) The Bureau shall from time to time specify the principal terms and
condition of the required bid security in the tender documents.
(3) When the procuring entity requires suppliers or contractors submitting
tender to provide a bid security the requirement shall apply to each
supplier or contractor.
27. (1) All bids in response to an invitation to open competitive bidding shall
be submitted in writing and in addition to any other stipulated in the tender
documents signed by an official authorized to bind the bidder to a contract
and placed in a sealed envelop.
(2). All submitted bids shall be deposited in a secured tamper- proof bid-box.
(3) All bids submitted shall be in English language.
(4) The procuring entity shall issue a receipt showing the date and time the
bid was delivered.
(5) Any bid receive after the deadline for the submission of bids shall not be
opened and must be returned to the supplier or contractor which submitted
it.
(6) No communication shall take place between procuring entities and any
supplier or contractor after the publication of a bid solicitation other than
as provided in this Act.
Bid security
Submission of bids
222
28. A procuring entity may:
(a) reject all bids at any time prior to the acceptance of a’ bid, without
incurring thereby any liability to the bidders; and
(b) cancel the procurement proceedings in the public interest, without
incurring any liability to the bidders’
29. (1) The period of validity for a bid shall’ be the period specified in the
tender documents.
(2) A procuring entity may request suppliers or contractors to extend the
period of validity for an additional specified period time
(3) A supplier or contractor may refuse the request for the extension of bid, in
which case the effectiveness of its bid will terminate upon the expiration
of the un-extended period of effectiveness.
(4) A supplier or contractor may modify or withdraw its bid prior to the
deadline for the submission of bids.
(5) The modification or notice of withdrawal is effective if it is received by
the procurement entity before the deadline for the submission of tenders.
30. All bids shall be submitted before the deadline or date specified in the
tender documents or any extension of the deadline for submission and the
procuring entity shall:
(a) permit attendees to examine the enveloped in which the bids have been
submitted to ascertain that the bids have not been tampered with;
(b) cause all the bids to be opened in public, in the presence of the bidders or
their representatives and any Interested members of the public;
(c) ensure that the bids opening takes place immediately following the
deadline stipulated for the submission of bids or any extension thereof;
(d) ensure that a register is taken of the names and addresses of all those
present at the bids opening and the organizations they represent which is
recorded by the secretary of the tenders board; and
(e) call-over to the hearing of all present, the names and address of each
bidder, the total amount of each bid, the bid currency and shall ensure that
Rejection of bids.
Validity period of bids, modification and withdrawal of tenders.
Bids opening
223
these details are recorded by the secretary of the Tenders board or his
delegate in the minutes of the bid opening.
31. (1) All bids shall be first examined to determine to determination if they:
(a) meet the minimum eligibility requirements stipulated in the bidding
documents;
(b) have been duly signed;
(c) are substantially responsive to the bidding documents;
and
(d) are generally in order.
(2) A procuring entity may ask a supplier or a contractor for clarification of its
bid submission in order to assist in the examination, evaluation and
comparison of bids.
(3) The following shall not be sought, offered or permitted:
(a) changes in prices;
(b) changes of substance in a bid; and
(C) changes to make an unresponsive bid responsive.
(4) Notwithstanding sub-Section (3) of this Section, the procuring entity may
correct purely arithmetical errors that are discovered during the
examination of tenders.
(5) The procuring entity shall give prompt notice of the correction to the
supplier or contractor that submitted the tender.
(6) A major deviation shall result in a rejection of bid while a minor deviation
shall be subjected to clarification.
(7) The following shall be considered as major deviations:
(A) with respect to clause in an offer;
(i) unacceptable sub contracting,
(ii) unacceptable time schedule if time is of essence,
(iii) unacceptable alternative design, and
(iv) unacceptable price adjustment.
(b) with respect to the status of the bidder:
(i) the fact that he is ineligible or not pre-qualified, and
(ii) the fact that he is uninvited;
(c) with respect to bid documents an unsigned bid;
(d) with respect to time, date and allocation for submission:
(i) any bid received after the date and time for submission stipulated in the
solicitation document,
(ii) any bid submitted at the wrong location.
Examination of bids
224
(8) In case of major deviations, bids shall not be considered any further and,
where unopened, shall be returned as such to the bidder. a
(9) In all cases of rejection, a letter stipulating the reasons for rejection shall
be sent, and the bidder shall not be permitted to amend his bid to become
compliant.
(10) Subject to any provision to the contrary, the following shall be considered
as minor deviations:
(a) the use of codes;
(b) the difference in standards;
(c) the difference in material
(d) alternative design;
(e) alternative workmanship;
(f) modified liquidated damages;
(g) omission in minor items;
(h) discovery of arithmetical errors;
(I) sub-contracting that is unclear and questionable;
(j) different methods of construction;
(k) difference in final delivery date;
(I) difference In delivery schedule;
(m) completion period where these are not of essence;
(n) non-compliance with some technical local regulation;
(o) payment terms; and
(p) any other condition that has little Impact on the bid.
(11). In cases not mentioned above and where there exist a doubt as to whether
a particular condition In a bid Is a major or a minor deviation, the
following rules shall apply:
(a) where the Impact on the costs Is major, It shall be regarded as a major
deviation; and
(b) where the impact on the costs Is minor, It shall be regarded as a minor
deviation.
(12) In cases of minor deviations, written classification may be obtained from
the supplier or contractor and, where applicable, and offer made for the
correction of the minor deviation.
(13) Where a supplier or contractor does not accept the correction of a minor
deviation, his bid shall be rejected.
(14) At the stage of evaluation and comparison, all minor deviation shall be
quantified in monetary terms.
(15) For the rejection of a bid, a written notice shall be given promptly to the
supplier.
225
32. (1) For the evaluation and comparison of bids that have been adjudged as
valid for the purposes of evaluation, no other method or criteria shall be
used except those stipulated in the solicitation documents.
(2) The objective of evaluation shall be to determine and select the lowest-
evaluated responsive bid from bidders that have responded to the bid
solicitation.
(3) In the Course of its determination of the lowest evaluated responsive bid
from the bidders that have responded to the bid solicitation the Tender
Boards shall, in particular, undertake the fallowing processes as
applicable:
(a) checking of deviations;
(b) checking of omissions with qualification of same;
(c) application of discounts, as applicable;
(d) clarification with bidders of questionable minor deviation;
(e) qualification in monetary-terms of such questionable deviations;,
(f) Conversion to common currency;
(g) calculation ‘and tabulation of bid amount with domestic preference where
applicable;
(h) determination of the lowest calculated prices in order of rank;
(i) post-qualification of bidders, where applicable;
(j) listing-of rejection of bids, where applicable;
(k) decision of rejection of all bids where justifiable;
(I) recommendation for award; and
(m) writing up of the bid evaluation report.
(4) All relevant factors, in addition to price, that will be considered for the
purposes of bid evaluation and the manner in which such factors will be
applied shall be stipulated in the solicitation documents.
(5) Such factors shall be calculated in monetary terms as stipulated in the
solicitation documents and shall include:
(a) for goods, among others, costs of transportation and insurance, payment
schedule, delivery time, operating costs, efficiency, compatibility of the
equipment, availability of services and spare parts, related training, safety,
environmental benefits or losses by damages;
(b) for works, in addition to factors stipulated in Section 34 (1) of this Act,
and subject to Section 34 (2) of this Act, if time is a critical factor, the
value of early completion; and
Evaluation of bids
226
(c) the value of early completion under Section 35 (2) of this Act shall not be
taken into account unless, in conformity with criteria pre-set in the bidding
documents, the conditions of contract provide for commensurate penalties
in case of late delivery.
(6) When bid prices are expressed in two or more currencies, the ‘prices of
all bids shall be converted to Nigerian Currency, according to the rate and
date of rate specified in the solicitation documents.
(7) If suppliers were pre-qualified, verification provided in the submission for
pre-qualification shall be confirmed at the time of award of contract and
award may be denied to a bidder who no longer has the capability or
resources to-successfully perform the contract.
(8) After opening of bids, information relating to the
Examination, clarification and evaluation of bids and recommendations
concerning award shall not be disclosed to bidders or to persons not
officially concerned with the evaluation process until the successful bidder
is notified of the award.
33. (1) The successful bid shall be that submitted by the lowest Acceptance.
Acceptance cost bidder from the bidders responsive as to the bid of bid
solicitation.
(2) Notwithstanding subsection of this section, the
selected bidder needs not be the lowest cost bidder provided the procuring
entity can show good grounds derived from the provision of this Act to
that effect.
(3) Notice of the acceptance of the bid shall immediately be given to the
successful bidder.
34. (1) A procuring entity may grant a margin of preference
in the evaluation of tenders, when comparing tenders from
domestic bidders with those from foreign bidders or when comparing
tenders from domestic suppliers offering goods manufactured locally with
those offering goods manufactured abroad.
(2) Where a procuring entity intends to allow domestic preferences, the
bidding documents shall clearly indicate any preference to be granted to
domestic suppliers and contractors and the information required to
establish the eligibility of a bid for such preference.
Acceptance of bids
Domestic preferences
227
(3) Margins of preference shall apply only to tenders under international
competitive bidding.
(4) The Bureau shall by regulation form time to time set the limit and the
formulae for the computation of margins of preference and determine the
contents of goods manufactured locally.
35. (1) In addition to any other regulations as may be prescribed by the
Bureau, a mobilization fee of not more than 15% may be paid to a supplier
or contractor supported by the following:
(a) in the case of National Competitive Bidding-an unconditional bank
guarantee or insurance bond issued by an institution acceptable to the
procuring entity; and
(b) in the case of international Competitive Bidding-an Unconditional bank
guarantee issued by a banking Institution acceptable to the procuring
entity.
(2) Once a mobilization fee has been paid to any supplier or contractor, no
further payment shall be made to the supplier or contractor without an
interim performance certificate issued in accordance with the contract
agreement.
36. The provision of a Performance Guarantee shall be a Co precondition for
the award of any procurement contract upon which any mobilization fee is
to be paid, provided however it shall not be less than 10% of the contract
value in any case or an amount equivalent to the mobilization fee
requested by the supplier or contractor whichever is higher.
37. (1) Payment for the procurement of goods, works, and services shall be
settled promptly and diligently.
(2) Any payment due for more than sixty days from the date of the submission
of the invoice, valuation certificate or confirmation or authentication by
the Ministry, Extra-Ministerial Office, government agency, parastatal or
corporation shall be deem a delayed payment.
(3) All delayed payments shall attract interest at the rate specified in the
contract document.
(4) All contracts shall includes terms, specifying the interest for late payment
of more than sixty days.
Mobilization fees.
Contract performance granted
Interest on delay payment
228
38. (1) Every procuring entity shall maintain a record of the comprehensive
procurement proceedings.
(2) The portion of the records referred to in this Section shall, on request, be
made available to:
(a) any person after a tender; proposal, offer or quotation has been
accepted or after procurement contract; and
(b) suppliers, contractors or consultants that submitted tenders,
proposals, offers or quotations, or applied for prequalification,
after a tender, proposal, offer or quotation has been accepted or
procurement proceeding have been terminated without resulting in
a procurement contract
(3) A disclosure of procurement proceedings records, prior to’ award of
contract may be ordered by a court, provided that when ordered to do so
by a court, the procurement entity shall not disclose such information, if
its disclosure would:
(a) be contrary to law;
(B) impede law enforcement; or
(c) prejudice legitimate commercial interests of the parties.
(4) The procuring entity shall not be liable to suppliers, contractors or service
providers for damages owing solely to failure to maintain a record of the
procurement proceedings in accordance with this Section.
(5) The records and documents maintained by procuring entities on
procurement shall be made available for inspection -by the Bureau, an
investigator appointed by the Bureau and the Auditor General upon
request, and where donor funds have been used for procurement, donor
officials shall also have access upon request to procurement files for the
purpose of audit and review.
PART VII- SPECIAL AND RESTRICTED METHODS OF
PROCUREMENT
39. (1) notwithstanding the provisions of this Act, the
Bureau tendering may issue certificate of No Objection’ upon
conditions hereinafter prescribed.
Recorded payment proceedings.
Two stage tendering
229
(2) A procuring entity shall engage in procurement by two stage tendering:
(a) where it is not feasible for the procuring entity to formulate
detailed specifications for the goods or works or, in the case of
services, to identify their characteristics and where it seeks tenders,
proposals or offers on various means of meeting its needs in order
to obtain the most satisfactory solution to its procurement needs;
(b) where the character of the goods or works are subject to rapid
technological advances; where the procuring entity seeks to enter
into a contract for research, experiment, study or development,
except where the contract includes the production of goods in
sufficient quantities to establish’ their commercial viability or to
recover research and development costs, where the procuring
entity applies this Act to procurement concerned with national
security and determines that the selected method is the most
appropriate method of procurement; or
(c) where the tender proceedings have been utilized but were not
successful or the tenders were rejected by the procuring entity
under an open competitive bid procedure and the procuring entity
considers that engaging in new tendering proceedings will not
result in a procurement contract.
(3) The provisions of this Act as regards the process for open competitive
bidding shall apply to two-stage tendering proceedings except to the extent
that those provisions vary from this section.
(4) The invitation documents:
(a) shall call upon suppliers or contractors to submit, in the first stage of two-
stage tendering proceedings, initial tenders which contain their proposal
without a tender price; and.
(b) may solicit proposals that relate to technical, quality or other
characteristics of the goods, works or services as well as contractual terms
and conditions of supply and may stipulate the professional competence
and technical qualifications of the suppliers or contractors.
(5) The procuring entity may, In the first stage, engage in negotiations with
any supplier or contractor whose tender has not been rejected under an
230
open competitive bidding procedure with respect to any aspect of its
tender.
(6) In the second stage of the two tender proceedings the procuring entity:
(a) shall invite suppliers or contractors whose tenders have not been rejected
to submit final tenders with prices on a single set of specifications;
(b) may, in formulating the specifications, delete or modify any aspect of the
technical or quality characteristics of the goods, works or services to be
procured together with any criterion originally set out in these documents,
evaluate and compare tenders and ascertain the successful tender;
(c) may add new characteristics or criteria that conform with this Act;
(d) shall communicate to suppliers or contractors in the invitation to submit
firm tenders, any deletion, modification or addition; and
(e) may permit a supplier or contractor who does not wish to submit a final
tender to withdraw from the tendering proceedings.
(7) The final tenders shall be evaluated and compared in order to ascertain the
successful tender as defined in an open competitive bid.
40. (1) Subject to the approval by the Bureau, a procuring entity may for
reasons of economy and efficiency engage in procurement by means of
restricted tendering if:
(a) the goods, works or services are available only from a limited number of
suppliers or contractors;
(b) the time and cost required to examine and evaluate a large number of
tenders is disproportionate to the value of the goods, works or services to
procured; or
(c) the procedure is used as an exception rather than norm.
(2) Where a procuring entity engages in restricted tendering on the basis that:
(a) the good works and service are available only form a limited number of
suppliers or contractors, it shall invite tenders from all the suppliers and
contractors who can provide the goods, works or services; and
(b) the time and cost required to examine and evaluate a large number of
tenders is disproportionate to the value of the goods, works or service, it is
shall select in a non- discriminatory manner of the number of suppliers or
contractors to ensure effective competition;
Restricted tendering
231
(3) For the purposes of subsection (2), of this section, the procuring entity
shall cause a notice of the selected tendering proceedings to be publish in
the procurement journal.
(4) The provisions of this Act regarding the open competitive bidding
procedure shall apply to the selective tendering proceedings, except to the
extent that those provisions are varied by this Section.
41. (1) A procuring entity may carry out procurements by requesting for
quotations from suppliers or contractors where the value of the goods or
works to be procured does not exceed a sum that shall be set in the
procurement regulation.
(2) Generally quotations shall be obtained from at least 3 unrelated
contractors or suppliers.
(3) Each contractor or supplier from whom a quotation is requested shall:
(a) be informed whether any factors other than the charges for the goods,
works or services themselves, such as any applicable transportation and
insurance charges, customs duties and taxes are to be included in the price;
and
(b) give only one quotation and shall not be allowed to charge or vary the
quotation.
(4) No negotiation shall take place between a procuring entity and a
contractor or supplier with respect to quotation.
(5) The procurement shall be awarded to the qualified contractor or supplier
that gives the lowest priced responsive quotation.
(6) Where the total value of the procurement is not more than a sum that shall
be set In the regulation, the procurement entity may not obtain the
Bureau’s approval.
42. (1 ) A procuring entity may carry out any emergency procurement where:
(a) goods, works or services are only available from a particular supplier or
contractors, or if a particular supplier or contractor has exclusive rights In
Request for quotations
Direct procurement
232
respect of the goods, works or services, and no reasonable alternative or
substitute exits; or
(b) there is an urgent need for the goods, works or services and engaging in
tender proceedings or any other method of procurement is Impractical due
to unforeseeable circumstances giving rise to the urgency which is not the
result of dilatory conduct on the part of the procuring entity;
(c) owing to a catastrophic event, there is an urgent need for the goods, works
or services making it impractical to use other method of procurement
because of the time Involved In using those methods;
(d) a procuring entity which has procured goods,
equipment, technology or services from a supplier
or contractor, determines that:
(i) additional supplies need to be procured from that supplier or contractor
because of standardization,
(ii) there is a need for compatibility with existing goods, equipment,
technology or services, taking into account the effectiveness of the
original procurement in meeting the need of the procurement entity,
(iii) the limited size of the procurement in relation to the original procurement
provides justification,
(iv) the reasonableness of the price and the unsuitability of alternatives to the
goods or services in question merits the decision.
(e) the procuring entity seeks to enter into a contract with the supplier or
contractor for research, experiment, study or development, except where
the contract includes the production of goods in qualities to establish
commercial viability or recover research and development costs; or
(f) the procuring entity applies this Act for procurement that concerns
national security, and determines that single-source procurement is the
most appropriate method of procurement.
(2) The procuring entity:
(a) may procure the good, works or services by inviting a proposal or price
quotation from a single supplier or contractor.
(b) shall include in the record of procurement proceedings a statement of the
grounds for its decision and the circumstances in justification of single
source procurement.
Emergency procurement
233
43. (1) A procuring entity may for the purpose of this Act, carry out an
emergency procurement where:
(a) the country is either seriously threatened by or actually confronted with a
disaster, catastrophe, war, insurrection or Act of God;
(b) the condition or quality of goods, equipment, building or publicly owned
capital goods may seriously deteriorate unless action is urgently and
necessarily taken to maintain them in their actual value or
usefulness; or
(c) a public project may be seriously delayed for want of an item of a minor
value.
(2) In an emergency situation, a procuring entity may engage in direct
contracting of goods, works and services.
(3) All procurement made under emergencies shall be handled with
expedition but along principles of accountability, due consideration being
given to the gravity of each emergency.
(4) Immediately after the cessation of the situation warranting any emergency
procurement, the procuring entity shall file a detailed report thereof with
the Bureau which shall verify same and if appropriate issue a Certificate of
No Objection’.
PART VIII-PROCUREMENT OF CONSULTANT (SERVICES)
44. Where a procuring entity wishes to procure services for Its needs which
are precise and ascertainable:
(a) it shall solicit for expressions of interest or applications to pre-qualify to
provide the services by publishing a notice to that effect in at least 2
national newspapers and the procurement journal;
(b) where the value of the service to be procured is less than one million naira,
or with the approval of the Bureau, of such a low value that only national
consultants would be Interested, the procuring entity may without placing
any notice request at least 3 and not more than 10 consultants or service
providers to make proposal for the provision of the services in a format
stipulating:
(i) a statement of qualifications of the consultant to provide the service;
(ii) a statement of understanding of the procuring entity’s needs;
(iii) the methodology for providing the service;
(iv) the time frame for providing the service; and
(v) the cost or fee for the service.
Expression of interest to provide services for ascertained needs.
234
45. (1) A procuring entity wishing to procure service for ib needs may do so
by requesting for proposals when it intends to enter into a contract for the
purpose of research, experiment, study or development, except where the
contract includes the production of goods in quantities sufficient to
establish their commercial viability or to recover research and
development cost.
(2) The procuring entities shall procure the services of consultants by
soliciting for expressions of interest by publishing a notice to that effect in
2 national newspapers and the procurement journal.
(3) A procuring entity may make direct request to a limited number of
consultants, requesting proposals for the provision of a service if:
(a) the services are only available from no more than 3 consultants;
(b) the time and cost required to examine and evaluate a large number of
proposals would be disproportionate to the value of the services to be
performed, provided that it invites enough consultants to ensure
transparent competition; or
(c) it is in the interest of national defense and security or similar reason of
confidentiality.
46 (1) Request for proposals shall include:
(a) the name and address of the procurement entity;
(b) a requirement that the proposal are to be prepared in the English language;
(c) the manner, place and deadline for the submission of proposals;
(d) a statement to the effect that the procuring entity reserves the right to
reject proposal;
(e) the criteria and procedures for the evaluation of the qualifications of the
consultants;
(f) the requirements on documentary evidence or other information that shall
be submitted by consultants to demonstrate their qualifications;
(g) the nature and required characteristics of the services to be procured
including the location where the services are to be provided and the time
when the services are to be provided;
(h) whether the procuring entity is seeking proposals on various possible ways
of meeting Its needs;
(i) a requirement that the proposal price-is to be expressed in Nigeria
currency;
Request for proposal to provide services for unascertained needs.
Content of the requests for proposal
235
(j) the manner in which the proposal price is to be expressed, including a
statement on whether the price covers elements apart form the cost of
services, such as reimbursement for transportation, lodging, insurance, use
of equipment, duties or taxes;
(k) whether the procedure to ascertain the successful proposal shall be based
on the lowest cost -or quality and cost or a combination of the lowest cost,
quality and criteria other than cost but stipulated in the request for
proposals; and
(I) a short list to be made of only national consultants for consulting
assignment, contract within a set threshold in the procurement regulation
provided that national consultants possess such requisite skills
(2) The procuring entity shall provide the same information to every
consultant requested to submit proposals.
47. (1) A consultant shall be allowed to request for clarification on the request
from the procuring entity and such request may be made within a
reasonable time to be specified.
(2) A procuring entity may, whether on its initiative or as a result of a request
for clarification by a consultant, modify the request for proposal by issuing
an addendum at any time prior to the deadline for submission of proposals.
(3) The addendum shall be communicated promptly before the deadline for
the submission of proposals to the short listed consultants to whom the
procuring entity has provided the request for proposals and shall be
binding on those consultants.
(4) If the procuring entity convenes meeting m consultants, it shall prepare
minutes of the meeting containing the issues submitted at the meeting for
clarification of the request for proposal and its responses to those issues,
without identifying the sources of the requests for clarifications.
(5) The minutes shall be provided promptly before the deadline for the
submission of proposals to the consultants participating in the selection
proceedings to enable them takes the minutes into account in preparing
their proposal.
48. (1) The procuring entity shall allow sufficient time for the preparation and
submission of the request proposals but shall in no case give less than 30
Clarification and modification of requests for proposal
Criteria for evaluation of proposal.
236
days between the issue of the notice or request and the deadline for
submission.
(2) The technical and financial proposals shall be submitted simultaneously
but in separation envelopes.
(3) A proposal received after the deadline for submission of proposals shall be
returned to the sender unopened.
(4) Immediately after the deadline for submission of proposals, the technical
proposals shall be opened for evaluation whilst the financial proposals
shall remain sealed and kept in a secure bid-box until they are opened
publicly.
(5) The technical evaluation committee shall not have access to or insights to
the financial proposals until the evaluations including any Tender Boards
review are concluded.
49. (1) The procuring entity shall establish criteria to evaluate the proposals
and prescribe the relative weight to be accorded to each criterion and the
manner in which they are ü be applied in the evaluation of:
(a) the qualification experience reliability professional and managerial
competence of the consultant oi service provider and m the personnel to be
involved in providing the services;
(b) the effectiveness of the proposal submitted by the consultant or service
provider in meeting the need of the procuring entity;
(c) the proposal price, including any ancillary or related
cost;
(d) the effect that the acceptance of the proposal will have on the balance of
payments position and foreign reserves of the government, the extent of
participation by local personnel, the economic development potential
offered by the proposal, including domestic investment or other business
activity, the encouragement of employment, the transfer of technology the
development of managerial, scientific and operational skills and the
counter trade arrangements offered by consultant or service providers; and
(e) national defence and security considerations.
Submission of proposal
237
(2) A procuring entity may accord a margin of preference for domestic
consultants or service providers, which shall be calculated in accordance
with the regulations and guidelines as issued from time to time by the
Bureau and shall be reflected in the record of the procurement
proceedings.
50. (1) The procuring entity shall select the successful proposal by either
choosing the proposal with: the lowest evaluated price, or
(ii) the best combined evaluation in terms of the general criteria set out in the
request for proposals and the price quoted.
(2) The procuring entity shall include in the record procurement a statement
of the grounds and circumstances on which it relied to select either of the
procedures in subsection (1) of this section.
(3) Nothing in this Section shall prevent the procuring entity from resorting to
the use of any impartial panel of experts to make the selection.
51. (1) Where the procuring entity elects to choose the successful proposal
based on technical and price factors, it shall establish a weight with
respect to quality and technical price factors of the proposals in
accordance with the criteria other than price as might have been set out in
the request for proposals and rate each proposal in accordance with the
such criteria and the relative weight and manner of application of the
criteria as stipulated in the request for proposals; and then
(2) The procuring entity shall compare the prices of those proposal that have
attained a rating at or above the threshold;
(3) The procuring entity shall notify the consultants whose proposal did not
meet the minimum qualifying mark or were non responsive to the
invitation for proposals and terms of reference : after the evaluation of
quality is completed within a period of 14 working days after decision has
been taken by the procurement entity;
(4) The name of the qualifying consultants, the quality scores for the technical
component of the proposal shall be read aloud and recorded alongside the
General selection procedure (services)
Procedure for selection of proposal where price is a factor.
238
price proposed by each consultant or service provider when the financial
proposals are opened;
(5) The procuring entity shall prepare the minute of public opening of
financial proposals which shall be part of the evaluation report and shall
retain this record.
(6) The successful proposal shall be:
(a) the proposal with the best combined evaluation in terms of the criteria
established under subsection (1) of this section from price in the case of
quality and cost-based selection;
(b) the proposal with the lowest price in the case of least-cost selection; or
(c) the highest ranked technical proposal within the budget.
(7) The Consultants with the winning proposal shall be invited for
negotiations, which shall focus mainly on the technical proposals.
(8) The proposed unit rates for staff-months d reimbursable shall not be
negotiated unless there exceptional reasons.
52. (1) Where the procuring entity elects to make a quality based selection,
based on consultant’s qualifications or single source selection, it shall
engage. in negotiations with consultants in accordance with this Section.
(2) The procurement entity shall:
(i) established a weight with respect to quality and price of the proposals;
(ii) invite for negotiations on the price of its proposal, the Consultant that has
attained the best rating in accordance with subsection (1) of this Section;
(iii) inform the Consultants that attained ratings above the weight that may be
considered for negotiations with the consultant with the best rating do not
result in a procurement contract; and
(iv) inform the Consultant with the best rating, that it is terminating the
negotiations if it becomes apparent to the procuring entity that the
negotiations with that Consultant, invited under subsection (b), will not
result in a procurement contract.
(3) The procuring entity shall, if negotiations with the consultant with the best
rating fails, invite the Consultant that obtained the second best rating, and
if the negotiations with that Consultant do not result in a procurement
contract, the procuring entity shall invite the other suppliers or contractors
Selection procedure where price is not a factor
239
for negotiations on the basis of their rating until it arrives at a contract or
rejects the remaining proposals.
(4) The procuring entity shall treat proposals and any negotiations on
selection procedure as confidential and avoid the disclosure of their
contents to competing consultants.
PART IX - PROCUREMENT SURVEILLANCE AND REVIEW
53. (1) The Bureau may review and recommend for investigation by any
relevant authority any matter related to conduct of procurement
proceedings by a procuring entity, or the conclusion or operation of a
procurement contract If it considers that a criminal investigation Is
necessary or desirable to prevent or detect a contravention of this Act.
(2) The relevant authority may in the course of investigation:
(a) require an officer, employee or agent of the procuring entity or bidder,
supplier, contractor, or consultant to produce any books, records, accounts
or documents;
(b) search premises for any books, records, accounts or documents;
(c) examine and make extracts from and copies of books, records, accounts or
documents of any procuring entity, bidder, supplier, contractor or
consultant
(d) remove books, records accounts or documents of the procuring entity,
bidder, supplier, contractor or consultant for as long as may be necessary
to examine them or make extracts from or copies of them but the
investigator shall give detailed receipt for the books records, accounts or
documents removed;
(e) require an officer, employer or agent of the procurement entity or bidder,
supplier, or contractor or consultant:
(i) to explain an entry in the books, records, accounts or documents:
(ii) to provide the investigator with information concerning the
management or activities of the procurement entity or bidders as
may be reasonably required;
(f) explain an entry in the books, records, accounts or documents and
(g) provide the investigator with information concerning the management or
activities of the procurement entity or bidders as may be reasonably
required.
Bureau to recommend investigation
240
(3) The Bureau may, pursuant to the advice of the procuring entity, results of
its review of a procurement or report of investigation by a relevant
government agency issue a variation order requiring a contractor at his
own expense to repair, replace, or to do anything in his her contract left
undone or found to have been carried our with Inferior or defective
materials or with less skill and expertise than required by the contract of
award.
(4) The Bureau shall, if satisfied that there has been a contravention of this
Act or any regulations in relation to procurement proceedings or
procurement contracts, take action to rectify the contravention which
action shall include:
(a) nullification of the procurement proceedings;
(b) cancellation of the procurement contract;
(c) ratification of anything done in relation to the proceedings; or
(d) a declaration consistent with any relevant provisions of this Act.
(5) On completion of the investigation, the relevant authority shall if an
offence is disclosed, take all necessary steps to commence prosecution and
inform the Bureau and the procurement entity accordingly, but where no
offence is disclosed, the file shall be dosed and the Bureau and procuring
entity shall be duly informed.
54. (1) A bidder may seek administrative review for any or breach by a
procuring or disposing entity under the provisions of this Act, or any
regulations or guidelines made under this Act or the provisions of bidding
documents.
(2) A complaint by a bidder against a procuring or disposing entity shall first
be submitted in writing to the accounting officer who shall:
(a) within fifteen working days from the date the bidder first became aware of
the circumstances giving rise to the complaint or should have become
aware of the circumstances, whichever is earlier;
(b) on reviewing a complaint, the accounting officer shall make a decision in
writing within 15 worki1g’ days indicating the corrective measures to be
taken if any, including the suspension of the proceedings where he deems
it necessary and giving reasons for his decision; or
Administrative review
241
(c) where the accounting officer does not make a decision within the period
specified in sub-Section (2) (b).
(3) The bidder is not satisfied with the decision of the accounting officer the
bidder may make a complaint to the Bureau within 10 working days from
the date of communication of the decision of the accounting officer.
(4) Upon receipt of a complainant, the Bureau shall promptly:
(a) give notice of the complaint to the respective procuring or
disposing entity and suspend any further action by the procuring or
disposing entity until the Bureau has settled the matter;
(b) unless it dismisses the complaint:
(ii) nullify in whole or in part an unlawful act or decision made by the
procuring or disposing entity;
(iii) declare the rules or principles that govern the subject matter of the
complaint; and
(iv) revise an improper decision by the procuring or disposing entity or
substitute its own decision for such a decision.
(5) Before taking any decision on a complaint, the Bureau shall notify all
interested bidders of the complaint and may take into account
representations from bidders and from the respective procuring or
disposing entity.
(6) The Bureau shall make its decision within twenty- one working days after
receiving the complaint, stating the reasons for its decisions and remedies
granted, if any.
(7) Where the Bureau fails to render its decision within the stipulated time, or
the bidder is not satisfied with decision of the Bureau, the bidder may
appeal to the Federal High Court within 30 days after the receipt of the
decision of the Bureau, or expiration of the time stipulated for the Bureau
to deliver a decision.
PART X- DISPOSAL OF PUBLIC PROPERTY
55. (1) This Section shall apply subject to the Public
Enterprise (Commercialization and Commercialization) Act 1999.
Disposal of public property
242
(2) For the purpose of this Act every procuring entity shall also be disposing
entity
(3) The open competitive bidding shall be primary source of. receiving offers
for the purchase of any public property offered for sale.
(4) The Bureau shall, with the approval of the Council:
(a) determine the applicable policies and practices in relation to the disposal
of all public property;
(b) issue guidelines detailing operational principles and organizational
modalities to be adopted by all procuring entities engaged in the disposal
of public property; and
(c) issue standardized document, monitor implementations enforce
compliance and set reporting standards that shall be used by all procuring
entities involved in disposal of public property.
(5) For the purposes of this Act, public property is defined as resources in the
form of tangible and non-tangible assets (ranging from serviceable to the
unserviceable):
(a) created through public expenditure; (b)acquired as a gift or through deeds;
(c) acquired in respect of intellectual or proprietary rights:
(d) acquired on financial instruments (including shares, stocks bonds etc.) and
(e) acquired by good will and any other gifts of the Federal Government.
(6) The means of the disposal of public assets shall include:
(a) sale and rental;
(b) lease and hire purchase;
(c) licenses and tenancies;
(d) franchise and auction;
(e) transfers from one government department to another with or without
financial adjustments; and
(f) Offer to the public at an authorized variation.
56 (1) Before slating any public property for disposal, the accounting officer
(Whether acting in his own authority or at the direction of any superior or
other authority (in charge of any public property set for disposal shall
authorize the preparation of a valuation report for such property by an
independent Evaluator, or such professional with the appropriate
competence to carry out the valuation
(2) The disposal of assets whether or not listed in the Assets register for a
procuring entity shall be planned and integrated into the income and
expenditure budget projection of the procuring entity.
Planning of disposal
243
(3) The disposal of assets referred to in subsection (2) of this section shall be
timed to take place when the most advantageous returns can be obtained
for the asset in order to maximize revenue accruing to the government.
(4) All procuring entities shall distribute responsibilities for the public
property between the procurement unit and the Tenders Boards.
PART XI- CODE OF CONDUCT
57 (1) The Bureau shall, with the approval of the Council, stipulated a Code
of Conduct for all public officers, suppliers, contractors and service
providers with regards to their standards of conduct acceptable in matter
involving the procurement and , disposal of public assets.
(2) The conduct of all persons involved with public procurement, whether as
official of the Bureau, a procuring entity, supplier, contractor or service
provider shall at all times be governed by principles of honesty,
accountability, transparency, fairness and equity.
(3) All officers of the bureau, members of Tenders Boards and other persons
that may come to act regarding the conduct of public procurements shall
subscribe to an oath as approved by Council.
(4) All persons in whose hands public funds may be entrusted for whatever
purpose should bear in mind that its utilization should be judicious.
(5) Where a transaction involves the disposal of assets, principles of honesty,
accountability, transparency, fairness and I equity shall continue to apply
to the same extents as where it I involves procurement.
(6) These principles shall apply at all times, particularly when:
(a) making requisition for or planning of procurements;
(b) preparing solicitation documents;
(c) receiving offers in response to any form of solicitation towards a
procurement or disposal;
(d) evaluating and comparing offers confidentially and in complete neutrality;
(e) protecting the interest of all parties without fear or favour; and
Code of conduct for public procurement
244
(f) obviating all situations likely to render an officer vulnerable to
embarrassment or undue influence.
(7) All public officers shall handle public procurement and disposal of assets
by:
(a) ensuring adequate time for preparing offers;
(b) complying with this Act and all derivative regulations; and
(c) receiving strict confidentiality until completion of a contract.
(8) All public officers involved in public procurement and disposal of assets
shall maintain the highest standards of ethics in their relationships with
persons real or corporate who seek government commerce whether as a
bidder, supplier, contractor or service provider by developing transparent,
honest and professional relationships with such persons.
(9) Every public officer involved directly or indirectly in matters of public
procurement and disposal of assets shall:
(a) divest himself of any interest or relationships which are actually or
potentially inimical or detrimental to the best interest of government and
the underlining principles of this Act; and
(b) not engaging or participate in any commercial transaction involving the
federal government, its ministries, extra- ministerial departments,
corporations where his capacity as public officer is likely to confer any
unfair advantage - pecuniary or otherwise on him or any person directly
related to him.
(10) Any person engaged in the public procurement and disposal of assets who
has assumed, or is about to assume, a financial or other business outside
business relationship that might involves a conflict of interest, must
immediately declare to the authorities any actual or potential interest
(11) Such a declaration shall be given such consideration at the relevant level
as is necessary so that, where it is seen that remedial action is taken, a
conflict of interest is present.
(12) A conflict of interest exists where a person:
(a) possesses an interest outside his official duties that materially encroaches
on the time or attention which should otherwise be devoted to affairs of
government
245
(b) possesses a direct or Indirect interest in or relationship with a bidder,
supplier, contractor or service provider that is inherently
Unethical or that may be implied or constructed to be, or make possible
personal gain due to the person’s ability to influence dealings;
(c) entertains relationships which are unethical, rendering his attitude partial
toward the outsider for personal reasons or otherwise inhibit the
impartiality of the person’s business judgments;
(d) places by acts or omissions the procuring entity he represents or the
Government in an equivocal, embarrassing or ethically questionable
position;
(e) entertains relationships compromising the reputation or integrity of the
procuring entity he represents or the Government;
(f) receives benefits by ,taking personal advantage of an opportunity that
properly belongs to the procuring entity he represents or the Government;
(g) creates a source of personal revenue or advantage by. using public
property which comes into his hands either in course of his work or
otherwise; and
(h) disclose confidential information being either the: property of his
procuring entity, the Government or to a I supplier, contractor or service
provider to unauthorized persons.
(13) A persons involved in the disposal of assets, shall not either by a third
party or by himself be interested in any manner buying directly or
indirectly these assets and shall not have or obtain any type of advantage
or revenue from the disposal for a period of three years after the disposal.
58. (1) Any natural person not being a public officer who contravenes any
provision of this commits an offence and is liable on conviction to a term
of imprisonment not less than 5 calendar years but not exceeding 10
calendar years without an option of fine.
(2) Any 6ffence in contravention of this Act shall be tried by the Federal High
Court.
(3) Prosecution of offences under this Act shall be instituted in the name of
the Federal Republic of Nigeria by the Attorney General of the Federation
Office relating to public procurement
246
or such other officer of the Federal Ministry of Justice as he may authorize
so to do, and in addition, without prejudice to the Constitution of the
Federal Republic of Nigeria 1999, he may:
(a) after consultation with the Attorney-General of any state of the federation,
authorize the Attorney-General or any other officer of the Ministry of
Justice of that state; or
(b) if the relevant authority so requests, authorize any legal practitioner in
Nigeria to undertake such prosecution directly or assist therein.
(4) The following shall also constitute offences under this Act.
(a) entering or attempting to enter into a collusive agreement, whether
enforceable or not, with a supplier; contractor or consultant where the
prices quoted in their respective tenders, proposals or quotations are or
would be higher than would have been the case has there not been
collusion between the persons concerned;
(b) conducting or attempting to conduct procurement fraud by means of
fraudulent and corrupt acts, unlawful influence, undue interest, favor;
agreement, bribery or corruption;
(c) directly, indirectly or attempting to influence in any manner the
procurement process to obtain an unfair advantage in the award of a
procurement contract;
(d) splitting of tenders to enables the evasion of monetary thresholds set;
(e) bid-rigging;
(f) altering any procurement document with the intent to influence the
outcome of a tender proceeding;
(g) uttering or using fake document or encouraging their use; and
(h) willful refusal to allow the Bureau or its officers to have access to any
procurement records.
(5) Any person who while carrying out his duties as an officer of the Bureau,
or any procuring entity who contravenes any provision of this officer of
the Bureau, or any procuring entity who contravenes any provision of this
Act commits an offence and is liable, on conviction to a cumulative
punishment of:
(a) a term of imprisonment of not less than 5 calendar years without any
option of fine; and
(B) summary dismissal from government services.
247
(6) Any legal person that contravenes any provision of this commits an
offence and is liable on conviction to a cumulative penalty of:
(a) debarment from all public procurements for a period of not less than 5
calendar years; and
(b) a fine equivalent to 25% of the value of the procurement in issue.
(7) Where any legal person shall be convicted pursuant to subsection (4) of
this section, every director of the company as listed in its records at the
Corporate Affairs Commission shall be guilty of an offence and is liable
on conviction to a term of imprisonment not less than 3 calendar years but
not exceeding 5 years without an option of fine.
(8) An alternation pursuant to subsection 4(f) shall include:
(b) insertion of documents such as bid security or tax clearance certificate
which were not submitted at bid opening; and
(c) request for clarification in a manner not permitted under this Act.
(9) Collusion shall be presumed from a set of acts from which it can be
assumed that there was an understanding, implicit, formal or informal,
overt or covert under which each person involved reasonably expected that
the other would adopt a particular course of action which would interfere
with the faithful and proper application of the provisions of this Act.
(10) Bid-rigging pursuant to subsection 4 (e) means an agreement between
persons whereby:
(a) offers submitted have been pre-arranged between them; or
(b) their conduct has had the effect of directly or indirectly restricting free and
open competition, distorting the competitiveness of the procurement
process and leading to an escalation or increase in costs or loss of value to
the national treasury.
(11) For the purpose of the presumption under Section 51(7) of this section,
consideration shall be given to a suspect’s ability to control the
procurement proceedings or to control a solicitation or the conditions of
the contract ih question, whether total or partial.
(12) For the purposes of Section 59(5) of this section, its hall be sufficient to
prove that a reasonable business person should have known that his action
248
would result in his company or’ firm having an undue advantage over
other bidders to the detriment of the national treasury.
PART XIII – MISCELLANEOUS
59. (1) The fixing of the seal or the Bureau shall be authenticated by the
signature of the Chairman, the Director- General or of any other person
authorized generally or specially to act for purpose by the Council.
(2) Any contract or instrument which, if made or executed by a person not
being a body corporate, would not be required to be under seal may be
made or executed on behalf of the Bureau by the Director-General or any
person generally or specially authorized to act for that purpose by the
Council.
(3) Any document purporting to be document duly executed under the seal of
the Bureau shall be received in evidence and shall, unless and until the
contrary is proved, be presumed to be so executed.
(4) The validity of any proceeding of Council or of a committee thereof shall
not be adversely affected by any vacancy in the membership of the
Council or committee, or by any defect in the appointment of a member of
the Councilor of a committee, or by reason that a person not entitled to do
so took Part in the proceedings of the Council or Committee.
60. In this Act:
“Accounting officers means the person charged with line supervision of
the conduct of all procurement processes;
“Accounting authority it means the person charged with overall
responsibility for the functioning of a ministry, extra ministerial
department or corporation;
“Assets” includes tangible and Intangible things which have been or may
be sold or procured for consideration;
“Bid security” means a form of time specified in the bid;
“Deba” means the placing of a firm company or natural person on a list of
person ineligible to participate in any procurement proceedings under this
Act;
Miscellaneous
Interpretation
249
“Certificate of No Objection” means the document evidencing and
authenticating that due process and the letters of this Act have been
followed in the conduct or effect payments to contractors suppliers from
the Treasury;
“Contractor or supplier” means any potential party to a procurement contract
with the procuring entity and includes any corporation, partnership, individual,
sole proprietor, joint stock company, joint venture or any other legal entity
through which business is conducted;
“Excessive price” means a monetary value proposed by a bidder for any
procurement which Is in the estimation of the Bureau unreasonable and
injudicious after consideration of the actual value of the item in question plus all
reasonable imputations of cost and profit;
“Goods” means objects of every kind and description including raw materials,
products and equipment and objects in solid, liquid or gaseous ‘form and
electricity as well as service incidental to the supply of the goods;
“Interim Performance Certificates” means evidence that a contractor or supplier
as performed its obligations under procurement contract up to a level stipulated by
the contractor but not meaning completion;
“International Competitive Bidding” means the solicitation of bids from both
domestic and foreign contractors and suppliers;
“Lowest evaluated responsive bid” is the lowest price bid amongst the bids that
meets all the technical requirements and standard as contained in the tender
document;
“Margin Of Preference” means the extra mark up on price allowed any domestic
contractor or supplier bidding under International Competitive Bidding without
being otherwise disadvantageous to the terms of price;
“Minor Value” means a monetary value which is not in excess of the monetary
thresholds set for any approving authority by the Bureau;
“Monetary Threshold” means the value limit in Naira set by the Bureau outside
of which an approving authority may not award a procurement contract;
250
“National Competitive Bidding” means the solicitation of bids from domestic
contractors and suppliers registered or incorporated to carry on business under
Nigeria Law;
“Negotiation” means discussions to determine the terms and conditions
of a contract or procurement;
“Open Competitive Bidding” means the offer of prices by individuals or firm
competing for a contract, privilege or right to supply specified goods, works,
construction or services;
“Procurement” means acquisition;
“Procurement proceedings” means the initiation of the process of effecting a
procurement up to award of a procurement contract;
“Procuring entity” means any public body engaged in procurement and includes
a Ministry, Extra-Ministerial office, government agency, parastatal and
corporation;
“Public Procurement” means the acquisition by any means o; goods, works, or
services by the government;
“Relevant authority” includes Economic and Financial Crimes Commission and
Independent Corrupt Practices Commission;
“Services” means the rendering by a contractor or supplier of his time and effort
and includes any object of procurement other than goods, works or construction;
“Solicitation Documents” means the bid solicitation documents or any other
documents for solicitation of offers proposals or quotations;
“Special Purpose Goods” means any objects of armaments ammunition
mechanical electrical equipment or other thing as may be determined by the
President needed by the Armed Forces or Police Force as well as the services
incidental to the supply of the objects;
251
“Substantially Responsive” means the response to bid solicitations which virtually
answers to all needs of a procuring entity as stipulated in the bid solicitation
documents;
“Supplier” means a real or legal person that provides supply of goods,
contracting of works or consultants;
“Threshold” refers only to the approving and not the actual process of ward;
“Validity Period” means the period during which a bidder agrees not to increase
the cost of bids or to remove any components of the bid;
“Works” means all works associated with the construction, reconstruction,
demolition, repair or renovation of a building, structure or works, such as site
preparation, excavation of a building, Installation of equipment or materials,
decoration and finishing, as well as service incidental to construction such as
drilling, mapping, satellite photography, seismic investigation and similar services
provided pursuant to the procurement of contract, where the value of those
services does not exceed that of the construction itself;
title 61. This Act may be cited as the Public Procurement Acts, 2007. I certify, in
accordance with section 2 (1) of the Acts Authentication Act, cap. 4, Laws of the
federation of Nigeria 1990, that this is a true copy of the Bill passed by both
House of the National Assembly.
NASIRU IBRAHIM ARAB,
Clerk to the National Assembly
1” Day of June, 2007.
EXPLANATORY MEMORANDUM
This Act establishes the National Council on Public Procurement and the Bureau of
Public Procurement as the regulatory authorities responsible for the monitoring and
oversight of public procurement, harmonizing the existing government policies and
practices by regulating, setting standards and developing the legal framework and
professional capacity for Public Procurement in Nigeria.
252
SCHEDULE TO FEDERAL PROCUREMENT BILL 2007
I certify that this Bill has been carefully compared by me with the decision reached by the National Assembly and found by me to be
true and correct decision of the Houses and is in accordance with the provisions of the Acts Authentication Act Cap. 4, Laws of the
Federation of Nigeria, 1990.
NASIRU IBRAHIM ARAB,
Clerk to the National Assembly
1st Day of June, 2007
ALHAJI UMARU MUSA YAR’ADUA, GCFR
prescdent of the Federal Republic of Nigeria
4th Day of June, 2007.
1)
Short title of
the public
procurement
ill, 2007.
(2)
Long title of the Bill
An Act to establish the National
council on public procurement and the
Bureau of Public procurement as the
regulatory authorities responsible for
the monitoring and oversight of public
procurement, harmonizing the existing
Government policies and practices by
regulating, setting standards and
developing the legal framework and
professional capacity for public
procurement In Nigeria: and
(3)
Summary of the contents of the Bill
This 8111 establishes the National
Council on public procurement and the
Bureau on Public procurement as the
regulatory authorities responsible for the
monitoring and oversight of public
procurement, harmonizing the existing
Government policies and practices by
regulating, setting standards and
developing the legal framework and
professional capacity for public
procurement in Nigeria.
(4)
Date passed
by the
Senate
17th May,
2007.
(5)
Date passed by
the House of
Representatives
30th May, 2007.
253
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