Abstract
57. Public finance in Nigeria has historically been opaque and complicated by a multiplicity of off-budget funds and accounting practices that underestimate the actual size of public expenditure.35 In recent years, the Nigerian authorities have undertaken important efforts to increase fiscal transparency and accountability. Notwithstanding these efforts, the structure and presentation of Nigeria’s government finance accounts remain a challenge to all but a few who are closely involved in monitoring the day-to-day operations of the treasury. This chapter attempts to remedy this situation. It begins by providing a roadmap of the fiscal accounts in Nigeria. It then explains the difference between the Nigerian authorities’ and the IMF staffs presentation of the federal government fiscal accounts, highlights the main problems and constraints in the compilation of these accounts, and derives a consolidated presentation of the fiscal amounts of the three tiers of government. The chapter concludes by providing a conceptual framework for the economic analysis of the impact of the fiscal stance of the consolidated government that takes into consideration the unique characteristics of the Nigerian economy.
IV. Overview of the Fiscal Accounts and Assessment of the Fiscal Stance in Nigeria34
57. Public finance in Nigeria has historically been opaque and complicated by a multiplicity of off-budget funds and accounting practices that underestimate the actual size of public expenditure.35 In recent years, the Nigerian authorities have undertaken important efforts to increase fiscal transparency and accountability. Notwithstanding these efforts, the structure and presentation of Nigeria’s government finance accounts remain a challenge to all but a few who are closely involved in monitoring the day-to-day operations of the treasury. This chapter attempts to remedy this situation. It begins by providing a roadmap of the fiscal accounts in Nigeria. It then explains the difference between the Nigerian authorities’ and the IMF staffs presentation of the federal government fiscal accounts, highlights the main problems and constraints in the compilation of these accounts, and derives a consolidated presentation of the fiscal amounts of the three tiers of government. The chapter concludes by providing a conceptual framework for the economic analysis of the impact of the fiscal stance of the consolidated government that takes into consideration the unique characteristics of the Nigerian economy.
A. Overview of the Main Fiscal Accounts in Nigeria
58. Nigeria is a federation consisting of the federal government, thirty-six state governments, a federal capital territory, and some 589 local government councils. In addition, there are a series of off-budget entities and/or accounts that are used to carry out the national agenda. This subsection briefly summarizes the main intergovernmental revenue accounts, notably the federation account, the autonomous foreign exchange market (AFEM) profits account, and the value- added tax (VAT). It then discusses the structure of the fiscal accounts for each of the main tiers of government, including the so-called first charges, the special funds, the Petroleum Special Trust Fund (PSTF), and the Education Trust Fund.
Federation account revenues, AFEM profits, and VAT
59. The federation account serves as a depository for certain nationally generated revenue, with the Federal Ministry of Finance (FMOF) acting as the custodian of the account. Federation revenue consists of the country’s crude oil revenue,36 domestic petroleum product revenue,37 and revenues generated from the company income tax and from customs, excises, and fees (Appendix Table 30). Prior to distribution, however, certain so-called first charges are deducted from federation revenue for expenditures that are considered to be national in scope, such as external debt service payments,38 the national priority projects,39 the oil-related “cash calls,”40 the Nigerian National Petroleum Corporation (NNPC) priority projects,41 the special reserve,42 and the excess proceeds reserves.43 Deductions were also made in the past regarding the payment of the now-defunct fertilizer subsidy, as well as contributions to the federation stabilization account. In recent years, first-charge deductions have averaged some 70 percent of total federation revenue. Net federation proceeds remaining are then distributed to each of the three tiers of government and to the so-called special funds44 according to a statutory revenue-sharing formula.45
60. Revenues are also generated from the profits earned on the sale of government oil foreign exchange receipts in the AFEM. These profits arise because the authorities, for accounting purposes, record oil receipts at the official exchange rate of ₦22 per US$1. When the central bank intervenes in the AFEM and sells foreign exchange sourced from federal government oil revenues at the autonomous rate (presently ₦84 per US$1), a profit is generated representing the difference between the official rate and the autonomous rate.46 Technically speaking, these profits are considered to be federation revenue. In practice, however, the federal government receives its pro rata share of the profits and has held the remaining balances in trust on behalf of the states, the local government councils, and the special funds.47
61. In addition to the federation account and AFEM profit revenue, there is also a 5 percent national VAT, whose revenue-sharing formula is determined each year in the context of the national budget. At present, VAT revenues are distributed to the federal government (30 percent), the state governments (50 percent), and the local government councils (20 percent). The special funds do not receive any revenue from the VAT.
Federal government
62. In the Federal Ministry of Finance’s (FMOF) presentation of the federal government budget (Appendix Table 31), revenue includes the pro rata shares of distributions from the federation account, the national VAT, and the AFEM profits. Federal government revenue also includes certain independent revenues48 and customs levies.49 In addition, the federal government budget captures the first-charge deduction for external debt service and the PTF transfers to the PSTF as both revenue and expenditure. The FMOF also considers certain financing items from various below-the-line reserve accounts as revenue (see below). Federal government expenditure consists of recurrent expenditure (personnel costs, overhead, and domestic and external interest payments), transfers to the state governments and to the PSTF, and capital expenditure. The FMOF does not include financing in its presentation of the federal government accounts, even though data are available from the external and monetary accounts to do so.
State governments, local government councils, and the special funds
63. The state governments receive their pro rata share of the federation account and of the national VAT. In addition, states collect and receive the national personal income tax, are the recipient of certain grants and transfers, and receive proceeds from the Statutory Stabilization Fund. Local governments also receive their share of the federation account and the national VAT, as well as some miscellaneous internal revenues and grants. The special funds receive only revenues in the form of distributions from the federation account. There is little readily available information on the expenditures of the special funds. A consolidated presentation of the state government, local government councils, and the special funds is found in Appendix Table 38.
The Petroleum Special Trust Fund
64. The PSTF was inaugurated on March 21, 1995 to utilize the gains from the 1994 petroleum product price increase50 to complete certain abandoned national projects and to rehabilitate decaying social infrastructure and services nationwide. As such, it serves as an extension of the capital budget of the federal government. The PSTF’s primary source of revenue is the ₦5.30 per liter transfer from the PTF regarding the sale of domestic petroleum products. The PSTF received ₦25 billion, ₦46 billion, and ₦39 billion in petroleum product revenue in 1995, 1996, and 1997, respectively. In addition, it earned some marginal income on its balances held in the form of treasury bills and deposits in the commercial banking system, as well as from insurance proceeds. While a small portion of total PSTF expenditure is in the form of recurrent expenditure, such as wages, overhead, and other operating costs, the bulk of its expenditure consists of capital investment in the statutorily mandated areas of infrastructure, health, education, water, food storage and security (Appendix Table 37).
The Education Trust Fund
65. Beginning in 1994, the Federal Inland Revenue Service has assessed an “education tax” equivalent to 2 percent of the taxable income earned by companies operating in Nigeria that are subject to the company income tax. Revenues collected amounted to ₦2.1 billion, ₦1.9 billion, and ₦1.0 billion, and ₦1.7 billion in 1994, 1995, 1996, and 1997, respectively, and are held in the Education Trust Fund account at the Central Bank of Nigeria. No funds have been disbursed from the Education Trust Fund to date, pending the appointment of its trustees, whose mandate is to direct these funds into the primary and secondary education sector. The federal government does not include the education tax as part of budgetary revenue.
B. Reconciliation of the Nigerian and IMF Presentations of the Federal Government Fiscal Accounts
66. Because the FMOF’s presentation of the federal government fiscal accounts differs from international practices and excludes a variety of off-budget activities, such as the first charges, the PSTF, and the Education Trust Fund, it clouds the true fiscal stance of federal government operations. The Fund staff therefore adjusts the authorities’ federal government accounts, with a view to presenting them in line with conventional standards for the purposes of clearer analysis and international comparability. Adjustments are made to treat as financing certain items that the authorities consider as revenue, and external debt service is presented on an accrual rather than a cash basis. Moreover, the Fund staff incorporates all the first charges, the PSTF, and the Education Trust Fund accounts into their presentation of federal government operations, thereby substantially increasing coverage. As noted above, the Nigerian authorities consider these activities to be “national” in character and therefore outside the definition of the federal government proper. However, since these activities are directly or indirectly under the control of the federal authorities, the Fund staff believes their inclusion in a more broadly defined federal government is warranted.51 Table 10 highlights the differences between the two presentations, whose main elements can be summarized as follows:
The FMOF considers fiscal surpluses and reserves generated in previous years to be part of “revenue” in the current year. For example, in 1997 the item “retained unutilized accretion to reserves”52 was recorded as government revenue. The Fund staff, however, recorded this item below the line as “bank financing.”53
The FMOF presents the first-charge deduction for external debt service payments on a “cash” basis as both revenue and as recurrent expenditure. In contrast, the Fund staff records interest payments on external debt “due” above the line as recurrent expenditure and external debt amortization payments below the line as negative external financing. In turn, the difference between actual debt-service payments and debt service due (both principal and interest) is recorded below the line as external financing (e.g., change in external arrears).
Although the FMOF adds the first-charge deduction for external debt service to the federal government fiscal accounts, it does not make similar adjustments for the other first charges. As previously indicated, in order to provide a more comprehensive picture of the federal government’s fiscal stance, the Fund staff adds the national priority projects, the NNPC cash calls, and the NNPC priority projects as both revenue and expenditure items. Similarly, the Fund staff includes the education tax as a revenue item, with the balances reflected as negative bank financing in the form of increases in federal government deposits recorded in the monetary accounts. The FMOF considers the education tax and its net balances to be outside the purview of the federal government.
The FMOF records transfers to the PSTF in their entirety as both revenue and expenditure. The Fund staff, however, captures the transfers to the PSTF (as well as PSTF independent income) as revenue, but it records only actual PSTF recurrent and capital expenditure, with the net differences reflected below the line as bank financing in the form of federal government deposits.
The FMOF records only its pro rata share of the AFEM profits as revenue, while the Fund staff records the entire AFEM profit (including that held in trust on behalf of the state governments, local government councils, and special funds) as revenue, with changes in the net balance shown below the line as bank financing in the form of federal government deposits recorded in the monetary accounts.54
The FMOF consistently understates its budget estimate for domestic debt service payments.55 The Fund staff presents domestic debt service on the basis of debt-service due.
The FMOF does not compile data regarding financing. Hence, no systematic exercise is routinely carried out to reconcile the overall fiscal balance with available data on financing.56 The Fund staff, however, derives financing from the balance of payments, external debt, and monetary accounts.57
Nigeria: Bridge Table for the Federal Government Fiscal Accounts, 1997
(In millions of naira)
Nigeria: Bridge Table for the Federal Government Fiscal Accounts, 1997
(In millions of naira)
| Federal Government Format | IMF Format | ||||
|---|---|---|---|---|---|
| Retained revenue | 175,120 | Retained revenue | 254,356 | ||
| Federal government share of federation account | 100,880 | Federal government share of federation account | 97,262 | ||
| Independent revenue | 13,000 | Independent revenue | 13,000 | ||
| External debt service | 44,000 | External debt service | 44,000 | ||
| Federal government share of value-added tax (VAT) | 12,000 | Federal government share of VAT | 12,000 | ||
| Customs levies | 5,240 | Customs levies | 5,240 | ||
| Fertilizer subsidy | 0 | Fertilizer subsidy | 0 | ||
| Stabilization account drawdown | 0 | Stabilization account drawdown | 0 | ||
| National Priority Projects | 16,280 | ||||
| NNPC cash calls/priority projects | 53,240 | ||||
| Education tax | 1,733 | ||||
| Petroleum Special Trust Fund (PSTF) independent revenu | 11,601 | ||||
| Autonomous Foreign Exchange Market (AFEM) Intervention | 47,000 | AFEM Profits generated (including held in trust) | 90,247 | ||
| Petroleum price adjustment | 38,000 | Transfer from Petroleum Trust Fund (PTF) for PSTF | 38,000 | ||
| Loans, grants, and subventions | 2,000 | Loans, grants, and subventions | 2,000 | ||
| Special allocation | 0 | Special allocation (financing item) | 0 | ||
| Retained unutilised accretion to reserves | 66,000 | Excess proceeds/special reserve (financing item) | 0 | ||
| Total revenue | 328,120 | Total revenue | 384,603 | ||
| Recurrent expenditure | 218,000 | Recurrent expenditure | 173,337 | ||
| Subvention to states and Federal Capital Territory | 0 | Subvention to states and Federal Capital Territory | 0 | ||
| Personnel costs | 46,000 | Personnel costs | 46,000 | ||
| Overhead costs | 55,000 | Overhead costs | 55,000 | ||
| Transfer to PSTF | 38,000 | PSTF recurrent expenditure | 513 | ||
| External debt (paid) | 44,000 | External debt (foreign interest due) | 36,824 | ||
| Domestic debt | 32,000 | Domestic debt | 32,000 | ||
| Local contractors | 3,000 | Local contractors | 3,000 | ||
| Fertilizer subsidy | 0 | Fertilizer subsidy | 0 | ||
| Recurrent surplus/deficit | 110,120 | Recurrent surplus/deficit | 211,266 | ||
| Capital expenditure | 105,000 | Capital Expenditure | 225,521 | ||
| Main capital expenditure | 105,000 | Main capital expenditure | 104,792 | ||
| Special capital expenditure | 0 | Special capital expenditure | 0 | ||
| PSTF capital expenditure | 42,984 | ||||
| National priority projects | 16,280 | ||||
| NNPC cash calls/priority projects | 53,240 | ||||
| Foreign-financed capital expenditure | 8,226 | ||||
| Operational surplus/deficit | 5,120 | Operational surplus/deficit | -14,255 | ||
| Surplus brought forward | 38,000 | ||||
| Surplus/deficit for the period carried forward | 43,120 | ||||
Nigeria: Bridge Table for the Federal Government Fiscal Accounts, 1997
(In millions of naira)
| Federal Government Format | IMF Format | ||||
|---|---|---|---|---|---|
| Retained revenue | 175,120 | Retained revenue | 254,356 | ||
| Federal government share of federation account | 100,880 | Federal government share of federation account | 97,262 | ||
| Independent revenue | 13,000 | Independent revenue | 13,000 | ||
| External debt service | 44,000 | External debt service | 44,000 | ||
| Federal government share of value-added tax (VAT) | 12,000 | Federal government share of VAT | 12,000 | ||
| Customs levies | 5,240 | Customs levies | 5,240 | ||
| Fertilizer subsidy | 0 | Fertilizer subsidy | 0 | ||
| Stabilization account drawdown | 0 | Stabilization account drawdown | 0 | ||
| National Priority Projects | 16,280 | ||||
| NNPC cash calls/priority projects | 53,240 | ||||
| Education tax | 1,733 | ||||
| Petroleum Special Trust Fund (PSTF) independent revenu | 11,601 | ||||
| Autonomous Foreign Exchange Market (AFEM) Intervention | 47,000 | AFEM Profits generated (including held in trust) | 90,247 | ||
| Petroleum price adjustment | 38,000 | Transfer from Petroleum Trust Fund (PTF) for PSTF | 38,000 | ||
| Loans, grants, and subventions | 2,000 | Loans, grants, and subventions | 2,000 | ||
| Special allocation | 0 | Special allocation (financing item) | 0 | ||
| Retained unutilised accretion to reserves | 66,000 | Excess proceeds/special reserve (financing item) | 0 | ||
| Total revenue | 328,120 | Total revenue | 384,603 | ||
| Recurrent expenditure | 218,000 | Recurrent expenditure | 173,337 | ||
| Subvention to states and Federal Capital Territory | 0 | Subvention to states and Federal Capital Territory | 0 | ||
| Personnel costs | 46,000 | Personnel costs | 46,000 | ||
| Overhead costs | 55,000 | Overhead costs | 55,000 | ||
| Transfer to PSTF | 38,000 | PSTF recurrent expenditure | 513 | ||
| External debt (paid) | 44,000 | External debt (foreign interest due) | 36,824 | ||
| Domestic debt | 32,000 | Domestic debt | 32,000 | ||
| Local contractors | 3,000 | Local contractors | 3,000 | ||
| Fertilizer subsidy | 0 | Fertilizer subsidy | 0 | ||
| Recurrent surplus/deficit | 110,120 | Recurrent surplus/deficit | 211,266 | ||
| Capital expenditure | 105,000 | Capital Expenditure | 225,521 | ||
| Main capital expenditure | 105,000 | Main capital expenditure | 104,792 | ||
| Special capital expenditure | 0 | Special capital expenditure | 0 | ||
| PSTF capital expenditure | 42,984 | ||||
| National priority projects | 16,280 | ||||
| NNPC cash calls/priority projects | 53,240 | ||||
| Foreign-financed capital expenditure | 8,226 | ||||
| Operational surplus/deficit | 5,120 | Operational surplus/deficit | -14,255 | ||
| Surplus brought forward | 38,000 | ||||
| Surplus/deficit for the period carried forward | 43,120 | ||||
C. Problems and Constraints with the Sources of Nigerian Fiscal Data
67. The principal source of fiscal data in Nigeria is the Office of the Accountant General of the Federation (OAGF). According to Nigerian law, the OAGF is statutorily obligated to present financial accounts of the federation and of the federal government within one month of the end of each fiscal month and within two months of the end of each fiscal year.58 These data would then be forwarded to the Federal Office of Statistics (FOS) and the Central Bank of Nigeria (CBN) for statistical and analytical purposes. In practice, however, significant human and physical capital constraints that impede data processing, as well as logistical constraints in receiving data,59 have resulted in long lags in the OAGF’s reporting and presentation of the government’s accounts. Lags of up to one year regarding the monthly accounts and even longer lags regarding the annual accounts are common.
“Cash-based” versus “commitment-based” fiscal data
68. Because of these limitations, the Department of the Treasury (TRE) has taken the lead in compiling and reporting budgetary revenue and expenditure data on a monthly basis for use by the Minister of Finance and by Fund staff. The TRE fiscal data, however, also suffer from serious limitations. Ideally, fiscal data should be compiled on both a “cash” and a “commitment” basis. By doing so, a set of fiscal accounts could be derived that reflect both the country’s commitments and its implicit buildup of domestic and external arrears. In addition, data on below-the-line transactions (i.e., financing) should be compiled in order to ensure that the fiscal accounts are consistent with the external and monetary accounts. In practice, however, the TRE fiscal data fall short of this ideal. Revenue is compiled on a cash basis, while recurrent and capital expenditure are recorded on the basis of warrants. These warrants are issued by the FMOF to the spending ministries on a quarterly basis and systematically reflect one-fourth of the annual budgetary allocation. Recurrent expenditure warrants must be spent during the fiscal year or returned to the TRE, while capital warrants may be carried over to a subsequent fiscal year. There is no assurance, therefore, that actual expenditure in a given period is in line with recorded (i.e., warranted) expenditure.60
Unspecified financing
69. The gravity of the mismatch between cash-based and commitment-based fiscal data becomes apparent when attempts are made to reconcile the fiscal and the monetary data. Despite the need for consistency between the overall balance and the available financing recorded in a given year, a significant residual value emerges, representing the difference between the above-the-line transactions recorded in the fiscal accounts and the below-the-line transactions recorded in the monetary and external accounts.61 The residual varies both in magnitude and in sign from year to year (see Appendix Table 31). Since there is a higher degree of confidence in the monetary and external data, negative “unspecified net financing” implies that the overall surplus (deficit) in a given year may be actually larger (smaller) than reported on an account of higher revenues and/or lower expenditure than reported.62 Similarly, positive “unspecified net financing” implies that the overall surplus (deficit) may be actually smaller (larger) than reported on account of lower revenues and/or higher expenditure than reported.
70. Because of this sizable discrepancy, the accuracy of the authorities’ fiscal data falls into question. The most likely causes of the “unspecified financing” problem is the deviation between actual expenditure and that estimated on the basis of warrants.63 There is, however, the possibility that differences in the coverage of federal government transactions between the fiscal and monetary accounts may contribute to the problem.64 In order to rectify this situation, the OAGF needs to be provided with appropriately skilled staff and equipment so that it can report actual (versus warrant-based) fiscal data on a timely basis. The FMOF and the CBN should also ensure that the classification of the federal government in the fiscal and monetary accounts is fully consistent.
Distortions related to the dual exchange rate
71. The fiscal data are also clouded by the existence of a dual exchange rate system, whereby certain public sector transactions occur at the highly subsidized official rate (₦22 per US$), while others occur at the AFEM rate (presently ₦84 per US$). As previously noted, the authorities record all foreign exchange revenues (the bulk of which are derived from oil-related receipts) at the official rate of exchange. Of the total $13.1 billion in official foreign exchange receipts earned in 1997, $8.1 billion was earmarked for the first charges, $1.7 billion was reserved for funding the foreign exchange requirements of the government, and $3.0 billion was set aside as the government’s contribution to AFEM intervention.65 Distortions in the budget result from the valuation in local currency of each of these dollar-denominated transactions.
72. From the Nigerian authorities’ viewpoint, the use of the official exchange rate in the valuation of the first charges is strictly notional and has no real effect on the fiscal accounts. In their view, if the AFEM rate were used in place of the official rate to value both the first charges and the official foreign exchange receipts financing these expenditures, it would have no net effect on the overall fiscal balance. While it is true that the choice of exchange rate does not have a net effect on the overall balance with regard to certain first-charge deductions (i.e., external debt service, national priority projects, NNPC cash calls, and NNPC priority projects), it does nonetheless result in the understatement of total naira-denominated revenue and naira-denominated expenditure, as well as of the key fiscal ratios generated therefrom.66 Moreover, the choice of exchange rate does have a direct impact on the overall balance in the case of the other first-charge deductions (i.e., the special reserve and the excess proceeds reserve), since it affects above-the-line revenue and below-the-line financing, but not above-the-line expenditure.67
73. Similarly, while the choice of exchange rate does not have a net impact on the overall balance with regard to public sector transactions funded at the official foreign exchange, it does result in the understatement of these budgetary transactions in local currency. Unlike in the case of the first charges, however, these dollar-denominated expenditures are paid for in naira (i.e., budgetary naira are converted into dollars at the official exchange rate). Hence, these transactions receive an implicit naira subsidy resulting from the difference between the official and autonomous rate of exchange. In 1997, this subsidy amounted to some ₦105 billion, equivalent to 5.7 percent of non-oil GDP.
74. The distortion created by using the official exchange rate to value official foreign exchange used in intervening in the AFEM is a transitional one. The government initially receives the naira counterpart of this foreign exchange valued at the official rate. Once the foreign exchange is subsequently sold in the AFEM, a profit is generated, representing the differential between the official and the autonomous rate of exchange. Over time, therefore, the authorities receive the full naira counterpart value of their foreign exchange valued at the prevailing AFEM rate. At any given point in time, however, naira-denominated revenues are understated.
75. In light of these limitations, analysis of Nigeria’s fiscal data should be pursued with caution, and any policy recommendations derived from the data should be qualified accordingly.
D. Consolidation of Federal Government with the Other Levels of Government
76. In order to capture the full impact of government activity on the Nigerian economy, it is necessary to consolidate the operations of the federal government (including the first charges and the PSTF) with that of the state governments, the local government councils, and the special funds (Appendix Table 27).68 A bridge table is provided (Table 11), which shows the relationship between the data presented in the consolidated government accounts table and that found in fiscal tables on the federation, the federal government, and the state and local government (including the special funds).69 The following points are particularly noteworthy when reviewing the bridge table:
The federation accounts can be considered both as the main source of consolidated revenue and as a “pass-through” account, with federation revenues (i.e., oil revenues net of the first charges and net of transfers to the PSTF along with non-oil revenues consisting of the company tax and the import duties) effectively flowing into the accounts of both the federal government and the state and local governments (including the special funds) in the form of a “distribution from the federation account”. In addition, the transfer to the PSTF and the first-charge deductions (excluding the special reserve and the excess proceeds reserve) also pass to the federal government as presented here.70
Only the accounts of the federal government and of the state and local government (including the special funds) are combined to derive the consolidated government accounts. The activities of the PSTF and the NNPC (i.e., cash calls and priority projects) are already fully captured in the federal government fiscal accounts as presented here.
Consolidated total revenue is derived by adding the corresponding items from the federal government and the state and local government (including the special funds) accounts and by adding revenues set aside as the special reserve and the excess proceeds reserve whose counterpart is reflected in government deposits.
The remaining consolidated revenue and expenditure flows can be mapped to the originating tier of government creating the flow by referring to the bridge table.
Nigeria: Bridge Table for Consolidated Government Accounts, 1997
(in millions of naira)
Petroleum Speical Trust Fund (PSTF) and Nigerian National Petroleum Corporation (NNPC); for informational purposes only. Already included in the definition of “federal government” presented in this table.
Nigerian National Petroleum Corporation (NNPC) cash calls and priority projects only.
Nigeria: Bridge Table for Consolidated Government Accounts, 1997
(in millions of naira)
| From Consolidated General Government Table (Inter-Government Transactions in italics) | 1997 Est. | Federation Account | Federal Government | State, Local, and Special Funds | PSTF 1/ | NNPC 1/2/ |
|---|---|---|---|---|---|---|
 | ||||||
Petroleum Speical Trust Fund (PSTF) and Nigerian National Petroleum Corporation (NNPC); for informational purposes only. Already included in the definition of “federal government” presented in this table.
Nigerian National Petroleum Corporation (NNPC) cash calls and priority projects only.
Nigeria: Bridge Table for Consolidated Government Accounts, 1997
(in millions of naira)
| From Consolidated General Government Table (Inter-Government Transactions in italics) | 1997 Est. | Federation Account | Federal Government | State, Local, and Special Funds | PSTF 1/ | NNPC 1/2/ |
|---|---|---|---|---|---|---|
| ||||||
Petroleum Speical Trust Fund (PSTF) and Nigerian National Petroleum Corporation (NNPC); for informational purposes only. Already included in the definition of “federal government” presented in this table.
Nigerian National Petroleum Corporation (NNPC) cash calls and priority projects only.
E. Analysis of the Main Fiscal Aggregates
77. In order to assess the fiscal stance in Nigeria, and the direction and magnitude of the authorities’ policy effort, it is important to separate those elements over which the Nigerian authorities have little control from those over which they have direct control. Oil production is the dominant economic activity in Nigeria71 and fiscal policy has little, if any, impact on developments in the oil sector, which are predominately determined by world oil prices, the country’s reserve base, and preexisting revenue-sharing agreements with the joint-venture partners. With a view to developing an appropriate measurement of government fiscal policy, the Fund staff has therefore isolated domestic revenue and expenditure from external revenue and expenditure, thereby deriving the domestic fiscal balance in the consolidated government accounts.72 The Fund staff subsequently employed the fiscal impulse methodology to assess the fiscal stance as reflected in the relative changes in the domestic fiscal balance (Table 12).
Nigeria: Fiscal Impulse Indicator Analysis, 1990-97
The cyclically neutral balance is determined by applying the base-year revenue-to-GDP ratio to that year’s actual output level and the base-year expenditure-to-GDP ratio to that year’s potentia
The cyclical effect of the budget is the difference between the actual budget balance and the cyclically neutral balance, A positive cyclically effect of the budget indicates an expansionary bud cyclical effect of the budget indicates a contractionary budget effect. The cyclical effect of the budget is zero in the base year.
The fiscal impulse is the first difference of the cyclical effect of the budget.
Nigeria: Fiscal Impulse Indicator Analysis, 1990-97
| 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | ||
|---|---|---|---|---|---|---|---|---|---|
| (In millions of naira) | |||||||||
| Non-petroleum revenue | 17,395 | 21,446 | 33,954 | 40,029 | 54,199 | 207,629 | 248,534 | 271,176 | |
| Plus: Petroleum Trust Fund | 8,093 | 7,487 | 26,112 | 2,137 | 6,396 | 59,147 | 71,935 | 65,000 | |
| Less: Autonomous foreign exchange market (AFEM) surplus | 0 | 0 | 0 | 0 | 0 | 79,645 | 103,190 | 90,247 | |
| Domestic revenue | 25,488 | 28,933 | 60,066 | 42,166 | 60,595 | 187,131 | 217,279 | 245,928 | |
| Total expenditure | 102,226 | 121,080 | 197,175 | 273,181 | 286,001 | 358,396 | 415,445 | 552,973 | |
| Less: Nigerian National Petroleum Corporation cash calls/priority projects | 11,149 | 13,746 | 39,898 | 47,886 | 39,898 | 39,000 | 51,154 | 53,240 | |
| Less: foreign interest payments | 21,000 | 22,619 | 36,313 | 41,614 | 41,083 | 42,541 | 40,066 | 36,824 | |
| Less: official imports | 30,737 | 22,122 | 28,145 | 28,003 | 38,000 | 52,700 | 67,701 | 73,201 | |
| Domestic expenditure | 39,341 | 62,593 | 92,819 | 155,678 | 167,021 | 224,155 | 256,523 | 389,708 | |
| Domestic fiscal balance | -13,852 | -33,660 | -32,753 | -113,512 | -106,426 | -37,024 | -39,245 | -143,779 | |
| Cyclically neutral balance 1/ | -13,852 | -15,898 | -23,302 | -36,368 | -58,621 | -103,236 | -138,762 | -166,443 | |
| Cyclical effect of budget 2/ | … | 17,762 | 9,451 | 77,144 | 47,805 | -66,212 | -99,517 | -22,663 | |
| Fiscal impulse 3/ | … | 17,762 | -8,311 | 67,693 | -29,339 | -114,017 | -33,306 | 76,854 | |
| (in percent of non-oil GDP) | |||||||||
| Actual domestic balance | -8.1 | -16.8 | -11.3 | -25.4 | -15.6 | -3.2 | -2.5 | -7.8 | |
| Cyclically neutral balance 1/ | -8.1 | -7.9 | -8.0 | -8.2 | -8.6 | -8.8 | -9.0 | -9.1 | |
| Cyclical effect of budget 2/ | … | 8.9 | 3.3 | 17.3 | 7.0 | -5.7 | -6.4 | -1.2 | |
| Fiscal impulse 3/ | … | 8.9 | -2.9 | 15.2 | -4.3 | -9.8 | -2.2 | 4.2 | |
The cyclically neutral balance is determined by applying the base-year revenue-to-GDP ratio to that year’s actual output level and the base-year expenditure-to-GDP ratio to that year’s potentia
The cyclical effect of the budget is the difference between the actual budget balance and the cyclically neutral balance, A positive cyclically effect of the budget indicates an expansionary bud cyclical effect of the budget indicates a contractionary budget effect. The cyclical effect of the budget is zero in the base year.
The fiscal impulse is the first difference of the cyclical effect of the budget.
Nigeria: Fiscal Impulse Indicator Analysis, 1990-97
| 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | ||
|---|---|---|---|---|---|---|---|---|---|
| (In millions of naira) | |||||||||
| Non-petroleum revenue | 17,395 | 21,446 | 33,954 | 40,029 | 54,199 | 207,629 | 248,534 | 271,176 | |
| Plus: Petroleum Trust Fund | 8,093 | 7,487 | 26,112 | 2,137 | 6,396 | 59,147 | 71,935 | 65,000 | |
| Less: Autonomous foreign exchange market (AFEM) surplus | 0 | 0 | 0 | 0 | 0 | 79,645 | 103,190 | 90,247 | |
| Domestic revenue | 25,488 | 28,933 | 60,066 | 42,166 | 60,595 | 187,131 | 217,279 | 245,928 | |
| Total expenditure | 102,226 | 121,080 | 197,175 | 273,181 | 286,001 | 358,396 | 415,445 | 552,973 | |
| Less: Nigerian National Petroleum Corporation cash calls/priority projects | 11,149 | 13,746 | 39,898 | 47,886 | 39,898 | 39,000 | 51,154 | 53,240 | |
| Less: foreign interest payments | 21,000 | 22,619 | 36,313 | 41,614 | 41,083 | 42,541 | 40,066 | 36,824 | |
| Less: official imports | 30,737 | 22,122 | 28,145 | 28,003 | 38,000 | 52,700 | 67,701 | 73,201 | |
| Domestic expenditure | 39,341 | 62,593 | 92,819 | 155,678 | 167,021 | 224,155 | 256,523 | 389,708 | |
| Domestic fiscal balance | -13,852 | -33,660 | -32,753 | -113,512 | -106,426 | -37,024 | -39,245 | -143,779 | |
| Cyclically neutral balance 1/ | -13,852 | -15,898 | -23,302 | -36,368 | -58,621 | -103,236 | -138,762 | -166,443 | |
| Cyclical effect of budget 2/ | … | 17,762 | 9,451 | 77,144 | 47,805 | -66,212 | -99,517 | -22,663 | |
| Fiscal impulse 3/ | … | 17,762 | -8,311 | 67,693 | -29,339 | -114,017 | -33,306 | 76,854 | |
| (in percent of non-oil GDP) | |||||||||
| Actual domestic balance | -8.1 | -16.8 | -11.3 | -25.4 | -15.6 | -3.2 | -2.5 | -7.8 | |
| Cyclically neutral balance 1/ | -8.1 | -7.9 | -8.0 | -8.2 | -8.6 | -8.8 | -9.0 | -9.1 | |
| Cyclical effect of budget 2/ | … | 8.9 | 3.3 | 17.3 | 7.0 | -5.7 | -6.4 | -1.2 | |
| Fiscal impulse 3/ | … | 8.9 | -2.9 | 15.2 | -4.3 | -9.8 | -2.2 | 4.2 | |
The cyclically neutral balance is determined by applying the base-year revenue-to-GDP ratio to that year’s actual output level and the base-year expenditure-to-GDP ratio to that year’s potentia
The cyclical effect of the budget is the difference between the actual budget balance and the cyclically neutral balance, A positive cyclically effect of the budget indicates an expansionary bud cyclical effect of the budget indicates a contractionary budget effect. The cyclical effect of the budget is zero in the base year.
The fiscal impulse is the first difference of the cyclical effect of the budget.
78. The fiscal impulse measures the initial stimulus (or “impulse”) to aggregate demand that arises from discretionary (noncyclical) fiscal policy during a given period, regardless of the source. As such, it is a useful indicator of the impact of budgetary policies on the external current account balance, as well as on demand pressures affecting domestic resources. Conceptually, it involves adjusting the actual fiscal balance for transitory cyclical effects in order to obtain a more accurate measurement of the stance of discretionary (noncyclical) fiscal policy.73 The cyclical effect of the budget is derived by subtracting the actual budget balance from the cyclically neutral budget balance in a given year. The cyclically neutral budget balance is computed by applying (a) the ratio of the base-year revenue to GDP to the given year’s actual output level and (b) the ratio of the base-year expenditure to GDP to the given year’s potential (trend) output level. If the actual budget deficit exceeds (is less than) the adjusted cyclically neutral deficit, the cyclical effect of the budget is considered to be expansionary (contractionary). The fiscal impulse is the first difference of the actual budget balance and the cyclically neutral budget balance (i.e., the change in the cyclical effect of the budget from the preceding year). If the fiscal impulse is positive (negative), the fiscal stance is considered to be expansionary (contractionary). The main parameters and results are presented in the annex. The main conclusions drawn from the simulation can be summarized as follows:
Fiscal policy was expansionary in 1991-93. There was a deficit in the domestic balance in each of these three years and the cyclical effect of the budget was positive, implying that the budget was expansionary.74 However, the cyclical effect of the budget declined from the equivalent of 8.9 percent of non-oil GDP in 1991 to 3.3 percent in 1992 before rising to some 17.3 percent in 1993. This, in turn, imparted an expansionary fiscal impulse on the domestic economy in 1991 (equivalent to 8.9 percent of non-oil GDP), a contractionary impulse in 1992 (equivalent to 2.9 percent of non-oil GDP), and, once again, an expansionary impulse in 1993 (equivalent to 15.2 percent of non-oil GDP).
The fiscal policy stance became contractionary in 1994 and that stance was maintained through 1996. The domestic balance recorded declining deficits in each of the three years, falling from the equivalent of 15.6 percent of non-oil GDP in 1994 to 2.5 percent in 1996, While the cyclical effect of the budget was initially positive in 1994 (although less than one-half that recorded in the previous year), it became negative in 1995 and 1996 (equivalent to 5-6 percent of non-oil GDP). The relative decline in the cyclical effect of the budget resulted in the transmission of contractionary fiscal impulses, equivalent to 4.3 percent, 9.8 percent, and 2.2 percent of non-oil GDP, respectively.
Fiscal policy became expansionary in 1997. The deficit in the domestic balance increased to 7.8 percent of non-oil GDP in 1997. Although the cyclical effect of the budget remained slightly negative, it imparted a positive fiscal impulse equivalent to 4.2 percent of non-oil GDP.
79. It is interesting to note the relative contribution of actual revenue and expenditure flows to the fiscal stance in each of the years under review (Table 13). By taking the first difference of actual revenue (expenditure) and cyclically neutral revenue (cyclically neutral expenditure), each component’s contribution to the overall cyclical effect of the budget (i.e., the first difference of the cyclically neutral budget and the actual domestic balance), and to the corresponding fiscal impulse can be assessed. There appears to be no set pattern whereby excessive (lower) expenditure or lower-than-expected (excessive) revenue were the main contributors to the transmission of the fiscal impulse in these periods. Expenditure increases contributed more than revenue reductions to the expansionary fiscal impulses in 1991 and 1997, while revenue reductions were more important in 1993. In years with contractionary fiscal impulses, the relative importance of expenditure and revenue varied and tended to partially offset each other, with the exception of 1995, when they both had an equally important contractionary effect.
Nigeria: Relative Contribution of Revenue and Expenditure to the Fiscal Impulse, 1990-97 1/
Positive numbers denote expansionary effect; negative numbers denote contractionary effect.
Nigeria: Relative Contribution of Revenue and Expenditure to the Fiscal Impulse, 1990-97 1/
| 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | ||
|---|---|---|---|---|---|---|---|---|---|
| (In millions of naira) | |||||||||
| Cyclical effect of the budget | … | 17,762 | 9,451 | 77,144 | 47,805 | -66,212 | -99,517 | -22,663 | |
| Revenue contribution | … | 780 | -17,091 | 24,051 | 40,699 | -13,685 | 12,224 | 26,506 | |
| Expenditure contribution | … | 16,982 | 26,542 | 53,093 | 7,106 | -52,526 | -111,741 | -49,170 | |
| Fiscal impulse | … | 17,762 | -8,311 | 67,693 | -29,339 | -114,017 | -33,306 | 76,854 | |
| Revenue contribution | … | 780 | -17,871 | 41,142 | 16,648 | -54,384 | 25,909 | 14,283 | |
| Expenditure contribution | … | 16,982 | 9,560 | 26,551 | -45,987 | -59,633 | -59,215 | 62,571 | |
| (In percent of non-oil GDP) | |||||||||
| Cyclical effect of the budget | … | 8.9 | 3.3 | 17.3 | 7.0 | -5.7 | -6.4 | -1.2 | |
| Revenue contribution | … | 0.4 | -5.9 | 5.4 | 6.0 | -1.2 | 0.8 | 1.4 | |
| Expenditure contribution | … | 8.5 | 9.2 | 11.9 | 1.0 | -4.5 | -7.2 | -2.7 | |
| Fiscal impulse | … | 8.9 | -2.9 | 15.2 | -4.3 | -9.8 | -2.2 | 4.2 | |
| Revenue contribution | … | 0.4 | -6.2 | 9.2 | 2.4 | -4.7 | 1.7 | 0.8 | |
| Expenditure contribution | … | 8.5 | 3.3 | 6.0 | -6.7 | -5.1 | -3.8 | 3.4 | |
Positive numbers denote expansionary effect; negative numbers denote contractionary effect.
Nigeria: Relative Contribution of Revenue and Expenditure to the Fiscal Impulse, 1990-97 1/
| 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | ||
|---|---|---|---|---|---|---|---|---|---|
| (In millions of naira) | |||||||||
| Cyclical effect of the budget | … | 17,762 | 9,451 | 77,144 | 47,805 | -66,212 | -99,517 | -22,663 | |
| Revenue contribution | … | 780 | -17,091 | 24,051 | 40,699 | -13,685 | 12,224 | 26,506 | |
| Expenditure contribution | … | 16,982 | 26,542 | 53,093 | 7,106 | -52,526 | -111,741 | -49,170 | |
| Fiscal impulse | … | 17,762 | -8,311 | 67,693 | -29,339 | -114,017 | -33,306 | 76,854 | |
| Revenue contribution | … | 780 | -17,871 | 41,142 | 16,648 | -54,384 | 25,909 | 14,283 | |
| Expenditure contribution | … | 16,982 | 9,560 | 26,551 | -45,987 | -59,633 | -59,215 | 62,571 | |
| (In percent of non-oil GDP) | |||||||||
| Cyclical effect of the budget | … | 8.9 | 3.3 | 17.3 | 7.0 | -5.7 | -6.4 | -1.2 | |
| Revenue contribution | … | 0.4 | -5.9 | 5.4 | 6.0 | -1.2 | 0.8 | 1.4 | |
| Expenditure contribution | … | 8.5 | 9.2 | 11.9 | 1.0 | -4.5 | -7.2 | -2.7 | |
| Fiscal impulse | … | 8.9 | -2.9 | 15.2 | -4.3 | -9.8 | -2.2 | 4.2 | |
| Revenue contribution | … | 0.4 | -6.2 | 9.2 | 2.4 | -4.7 | 1.7 | 0.8 | |
| Expenditure contribution | … | 8.5 | 3.3 | 6.0 | -6.7 | -5.1 | -3.8 | 3.4 | |
Positive numbers denote expansionary effect; negative numbers denote contractionary effect.
80. In addition to being a useful tool in identifying the stance of past fiscal policy, the fiscal impulse methodology can be used as one of many tools employed to analyze the effect of proposed government policies on the economy. In carrying out such analyses in the case of Nigeria, the limitations of the underlying data highlighted in Subsection C should be duly noted and policy conclusions and recommendations should be qualified accordingly.
Annex: Application of the Fiscal Impulse Methodology to the Consolidated Government
In applying the fiscal impulse methodology to the case of Nigeria, the following variables and parameters were used:
Potential non-oil GDP. Non-oil GDP growth rates have swung widely from year to year in Nigeria, due to a combination of factors, including the impact of policy reversals. A simple regression was used to calculate the “trend” growth rate of non-oil GDP (4.45 percent) over the period 1985-97 using national accounts data that were revised by Fund staff to take account of the dual exchange rate system. For the purposes of the initial exercise, total actual non-oil GDP and total potential non-oil GDP were used for the variables Y and Yp, respectively.
Base year. In a separate exercise, Fund staff determined that 1990 was a year when the exchange rate was in equilibrium. This was also a year when real non-oil GDP grew by 8.6 percent and the consolidated government domestic balance recorded a deficit equivalent to 7.3 percent of non-oil GDP. For the purposes of the simulation, 1990 was selected as the base year.75
Fiscal data: For the purposes of the simulation, fiscal data were used regarding the consolidated government.76 Data were derived from the African Department’s Nigeria desk data base for the period 1990 to 1997. Data for “domestic non-oil revenue and grants,” “domestic expenditure and net lending,” and the “domestic balance” were used for the variables T, G, and B, respectively. Base-year ratios for “non-oil domestic revenue to actual non-oil GDP,” and “domestic expenditure to potential non-oil GDP” were used for the variables to and go, respectively, which were derived using 1990 as the base year and actual and potential non-oil GDP as described above.
Nigeria: Fiscal Impulse Indicator Analysis, 1990-97
(in millions of naira, unless otherwise indicated)
Cyclically neutral revenue = to * Y
Cyclically neutral expenditure = go * Yp
Cyclically neutral balance = (to * Y) - (go * Yp)
Cyclical effect of the budget (CEB) = [(to * Y) - (go * Yp)] -(G-T)
Fiscal impulse = [(to * ^Y) - (go * ^Yp)] - (^G - ^T)
Dutch budget impulse = (^G - (^Yp/Yp-1)* G-1)- (^T - (^Y/Y-1) * T-1)
Nigeria: Fiscal Impulse Indicator Analysis, 1990-97
(in millions of naira, unless otherwise indicated)
| 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | ||
|---|---|---|---|---|---|---|---|---|---|
| National accounts data | |||||||||
| Non-oil GDP at current factor cost | 171,685 | 200,144 | 289,477 | 446,027 | 682,304 | 1,168,311 | 1,545,896 | 1,835,083 | |
| Non-oil GDP at constant factor cost | 171,685 | 178,669 | 184,065 | 189,644 | 192,616 | 197,297 | 203,004 | 209,284 | |
| Growth rate (in percent) | 8.6 | 4.1 | 3.0 | 3.0 | 1.6 | 2.4 | 2.9 | 3.1 | |
| Implicit non-oil GDP Deflator (1990=100) | 100 | 112 | 157 | 235 | 354 | 592 | 762 | 877 | |
| Derivation of Potential GDP | |||||||||
| Potential non-oil GDP at current factor cost | 171,685 | 199,052 | 289,239 | 447,688 | 697,879 | 1,207,459 | 1,607,131 | 1,915,292 | |
| Potential non-oil GDP at constant factor cost | 171,685 | 177,694 | 183,913 | 190,350 | 197,013 | 203,908 | 211,045 | 218,431 | |
| Potential non-oil GDP growth rate assumption (in percent) | 3.5 | ||||||||
| Implicit potential non-oil GDP deflator (1990=100) | 100 | 112 | 157 | 235 | 354 | 592 | 762 | 877 | |
| Consolidated government data | |||||||||
| Domestic revenue | 25,488 | 28,933 | 60,066 | 42,166 | 60,595 | 187,131 | 217,279 | 245,928 | |
| Domestic expenditure | 39,341 | 62,593 | 92,819 | 155,678 | 167,021 | 224,155 | 256,523 | 389,708 | |
| Domestic balance | -13,852 | -33,660 | -32,753 | -113,512 | -106,426 | -37,024 | -39,245 | -143,779 | |
| Fiscal impulse calculations | |||||||||
| Cyclically neutral revenue 1/ | 25,488 | 29,713 | 42,975 | 66,217 | 101,294 | 173,446 | 229,502 | 272,435 | |
| Actual revenue | 25,488 | 28,933 | 60,066 | 42,166 | 60,595 | 187,131 | 217,279 | 245,928 | |
| Difference | 0 | 780 | -17,091 | 24,051 | 40,699 | -13,685 | 12,224 | 26,506 | |
| Cyclically neutral government expenditure 2/ | 39,341 | 45,612 | 66,277 | 102,585 | 159,915 | 276,682 | 368,264 | 438,878 | |
| Actual government expenditure | 39,341 | 62,593 | 92,819 | 155,678 | 167,021 | 224,155 | 256,523 | 389,708 | |
| Difference | 0 | -16,982 | -26,542 | -53,093 | -7,106 | 52,526 | 111,741 | 49,170 | |
| Cyclically neutral budget 3/ | -13,852 | -15,898 | -23,302 | -36,368 | -58,621 | -103,236 | -138,762 | -166,443 | |
| Actual domestic balance | -13,852 | -33,660 | -32,753 | -113,512 | -106,426 | -37,024 | -39,245 | -143,779 | |
| Cyclical effect of the budget 4/ | 0 | 17,762 | 9,451 | 77,144 | 47,805 | -66,212 | -99,517 | -22,663 | |
| Fiscal impulse 5/ | … | 17,762 | -8,311 | 67,693 | -29,339 | -114,017 | -33,306 | 76,854 | |
| E | C | E | C | C | C | E | |||
| Dutch budget impulse 6/ | … | 17,762 | -16,353 | 62,396 | -71,750 | -148,196 | -11,497 | 95,993 | |
| E | C | E | C | C | C | E | |||
Cyclically neutral revenue = to * Y
Cyclically neutral expenditure = go * Yp
Cyclically neutral balance = (to * Y) - (go * Yp)
Cyclical effect of the budget (CEB) = [(to * Y) - (go * Yp)] -(G-T)
Fiscal impulse = [(to * ^Y) - (go * ^Yp)] - (^G - ^T)
Dutch budget impulse = (^G - (^Yp/Yp-1)* G-1)- (^T - (^Y/Y-1) * T-1)
Nigeria: Fiscal Impulse Indicator Analysis, 1990-97
(in millions of naira, unless otherwise indicated)
| 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997 | ||
|---|---|---|---|---|---|---|---|---|---|
| National accounts data | |||||||||
| Non-oil GDP at current factor cost | 171,685 | 200,144 | 289,477 | 446,027 | 682,304 | 1,168,311 | 1,545,896 | 1,835,083 | |
| Non-oil GDP at constant factor cost | 171,685 | 178,669 | 184,065 | 189,644 | 192,616 | 197,297 | 203,004 | 209,284 | |
| Growth rate (in percent) | 8.6 | 4.1 | 3.0 | 3.0 | 1.6 | 2.4 | 2.9 | 3.1 | |
| Implicit non-oil GDP Deflator (1990=100) | 100 | 112 | 157 | 235 | 354 | 592 | 762 | 877 | |
| Derivation of Potential GDP | |||||||||
| Potential non-oil GDP at current factor cost | 171,685 | 199,052 | 289,239 | 447,688 | 697,879 | 1,207,459 | 1,607,131 | 1,915,292 | |
| Potential non-oil GDP at constant factor cost | 171,685 | 177,694 | 183,913 | 190,350 | 197,013 | 203,908 | 211,045 | 218,431 | |
| Potential non-oil GDP growth rate assumption (in percent) | 3.5 | ||||||||
| Implicit potential non-oil GDP deflator (1990=100) | 100 | 112 | 157 | 235 | 354 | 592 | 762 | 877 | |
| Consolidated government data | |||||||||
| Domestic revenue | 25,488 | 28,933 | 60,066 | 42,166 | 60,595 | 187,131 | 217,279 | 245,928 | |
| Domestic expenditure | 39,341 | 62,593 | 92,819 | 155,678 | 167,021 | 224,155 | 256,523 | 389,708 | |
| Domestic balance | -13,852 | -33,660 | -32,753 | -113,512 | -106,426 | -37,024 | -39,245 | -143,779 | |
| Fiscal impulse calculations | |||||||||
| Cyclically neutral revenue 1/ | 25,488 | 29,713 | 42,975 | 66,217 | 101,294 | 173,446 | 229,502 | 272,435 | |
| Actual revenue | 25,488 | 28,933 | 60,066 | 42,166 | 60,595 | 187,131 | 217,279 | 245,928 | |
| Difference | 0 | 780 | -17,091 | 24,051 | 40,699 | -13,685 | 12,224 | 26,506 | |
| Cyclically neutral government expenditure 2/ | 39,341 | 45,612 | 66,277 | 102,585 | 159,915 | 276,682 | 368,264 | 438,878 | |
| Actual government expenditure | 39,341 | 62,593 | 92,819 | 155,678 | 167,021 | 224,155 | 256,523 | 389,708 | |
| Difference | 0 | -16,982 | -26,542 | -53,093 | -7,106 | 52,526 | 111,741 | 49,170 | |
| Cyclically neutral budget 3/ | -13,852 | -15,898 | -23,302 | -36,368 | -58,621 | -103,236 | -138,762 | -166,443 | |
| Actual domestic balance | -13,852 | -33,660 | -32,753 | -113,512 | -106,426 | -37,024 | -39,245 | -143,779 | |
| Cyclical effect of the budget 4/ | 0 | 17,762 | 9,451 | 77,144 | 47,805 | -66,212 | -99,517 | -22,663 | |
| Fiscal impulse 5/ | … | 17,762 | -8,311 | 67,693 | -29,339 | -114,017 | -33,306 | 76,854 | |
| E | C | E | C | C | C | E | |||
| Dutch budget impulse 6/ | … | 17,762 | -16,353 | 62,396 | -71,750 | -148,196 | -11,497 | 95,993 | |
| E | C | E | C | C | C | E | |||
Cyclically neutral revenue = to * Y
Cyclically neutral expenditure = go * Yp
Cyclically neutral balance = (to * Y) - (go * Yp)
Cyclical effect of the budget (CEB) = [(to * Y) - (go * Yp)] -(G-T)
Fiscal impulse = [(to * ^Y) - (go * ^Yp)] - (^G - ^T)
Dutch budget impulse = (^G - (^Yp/Yp-1)* G-1)- (^T - (^Y/Y-1) * T-1)
Prepared by Brian W. Ames.
For example, prior to 1995 a specified number of barrels of crude oil were set aside to cover the government’s oil investment obligations and to help finance its capital budget. This system of off-budget “dedicated accounts” was discontinued in 1995, and all oil-related proceeds are now directly deposited into the treasury. However, the distortion created by the authorities’ valuation of oil-related revenue and certain public sector transactions at the official exchange rate (₦22 per US$) continues up to the present, as does the existence of a plethora of other off-budget funds.
Federation oil revenues consist of export proceeds from the sale of the government’s share of crude oil produced under a series of joint-venture agreements with foreign partners, a petroleum profit tax on the earnings of the joint-venture partners, and a royalty generated from the export of the country’s oil resources. These oil revenues are valued in domestic currency terms at the official exchange rate of ₦22 per US$1.
Roughly 250,000 barrels per day of the country’s share of crude oil produced under the joint- venture arrangements are transferred to the Nigerian National Petroleum Corporation (NNPC) for use in producing domestic petroleum products. Revenue from the sale of domestic petroleum products is deposited into the Petroleum Trust Fund (PTF), which subsequently disburses these funds to the federation account, the PSTF, and the NNPC. The federation receives ₦2.40 of the ₦11 per liter average petroleum product retail price as compensation for the cost of the crude, while the NNPC receives ₦2.00 per liter for refining, storing and distributing the petroleum products. The PSTF receives a transfer of ₦5.30 per liter for the implementation of various extrabudgetary capital projects in health, education, and infrastructure. The marketers deduct their margin of ₦1.30 per liter directly from the pump price prior to transferring the balance to the PTF.
Consists of both federal government external debt obligations and state government external debt obligations assumed by the federal government.
Consists of supplementary or extrabudgetary payments made to certain investment projects, such as the Ajaokuta Steel Works and the Aluminum Smelting Company of Nigeria (ALSCON).
Consists of the government’s contribution to the operating and capital costs of the oil industry under the various joint-venture arrangements.
Consists of various oil infrastructure projects carried out on behalf of the country by the NNPC, such as the construction of oil pipelines, the rehabilitation of the oil refineries, and the construction of a butinization plant.
This is a “rainy-day” set-aside reserve account held by the Federal Ministry of Finance.
There are two excess proceeds reserve accounts, one regarding the petroleum profit tax and the other regarding export receipts. Excess proceeds results from the difference between revenue generated at the actual world market oil price and that generated at the notional oil price assumed in the budget (i.e., $17 per barrel in the 1997 and 1998 budget).
The special funds consist of the Federal Capital Territory Fund, the Ecology Fund, the Statutory Stabilization Fund, the Mineral Derivation Fund, and the Mineral-Producing Areas Fund.
The federation proceeds are to be distributed to the federal government (48.5 percent), the state governments (24 percent), the local government councils (20 percent), and to the special funds (7.5 percent).
AFEM interventions sourced from government oil revenues in 1997 were $1.7 billion, resulting in AFEM profits of ₦107 billion, of which ₦63 billion was transferred to the federal government and the remaining ₦44 was added to reserves held in trust for the other tiers of government.
For the first time, in 1998 the federal government intends to draw down ₦80 billion of these balances to finance ₦18.5 billion in transfers to the state governments, as well as ₦61.5 billion in federal government expenditure.
These consist of dividends from public enterprises, directors’ fees, loan recoveries from public enterprises, and proceeds from privatizations and commercializations.
Customs levies, which are earmarked for the federal government, are above and beyond the import duties and excise taxes received by the federation.
In October 1994, the retail price of gasoline was raised from ₦3.25 per liter to ₦11 per liter.
This expanded definition of the federal government is broadly consistent with that in the monetary accounts regarding net credit to government.
This item refers to use of previous years’ overall surplus balances (i.e., increases in government deposits) to finance federal government budgetary expenditure.
In the 1998 budget, the authorities also included the items “special allocation” in addition to retained unutilized accretion to reserves, “Special allocation” refers to the federal government’s intended drawdown of the AFEM profit balances held in trust on behalf of the state governments, local government councils, and special funds in order to finance federal government budgetary expenditure, including the ₦18.5 billion in subventions to the states.
The fact that (a) up to 1998 these balances were never distributed to the other tiers of government and (b) beginning in 1998 these funds are being tapped to finance federal government expenditure (with only a marginal amount transferred to state governments) serves to further justify the treatment of these profits as federal government revenue and deposits until specifically transferred to the other tiers.
For example, budget estimates for this item were ₦12 billion in both 1996 and 1997, while actual outcomes were ₦20 billion and ₦32 billion, respectively.
A reconciliation effort is, however, carried out on a monthly basis, with a view to identifying any differences between the values of items in individual government accounts and the corresponding balances recorded in the government accounts held at the central bank.
Bank financing is derived as the difference between the stock of net credit to the federal government from one period to another, as presented in the monetary accounts. Since PSTF deposits held in the commercial banking system are classified as private sector deposits in the monetary accounts, while those held in the central bank are considered as federal government deposits, an adjustment is made to net credit to the government in order to make bank financing in the fiscal accounts consistent with the overall balance. Nonbank financing is derived from changes in the government’s issuance of domestic debt. External financing is derived as the sum of external borrowing (from the balance of payments and external debt accounts), amortization due (from the balance of payments), and changes in arrears (derived as the difference between the debt service due and the government cash payments actually made).
The fiscal year in Nigeria is the same as the calendar year.
Each spending ministry has a liaison office in each of the 36 states. Similarly, the FMOF has a pay office in each of these states. The physical distances and the lack of appropriate telecommunications and computer equipment impede the speedy reporting of expenditure data from the field to headquarters.
In fact, capital funds issued last year could be combined with funds issued this year and spent.
The CBN Annual Report also presents a sizable residual financing item in its presentation of the fiscal accounts entitled “other funds.” See Table 4.1, “Summary of Federal Government Finances,” in the 1996 CBN Annual Report.
The Nigerian authorities have benefited from a series of IMF (ST A) technical assistance missions aimed at developing a reliable system for compiling and reporting money and banking statistics. As a result of this assistance, the CBN has put in place the foundation for the timely and accurate reporting of monetary statistics.
Since revenue data are recorded on a cash basis, it is less likely that the unspecified financing problem evolves from here. However, there could be lags between the time that revenues are recorded on the books of the FMOF and those of the CBN.
Although a good-faith effort was undertaken by Fund staff and the authorities to ensure that the coverage of government entities in the budget presentation was consistent with that of the monetary accounts, it is possible that differences remain.
There were also uses of foreign exchange involving the purchase of travelers checks and bank notes.
It also results in the understatement of these particular revenue and expenditure items relative to others.
It also results in the understatement of total revenue.
The federation account is essentially a “pass-through” account, with federation revenue distributed to the three tiers of government, including the special funds.
Only the federal government and the state and local government (including the special funds) accounts are combined to derive the consolidated government accounts, since the federal government table (Fund format) already takes into account the first charges and the PSTF.
The first-charge deductions for the special reserve and the excess proceeds reserve do not pass through to other levels; instead, they are captured in total consolidated oil revenues and show up below the line as negative bank financing (i.e., government deposits).
The production and exportation of crude oil in Nigeria, which accounts for some 40 percent of total GDP and 95 percent of total exports, is essentially an enclave activity that operates outside the domestic economy.
Since the authorities allocate a portion of the country’s oil production (i.e., 250,000 barrels per day) for the purposes of refining domestic petroleum products, the PTF transfers to the federation account and to the PSTF were added to non-oil revenues in order to derive domestic non-oil revenue. Items such as the NNPC cash calls, the NNPC priority projects, foreign interest payments, and official imports were also subtracted from total expenditure in order to derive domestic non-oil expenditure.
For a discussion of the fiscal impulse, see Sheetal Chand, “Summary Measures of Fiscal Influence,” Staff Papers, IMF, Vol. 24 (July 1977), pp. 405-49.
The cyclical effect of the budget is derived by subtracting the cyclically neutral budget balance from the actual budget balance in a given year. The cyclically neutral budget balance is computed by applying (a) the base-year revenue-to-GDP ratio to that year’s actual output level and (b) the base-year expenditure-to-GDP ratio to that year’s potential (trend) output level. If the actual budget deficit exceeds (is less than) the adjusted cyclically neutral deficit, the cyclical effect of the budget is considered to be expansionary (contractionary). The fiscal impulse is the first difference of the actual budget balance and the cyclically neutral budget balance. If the fiscal impulse is positive (negative), the fiscal stance is considered to be expansionary (contractionary).
An alternative approach to selecting the base year would be to assess what would be the current account deficit that could be financed through sustainable capital flows (i.e., the sustainable current account deficit). An assessment could then be made as to the appropriate balance of the private sector (i.e., private consumption and investment/savings). From here, one could deduce the appropriate fiscal stance. To the extent that such a stance does not exist for any of the years under consideration, the parameters of this balance could be artificially imposed on a given year (i.e., 1990), which would serve as the base for calculating the ratios of revenue and expenditure to GDP to be used in the fiscal impulse calculations.
Alternatively, the exercise could also be carried out for the federal government alone.