Abstract
This Selected Issues and Statistical Appendix paper presents an assessment of Nigeria’s past economic reform efforts—in particular the program supported by the 2000–01 Stand-By Arrangement (SBA). The paper also reviews weaknesses in the current fiscal management framework in Nigeria and proposes reforms to further strengthen the budget process. It describes weaknesses in the current public debt management framework and the government’s reform strategy. It highlights the reform implication and addresses further actions that will be needed to put the government’s domestic debt reform strategy on a solid foundation.
III. Fiscal Management Capacity—Issues and Reform Agenda20
47. The capacity for fiscal management in Nigeria is a key concern for the economic team as it aims at bringing the non-oil deficit down to a more sustainable level, reducing the vulnerability of public finances to oil market volatility and enhancing effectiveness of public spending. There are two main constraints on fiscal management. First, despite the appointment of very capable people to critical positions in key ministries, the technical capacity remains weak across the federal government. This is partly due to capacity constraints and skills mismatches in the civil service, and partly as a legacy of the strings of military dictatorships that have contributed to undermining the integrity of the civil service. Second, a large revenue coparticipation by state and local governments limits the federal government’s control on fiscal policy, particularly in light of volatile oil revenue. This was the result of a decentralization process triggered by the democratic transition starting in 1999, a process that was not supported by mechanisms for sharing information and coordinating policies across the three tiers of government.21
48. In the last year, there has been an increased emphasis in the identification of weaknesses in the federal government budget process and the implementation of reforms in that area. Substantial technical assistance has been provided by the World Bank and the Fund. Important guidelines have been established to improve the process underlying the formulation, presentation, and implementation and monitoring of the 2004 budget. A well-functioning budget process at the federal government level should, in turn, promote reforms at other levels of government, and allow for an effective fiscal policy management. In this context, the authorities are formulating a fiscal responsibility bill to improve the fiscal framework across all tiers of government.
49. This chapter focuses on the current state of the federal government’s budget preparation, budget execution, fiscal reporting, payroll management, and expenditure arrears. It describes the main problems in those areas, the improvements introduced in the last year, and the agenda for future reform. This chapter also proposes ways to strengthen operational aspects of the fiscal federalism system, taking into account the available information’s suggestion that state and local governments face similar structural problems in the different stages of their budget processes.
A. Budget Preparation
Issues
50. Weaknesses in the formulation of the federal budget have traditionally included (i) a fragmented budget process without clear leadership from a single institution; (ii) technical capacity constraints in the BOF in the preparation of the executive budget proposal; and (iii) frictions in the budget approval process.
51. The 2003 budget preparation, as in previous years, was plagued by those problems, and reflected the bargaining nature of the process. Whereas the BOF originally maintained a quite cautious position in setting spending limits for line ministries/agencies—perhaps even unrealistically so—these were subsequently negotiated upwards (Table III-1). During the budget debate in the National Assembly, amendments were introduced to the proposed budget, leading not only to resource reallocations but also to a sizeable increase in the aggregate expenditure level that was not matched by an increase in revenue. The approved budget was only enacted by the president in midyear, and even then the Executive saw it necessary to introduce a supplementary budget in November, further adding to spending pressure late in the year.
Nigeria: 2003 Federal Government Expenditure 1/
The federal government budget definition. Other expenditure includes external debt service and transfers to the NNPC, the Judiciary and the F.C.T.
Supplementary bill passed in November 2003.
Nigeria: 2003 Federal Government Expenditure 1/
| Call Circular | Executive Proposal | National Assembly | Supplementary bill 2/ | |||
|---|---|---|---|---|---|---|
| (In billions of naira) | ||||||
| Total federal government | 1,572.6 | 1,487.0 | 1,679.3 | 278.4 | ||
| Current expenditure | 540.3 | 508.8 | 576.1 | 195.2 | ||
| Primary expenditure | 390.3 | 434.8 | 502.1 | 96.2 | ||
| Domestic debt service | 150.0 | 74.0 | 74.0 | 99.0 | ||
| Capital expenditure | 310.4 | 256.4 | 374.6 | 83.3 | ||
| Other | 721.9 | 721.9 | 728.6 | 0.0 | ||
| (In percent of GDP) | ||||||
| Total federal government | 20.8 | 19.7 | 22.3 | 3.7 | ||
| Current expenditure | 7.2 | 6.7 | 7.6 | 2.6 | ||
| Primary expenditure | 5.2 | 5.8 | 6.7 | 1.3 | ||
| Domestic debt service | 2.0 | 1.0 | 1.0 | 1.3 | ||
| Capital expenditure | 4.1 | 3.4 | 5.0 | 1.1 | ||
| Other | 9.6 | 9.6 | 9.7 | 0.0 | ||
| Memorandum item: | ||||||
| Nominal GDP | 7,545 | 7,545 | 7,545 | 7,545 | ||
The federal government budget definition. Other expenditure includes external debt service and transfers to the NNPC, the Judiciary and the F.C.T.
Supplementary bill passed in November 2003.
Nigeria: 2003 Federal Government Expenditure 1/
| Call Circular | Executive Proposal | National Assembly | Supplementary bill 2/ | |||
|---|---|---|---|---|---|---|
| (In billions of naira) | ||||||
| Total federal government | 1,572.6 | 1,487.0 | 1,679.3 | 278.4 | ||
| Current expenditure | 540.3 | 508.8 | 576.1 | 195.2 | ||
| Primary expenditure | 390.3 | 434.8 | 502.1 | 96.2 | ||
| Domestic debt service | 150.0 | 74.0 | 74.0 | 99.0 | ||
| Capital expenditure | 310.4 | 256.4 | 374.6 | 83.3 | ||
| Other | 721.9 | 721.9 | 728.6 | 0.0 | ||
| (In percent of GDP) | ||||||
| Total federal government | 20.8 | 19.7 | 22.3 | 3.7 | ||
| Current expenditure | 7.2 | 6.7 | 7.6 | 2.6 | ||
| Primary expenditure | 5.2 | 5.8 | 6.7 | 1.3 | ||
| Domestic debt service | 2.0 | 1.0 | 1.0 | 1.3 | ||
| Capital expenditure | 4.1 | 3.4 | 5.0 | 1.1 | ||
| Other | 9.6 | 9.6 | 9.7 | 0.0 | ||
| Memorandum item: | ||||||
| Nominal GDP | 7,545 | 7,545 | 7,545 | 7,545 | ||
The federal government budget definition. Other expenditure includes external debt service and transfers to the NNPC, the Judiciary and the F.C.T.
Supplementary bill passed in November 2003.
Fragmentation of the budget process and assessment of budget proposals
52. Specific problems in these areas identified in previous reports include the following:
Fragmentation of the budget process across many institutions in the federal government, without clear guidelines, and a single entity assuming main responsibility and oversight of the process. For example, the manpower budget has usually been determined by the Office of the Head of the Civil Service (OHCS), without taking into account the budgetary implications or constraints. In recent years there has been, in principle, an official freeze on new hiring, although in reality this appears not to have been complied with, particularly for lower-level positions. The estimate of personnel cost is very weak and it may not reflect consistently the actual number of staff, pension costs, and outstanding liabilities in the form of wage and pension arrears.
A dual budget process for recurrent and capital spending. The capital budget is formulated without taking into account the associated recurrent expenditure obligations. Moreover, a large part of the capital budget presently consists of rehabilitation or equipment purchase that may be more meaningfully accounted as being of a recurrent nature. Even if the quality of the capital budget has been strengthened through the due process requirement, it has not been clear how well this has been integrated into the formulation stage of the budget (e.g., by terminating projects that have failed the due process).
Weak capacity of the BOF to assess line ministry budget proposals and to enforce expenditure limits set in the budget circular when formulating the budget. This has been partly a consequence of insufficient information on the spending programs of line ministries, but it also has reflected a mismatch between skills required and those available, as well as the need for appropriate training of staff in the BOF. In addition, the inadequate classification of expenditure in the budget, and the inability to map this against actual spending, makes it difficult to assess the budget proposals.
The projection of domestic debt service costs is not always realistic nor consistent with the macro-implications of the budget, in particular following changes to overall expenditure (and financing) levels.
53. Starting with the 2004 budget formulation process, and following recommendations from a joint World Bank–FAD technical assistance mission in August 2003, the authorities have undertaken several reforms aimed at strengthening the budget process and the role of the BOF as leader of the budget formulation process. The main reforms include the following:
The hiring of qualified professionals to upgrade the BOF capacity.
Preparation, for the first time, of a fiscal strategy paper that specified priorities and realistic macroeconomic assumptions, and facilitated discussions on trade-offs and priorities during the formulation of the budget.
Specification of indicative capital budget ceilings within the fiscal strategy paper to help rationalize and streamline capital projects.
Publication of a budget overview booklet. The budget document included the corresponding 2003 budget allocations (but not actual spending).
Early interaction with the National Assembly to avoid delays in the process and reduce the risk of unrealistic budgets.
Design by OAGF of a new chart of accounts (COA) and harmonization of the budget classification with the new COA. The new budget classification will impose more detailed information both at the recurrent and capital project levels. The capital budget for 2005 will not be a single line item as in 2004: it will broken into controlled allotment for salaries (if any), recurrent spending and types of capital expenditures. In addition, for budget monitoring and reporting, detailed line item recording will be mandatory for all controlled allotments (i.e., if the current component of a capital budget is used, the transaction must show the economic line items such as travel, materials, training, etc).
Budget approval process
54. Perhaps not surprisingly, given the very limited role played by the National Assembly during the years of military rule, the roles and responsibilities of the Executive vis-à-vis the Legislature have been evolving during the democratic transition starting in 1999. The budget approval process has become a key issue in this regard, reflecting an unclear division of responsibilities between the Executive and the Legislature. The outcome has been a budget approval process with few safeguards, leaving the budget susceptible to capture by vested interest, and with little consideration of the aggregate, allocative, and macroeconomic impact of amending the expenditure proposals during the approval process.
Whereas the 1999 Constitution tasks the Executive with responsibility for preparing estimates of the revenue and expenditure programs of the federation for the approval of the National Assembly, it is less clear on the role of the latter. During the last few years, rather than only approving changes to the expenditure allocation within the budget, the National Assembly has introduced substantial revisions to the revenue and expenditure aggregates with macroeconomic consequences.
The legal framework for the budget is provided by the 1958 Finance Act (and subsequent regulations), which is in need of updating. However, it is important that this is done as part of a broader budget reform strategy.
In addition to the normal budgetary process, during recent years, there have been several supplementary budgets (albeit this is an improvement over the widespread recourse to extrabudgetary expenditure during the military regimes).
Recommendations
55. The economic team has started an important budget reform process spearheaded by the BOF. Given the challenge ahead, strengthening the budget preparation process requires sustained reforms in several key areas. In the short term, (i) the budget formulation process should start earlier under a clearly specified timetable; (ii) the 2005 budget circular should be strengthened by including more transparent line ministry expenditure limits endorsed by the Federal Executive Council, comparable information on actual spending and the request for line ministry budgets at the line item level for recurrent expenditures and at the controlled allotment level for capital; (iii) the capital budget could be strengthened by being more carefully scrutinized, following the due process procedures, to eliminate nonpriority projects; (iv) the “due process” procedures to be applied in the 2005 budget should be fully documented and centralized at the BOF, to allow their fullest integration into the budget process; (v) the technical capacity of the BOF should continue to be strengthened; and (vi) implementation of the new budget classification in line with the new chart of accounts.
56. In the medium term, (i) the government should integrate the recurrent and capital budget processes and replace the dual budget structure by a fully consolidated budget; (ii) the legal framework for the budget could be strengthened by introducing a clearer determination of roles and responsibilities in the approval process; and (iii) it would be desirable to move toward introducing a medium-term expenditure framework, eventually presenting the budget on a programmatic basis with clearly defined outputs.
B. Budget Execution
Issues
57. The execution of the budget and the reporting of fiscal data have improved lately, reflecting the implementation of budget automation reforms in the Office of the Accountant General of the Federation (OAGF). Yet, continued efforts are required to strengthen coordination of budget implementation among key players and overcome weaknesses in cash management. The authorities are taking steps to improve the coordination between the BOF and the OAGF. The recent establishment of a high-level Cash Management Committee, chaired by the Minister of Finance, has been effective in focusing attention on the importance of improving the cash management function of matching cash availability with needs. However, this will need to be supported by improvements at the technical level, particularly in the Cash Management (CMU) Unit in the OAGF, to enable it to fully perform its core function. As effective cash management is important to minimize the cost of borrowing to the federal government, it is also a critical component of sound domestic debt management.
Coordination of budget execution
58. During the last two years, much attention has been given to strengthening the coordination among the BOF, the OAGF and the Central Bank of Nigeria (CBN) when executing the budget. In principle, the process for authorizing and releasing budgetary funds has appropriate checks and balances. The BOF issues quarterly warrants based on the approved Appropriation Bill; the OAGF, based on the warrants issued, approves monthly mandates; and the CBN, based on mandates issued, releases cash into the line ministry/agency commercial bank accounts (for recurrent expenditure) or in the line ministry project accounts in the CBN (for capital projects). In practice, there are weaknesses in coordination that complicate the execution of the budget.
The authorities have appropriately focused on developing closer cooperation between the BOF and the OAGF. In particular, to ensure that the BOF is guided by quarterly projections for cash availability from the CMU (located in the OAGF) when it issues warrants.
In addition to warrants, the BOF also issues authorities to incur expenditure (AIEs) to line ministries and agencies, thus creating unnecessary duplication of spending instruments, and in the process, complicating the recording of expenditures.
At times, there are lags between a mandate being issued by the OAGF and cash being released by the CBN, and between the issuance of warrants and mandates.
Line ministries have lacked adequate information on the availability of resources for executing their expenditure policies.
59. With the assistance of the FAD resident technical assistance expert, a computerized system for keeping track of warrants, mandates, and cash releases has been developed in the OAGF. An automated system for recording transactions in the Consolidated Revenue Fund (CRF) account and reconciling the records with CBN banking statements is also now operational. Work is ongoing to implement a computerized cash book/vote book system in selected pilot ministries. It is now critical to (i) ensure that the data input on warrants, mandates, and cash releases are kept up-to-date; (ii) provide for close monitoring of the data flow to the automated CRF system; and (iii) circulate regular reports on the reconciliation exercise particularly to the Cash Management Committee.
Cash management
60. The implementation of the budget takes place within a larger macroeconomic context considering the overall fiscal stance and drawing on key information on resource availability from agencies such as the Nigerian National Petroleum Corporation (NNPC) and the Federal Inland Revenue Service (FIRS). Institutional coordination should be facilitated by the recently established Cash Management Committee chaired by the Minister of Finance and which includes senior representatives from CBN, OAGF, BOF, and the Debt Management Office (DMO). The high-level committee relies on inputs from the OAGF and the BOF to facilitate smooth cash management by matching cash availability and needs as the budget is implemented. The establishment of the CMU in the OAGF was a positive development, and starting in 2004, it has begun to prepare quarterly cash flow projections broken down by month, but they are still rather mechanical and derived by prorating budget estimates.
More progress could be made in improving the seasonality assumptions underpinning the annual, quarterly, and monthly cash plans used by the BOF when issuing warrants, and for the OAGF when issuing mandates.
The regularity of the reporting of banking data could be improved, to allow the CMU to monitor on a monthly basis the balances of line ministry/agency bank accounts with the CBN and commercial banks. This is important for determining the additional cash needs of line ministries.
A regular process of forecasting and preparing annual and rolling monthly cash plans, as well as utilizing these plans for budget execution and debt management, has to be developed. Further, it is also necessary to forecast and prepare cash flow projections for the federation account’s inflows and outflows, since this account is the main source of revenue of the federal government.
Rationalizing the use of cash resources in the banking system
61. Even with well-formulated cash plans and projections for the availability of cash resources, budget implementation is complicated by the large number of government accounts. One consequence of this is that idle funds continue to exist in bank accounts, even as the government routinely borrows from its ways-and-means access at the CBN.
62. Line ministries and agencies tend to maintain large unused cash balances in their accounts in both the CBN and in commercial banks (Table III-2). In the CBN, the problem relates to the balances accumulated on the line ministries/agencies capital project accounts. In commercial banks, it relates to line ministries/agencies maintaining large balances in their current accounts. Some unused balances on the recurrent accounts have been remitted to the CRF account at end-year, in compliance with the budget regulations. However, many parastatals seemingly apply different policies for retaining funding for recurrent expenditure.
Nigeria: Federal Government Deposits in the Banking System 1/
Stock reported at the end of each quarter.
Nigeria: Federal Government Deposits in the Banking System 1/
| 2001 | 2002 | 2003 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| QI | QII | QIII | QIV | QI | QII | QIII | QIV | QI | QII | QIII | QIV | |||
| (In billions of naira) | ||||||||||||||
| Total deposits | 880.6 | 954.5 | 988.8 | 924.1 | 803.5 | 720.6 | 623.3 | 626.3 | 547.0 | 313.9 | 279.1 | 355.6 | ||
| Deposits in the CBN | 800.5 | 868.9 | 930.2 | 895.8 | 771.5 | 661.9 | 536.5 | 573.7 | 486.9 | 248.9 | 248.9 | 275.8 | ||
| Capital projects | 115.8 | 81.8 | 130.6 | 164.1 | 104.2 | 110.4 | 79.6 | 58.2 | 58.7 | 38.1 | 31.9 | 42.6 | ||
| Other accounts | 684.6 | 787.1 | 799.6 | 731.7 | 667.3 | 551.5 | 456.9 | 515.5 | 428.2 | 210.8 | 196.7 | 233.2 | ||
| Deposits in commercial bank | 80.1 | 85.7 | 58.6 | 28.3 | 32.0 | 58.7 | 86.8 | 52.6 | 60.0 | 65.1 | 50.5 | 79.8 | ||
Stock reported at the end of each quarter.
Nigeria: Federal Government Deposits in the Banking System 1/
| 2001 | 2002 | 2003 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| QI | QII | QIII | QIV | QI | QII | QIII | QIV | QI | QII | QIII | QIV | |||
| (In billions of naira) | ||||||||||||||
| Total deposits | 880.6 | 954.5 | 988.8 | 924.1 | 803.5 | 720.6 | 623.3 | 626.3 | 547.0 | 313.9 | 279.1 | 355.6 | ||
| Deposits in the CBN | 800.5 | 868.9 | 930.2 | 895.8 | 771.5 | 661.9 | 536.5 | 573.7 | 486.9 | 248.9 | 248.9 | 275.8 | ||
| Capital projects | 115.8 | 81.8 | 130.6 | 164.1 | 104.2 | 110.4 | 79.6 | 58.2 | 58.7 | 38.1 | 31.9 | 42.6 | ||
| Other accounts | 684.6 | 787.1 | 799.6 | 731.7 | 667.3 | 551.5 | 456.9 | 515.5 | 428.2 | 210.8 | 196.7 | 233.2 | ||
| Deposits in commercial bank | 80.1 | 85.7 | 58.6 | 28.3 | 32.0 | 58.7 | 86.8 | 52.6 | 60.0 | 65.1 | 50.5 | 79.8 | ||
Stock reported at the end of each quarter.
63. The current banking arrangements and cash management practice give rise to the simultaneous need for the federal government to tap into ways-and-means advances, or seek other financing, while large unused cash balances are maintained in line ministry/agency bank accounts. To rationalize the use of cash resources, a desirable reform would be the introduction of a treasury single account. The authorities have expressed concern that this would be premature at present, and instead are in the process of implementing a central capital account where all line ministry capital accounts will be maintained. The consolidated available balance in the capital accounts would then be counted as part of the consolidated federal government bank balance in order to avoid additional interest on ways-an-means financing.22
Recommendations
64. Strengthening cash management in Nigeria will require reforms in several key areas. In the short term, (i) develop cash planning, based in the CMU of the OAGF; (ii) maintain recent efforts to strengthen the record keeping and reconciliation of warrants, mandates, and cash releases; and (iii) bring down unused cash balances in the line ministry/agency bank accounts, and in general rationalize the banking arrangements. In the medium term, it would be desirable to move toward introducing a treasury single account, but the interim arrangements the OAGF has been pursuing until such point in time will be helpful. In particular, the OAGF and the CBN should agree on the operational arrangements of the central capital account.
C. Fiscal Reporting
Issues
65. The reporting of fiscal data is still quite fragmented with no agency taking a lead role in presenting timely fiscal data in an accessible format to policymakers. The quality of the fiscal data is also poor, partly as there is insufficient reconciliation of expenditure records with banking data, and information on domestic expenditure arrears is inadequate.
Fiscal reports to policymakers
66. The ability for policymakers to take informed decisions is constrained by the poor availability of timely and relevant information on budget execution. The BOF has an important role to play in filtering and presenting fiscal information targeted at the needs of policymakers. However, there is currently no regular preparation of fiscal management reports to the Minister of Finance, to the Federal Executive Council, or to the National Assembly.
67. The reporting of fiscal data is quite fragmented with no agency taking an appropriate lead role presenting fiscal data in an accessible format. In other countries, this function is typically the responsibility of the finance ministry. In the absence so far of the BOF fulfilling this role in Nigeria, various agencies have been reporting scattered pieces of information, without consolidating this in an accessible management report. The OAGF presents key data on the CRF and federation account transactions. It also collects monthly expenditure returns (transcripts) from line ministries and agencies, albeit these are not subsequently collated and aggregated in a timely fashion. Other important providers of fiscal data are the NNPC, customs and FIRS (on revenue); the Debt Office (on debt service); and the CBN (on monetary financing).
Reported expenditure data
68. The fiscal reporting system relies on tracking the release of funds to line ministries and agencies, rather than how the funds are ultimately spent. This is common practice in many countries to ensure timely fiscal data for monitoring purposes. However, it is important to supplement this information with data on actual expenditure reported ex post by line ministries and agencies. Already, line ministries and agencies are required to report on a monthly basis a summary of transactions recorded in their cashbook (the transcript). In addition, major spending ministries have been asked to develop performance indicators to be reported regularly. These reports could be strengthened and the information better utilized.
The timeliness, coverage and quality of the monthly transcripts from line ministries and agencies are often inadequate.
The OAGF uses the monthly transcripts as a basis for preparing the annual reports on federal government operations, but in the interim, the returns could be aggregated and used as a basis for a monthly expenditure report supplementing the information on cash releases.
The format of the returns could be strengthened, for example by including a column on the stock of unpaid overdue bills.
The manpower budget is formulated with little regard for the fiscal cost to the budget, as appears to be the wage and remuneration policy.23 There is very little coordination between key players, including the BOF, OHCS, and the Federal Civil Service Commission.
Reconciliation of fiscal data
69. The quality of the reported fiscal data is affected by the inadequate reconciliation of expenditure and banking data. Line ministries and agencies are required to reconcile their cash book with their bank statements on a monthly basis. While the OAGF reconciles its records of transactions in the CRF with the CBN bank statements, there is less assurance that bank reconciliation is currently satisfactorily carried out in line ministries and agencies, which would affect the quality of the fiscal data reported.
Recommendations
70. Strengthening fiscal reporting at the federal government level will require a number of reforms. In the short term, (i) it would be desirable for the BOF to take a more proactive role in monitoring implementation of the budget, using data reported by other agencies, primarily the OAGF, NNPC and FIRS; (ii) the OAGF should continue efforts to strengthen the timeliness, coverage and accuracy of the expenditure data in the monthly transcripts from line ministries and agencies; (iii) the reconciliation of fiscal data should be strengthened at several stages in the fiscal reporting cycle, particularly at the line ministry level; and, (iv) design a system of regular reporting of fiscal information.
71. In the medium term, (i) the system of regular and timely reporting of fiscal information should be fully operational; (ii) the government accounts should be published on a quarterly or monthly basis; and (iii) these reporting requirements should be extended to parastatals.
D. Payroll Management
Issues
72. The wage bill is a major charge on the federal government budget, yet there is inadequate central control and oversight over it. Total personnel and pension costs amount to one-third of the recurrent federal government budget. Typically, the payroll can be expected to be relatively stable from month-to-month; that has not always been the case in Nigeria (Table III-3) reflecting the occasional clearance of arrears and, possibly, funding irregularities.
The manpower budget is formulated with little regard for the fiscal cost to the budget, as appears to be the wage and remuneration policy.24 There is very little coordination between key players, including the BOF, OHCS, and the Federal Civil Service Commission.
The processing of the payroll is decentralized under the responsibility of individual line ministries and agencies. There are insufficient central controls and oversight over the monthly payroll. Although the OAGF has personnel placed in many line ministries tasked with monitoring the monthly payroll and other expenditure, the effectiveness of this control function is limited.
There is a problem with arrears, particularly for pensions. As arrears are being cleared in an ad hoc manner, this may also partly explain the fluctuations in the monthly payroll. However, no consolidated data are available on the stock of arrears, and the clearance of arrears is not being transparently recorded.
There are limited data available on the actual staff in posts and the approved establishment. Although in recent years both a personnel audit and pay parades have been carried out, continued hiring appears to have made this information outdated.
The personnel regulations regarding hiring and remuneration are not being enforced for parastatals included in the budget of line ministries; perhaps not even for the regular ministries (particularly for lower-level positions).
Nigeria: Cash Releases for Federal Government Personnel and Pensions, 2000-03
Nigeria: Cash Releases for Federal Government Personnel and Pensions, 2000-03
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Personnel and pensions - 2000 | ||||||||||||||
| In billions of Naira | 16 | 18 | 17 | 17 | 17 | 54 | 7 | 7 | 18 | 53 | 25 | 29 | 279 | |
| In percent of monthly average | 71 | 78 | 73 | 71 | 72 | 234 | 30 | 31 | 78 | 227 | 109 | 127 | … | |
| Personnel and pensions - 2001 | ||||||||||||||
| In billions of Naira | 14 | 33 | 35 | 20 | 22 | 22 | 20 | 20 | 26 | 32 | 21 | 22 | 285 | |
| In percent of monthly average | 57 | 139 | 146 | 82 | 90 | 92 | 85 | 85 | 110 | 133 | 88 | 92 | … | |
| Personnel and pensions - 2002 | ||||||||||||||
| In billions of Naira | 33 | 29 | 35 | 26 | 45 | 34 | 8 | 47 | 30 | 27 | 29 | 27 | 368 | |
| In percent of monthly average | 106 | 94 | 114 | 86 | 145 | 110 | 27 | 153 | 96 | 88 | 94 | 87 | … | |
| Personnel cost | 19 | 27 | 23 | 22 | 43 | 32 | 7 | 44 | 25 | 27 | 26 | 26 | 322 | |
| Pensions | 14 | 1 | 12 | 5 | 2 | 1 | 1 | 3 | 4 | 0 | 3 | 1 | 47 | |
| Personnel and pensions - 2003 | ||||||||||||||
| In billions of Naira | 31 | 28 | 28 | 26 | 22 | 20 | 29 | 61 | 27 | 30 | 33 | 34 | 368 | |
| In percent of monthly average | 100 | 92 | 91 | 84 | 72 | 64 | 95 | 200 | 88 | 96 | 107 | 110 | … | |
| Personnel cost | 25 | 24 | 24 | 22 | 19 | 19 | 25 | 48 | 24 | 26 | 26 | 25 | 304 | |
| Pensions | 6 | 4 | 4 | 4 | 3 | 1 | 5 | 13 | 3 | 3 | 7 | 9 | 64 | |
Nigeria: Cash Releases for Federal Government Personnel and Pensions, 2000-03
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Personnel and pensions - 2000 | ||||||||||||||
| In billions of Naira | 16 | 18 | 17 | 17 | 17 | 54 | 7 | 7 | 18 | 53 | 25 | 29 | 279 | |
| In percent of monthly average | 71 | 78 | 73 | 71 | 72 | 234 | 30 | 31 | 78 | 227 | 109 | 127 | … | |
| Personnel and pensions - 2001 | ||||||||||||||
| In billions of Naira | 14 | 33 | 35 | 20 | 22 | 22 | 20 | 20 | 26 | 32 | 21 | 22 | 285 | |
| In percent of monthly average | 57 | 139 | 146 | 82 | 90 | 92 | 85 | 85 | 110 | 133 | 88 | 92 | … | |
| Personnel and pensions - 2002 | ||||||||||||||
| In billions of Naira | 33 | 29 | 35 | 26 | 45 | 34 | 8 | 47 | 30 | 27 | 29 | 27 | 368 | |
| In percent of monthly average | 106 | 94 | 114 | 86 | 145 | 110 | 27 | 153 | 96 | 88 | 94 | 87 | … | |
| Personnel cost | 19 | 27 | 23 | 22 | 43 | 32 | 7 | 44 | 25 | 27 | 26 | 26 | 322 | |
| Pensions | 14 | 1 | 12 | 5 | 2 | 1 | 1 | 3 | 4 | 0 | 3 | 1 | 47 | |
| Personnel and pensions - 2003 | ||||||||||||||
| In billions of Naira | 31 | 28 | 28 | 26 | 22 | 20 | 29 | 61 | 27 | 30 | 33 | 34 | 368 | |
| In percent of monthly average | 100 | 92 | 91 | 84 | 72 | 64 | 95 | 200 | 88 | 96 | 107 | 110 | … | |
| Personnel cost | 25 | 24 | 24 | 22 | 19 | 19 | 25 | 48 | 24 | 26 | 26 | 25 | 304 | |
| Pensions | 6 | 4 | 4 | 4 | 3 | 1 | 5 | 13 | 3 | 3 | 7 | 9 | 64 | |
73. It is encouraging that the authorities have initiated a civil service reform project in four pilot ministries supported by the World Bank and DFID. Implementation has progressed fastest in the Ministry of the Federal Capital Territory where payroll computerization and a pay parade recently enabled the identification of ghost workers. Removing these ghost workers from the payroll reduced their number from 25,000 to 22,000 employees.
Recommendations
74. In the short term, (i) the institutional coordination of administering the payroll should be strengthened, with the BOF taking a leading role on all issues with financial implications; (ii) the authorities should prepare a baseline position for the payroll to be used for a personnel master database; and (iii) compliance with the regulatory framework should be enforced through credible sanctions, also for parastatals included in the budgetary allocation for line ministries. In the medium term, (i) it would be beneficial to introduce a computerized system for payroll management; and (ii) to implement more comprehensive civil service reforms addressing staffing levels, functions, as well as remuneration policy.
E. Expenditure Arrears
Issues
75. The accumulation of arrears has adverse macroeconomic impact and diminishes the credibility of the government. Although data are not available, there is a widespread sense that the accumulation of domestic expenditure arrears is an issue of concern in Nigeria. There appears to be accumulation of unpaid bills for supplies of goods and services as well as pension (and possibly wage) arrears. Very little has been done to compile consolidated data on the stock of arrears, and even less so to develop and implement a strategy to clear the arrears in an orderly manner. Nevertheless, funds are provided (in an ad hoc manner) to line ministries for clearing arrears on both supplies and pensions.25
Recommendations
76. In the short term, (i) progress could be made by taking inventory of the stock of outstanding arrears for all federal ministries and agencies; (ii) the stock of arrears should be audited (on-site in line ministries and agencies by the Auditor General); (iii) a strategy for liquidating verified arrears, through a centralized budget appropriation line should be designed; and (iv) line ministries and agencies should be required to report monthly on unpaid bills, wages, and pensions (as part of the monthly transcripts). In the medium term, a commitment control system in line ministries and agencies as part of broader efforts to strengthen expenditure controls should be introduced.
F. Operational Aspects of Fiscal Federalism
Issues
77. Fiscal federalism is a critical issue in Nigeria, with implications for macroeconomic management as well as for the stable and predictable service delivery of public goods and services at the subnational level. The fiscal management capacity of the federal government is constrained as about one-half of all revenue is transferred to the state and local governments. As the fiscal federalism structure naturally reflects a political outcome, any changes will also be a result of a political process. But even in the absence of more substantive fiscal federalism reforms, an immediate objective should be to strengthen operational aspects of the current fiscal arrangements, including fiscal reporting, and to prepare for some degree of policy coordination. This could be facilitated by reaching agreement on a fiscal rule through a political compact between the federal government and the states.
78. Tables III-4.a and III-4.b show the actual revenue sharing for 2002–3. Oil and non-oil revenue flows into the federation account, where various deductions are made.26 The net federation account and the value-added tax (VAT) account are distributed across the three tiers of government, albeit using different revenue sharing parameters. Table III-4.b also illustrates how the revenue sharing parameters have evolved following the same Supreme Court ruling in 2002. The actual transfer of each government’s share of the federation account takes place in the month following the distribution (with a lag of one month). The revenue sharing also includes a derivation grant to oil-producing states based on 13 percent of the onshore production. Since the Supreme Court ruling, the revenue share of various extrabudgetary funds has been deducted from the federal government’s enhanced share of 54.7 percent of the federation account, after a deduction for the federal government’s contribution to debt service payments into the debt service account.
Nigeria: Revenue sharing, 2002-03
Deductions for cash call payments and accumulation of excess crude (subsequently distributed within the year).
Nigeria: Revenue sharing, 2002-03
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In billions of naira) | ||||||||||||||
| 2002 revenue sharing | ||||||||||||||
| Total receipts | 126 | 128 | 127 | 120 | 118 | 124 | 124 | 114 | 126 | 135 | 131 | 131 | 1,503 | |
| Oil and gas revenue | 108 | 109 | 101 | 94 | 99 | 102 | 93 | 93 | 105 | 108 | 107 | 111 | 1,231 | |
| Non-oil revenue | 18 | 18 | 26 | 26 | 19 | 22 | 31 | 21 | 20 | 27 | 24 | 20 | 272 | |
| Deductions | 57 | 58 | 6 | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 126 | |
| Net Federation Account | 69 | 70 | 121 | 116 | 118 | 124 | 124 | 114 | 126 | 135 | 131 | 131 | 1,377 | |
| Derivation grants | 5 | 5 | 8 | 7 | 8 | 8 | 7 | 7 | 8 | 8 | 8 | 9 | 89 | |
| Net Federation Account, after derivation | 64 | 65 | 113 | 109 | 110 | 116 | 117 | 107 | 117 | 127 | 122 | 123 | 1,288 | |
| Federal government | 32 | 33 | 59 | 57 | 58 | 63 | 64 | 58 | 64 | 69 | 67 | 67 | 692 | |
| State governments | 15 | 15 | 29 | 28 | 29 | 29 | 29 | 26 | 29 | 31 | 30 | 30 | 321 | |
| Local governments | 13 | 14 | 24 | 23 | 24 | 24 | 24 | 22 | 24 | 26 | 25 | 25 | 269 | |
| Funds | 2 | 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 5 | |
| VAT revenue | 8 | 7 | 10 | 9 | 7 | 10 | 13 | 9 | 9 | 9 | 8 | 10 | 109 | |
| Federal government | 1 | 1 | 1 | 1 | 1 | 1 | 2 | 1 | 1 | 1 | 1 | 1 | 16 | |
| State governments | 4 | 4 | 5 | 4 | 4 | 5 | 6 | 5 | 4 | 4 | 4 | 5 | 54 | |
| Local governments | 3 | 3 | 3 | 3 | 3 | 3 | 5 | 3 | 3 | 3 | 3 | 3 | 38 | |
| FG federation account share | 36 | 32 | 33 | 59 | 57 | 58 | 63 | 64 | 58 | 64 | 69 | 67 | 661 | |
| Deductions for debt service | 0 | 0 | 0 | 19 | 17 | 17 | 22 | 4 | 4 | 8 | 7 | 16 | 115 | |
| Consolidated revenue fund | 36 | 32 | 33 | 40 | 40 | 41 | 37 | 53 | 48 | 50 | 55 | 45 | 509 | |
| Federal Capital Territory | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 1 | 1 | 1 | 1 | 1 | 6 | |
| Ecological Fund | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 2 | 1 | 2 | 2 | 1 | 9 | |
| Statutory Stabilization | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 1 | 1 | 1 | 1 | 1 | 4 | |
| Residual Transferred to Stabilization | 0 | 0 | 0 | 0 | 0 | 0 | 2 | 3 | 3 | 3 | 3 | 2 | 17 | |
| 2003 revenue sharing | ||||||||||||||
| Total receipts | 175 | 211 | 196 | 180 | 180 | 166 | 191 | 190 | 200 | 225 | 207 | 273 | 2,395 | |
| Oil and gas revenue | 147 | 190 | 170 | 159 | 155 | 141 | 160 | 165 | 173 | 196 | 179 | 239 | 2,074 | |
| Non-oil revenue | 28 | 21 | 26 | 22 | 25 | 26 | 28 | 25 | 26 | 29 | 25 | 31 | 310 | |
| Drawdown of excess crude | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 | 2 | 0 | 3 | 3 | ||
| Deductions 1/ | 0 | 34 | 34 | 34 | 42 | 47 | 52 | 61 | 64 | 63 | 59 | 74 | 564 | |
| Net Federation Account | 175 | 177 | 162 | 147 | 138 | 119 | 139 | 129 | 137 | 163 | 148 | 198 | 1,832 | |
| Derivation grants | 11 | 12 | 13 | 12 | 11 | 9 | 14 | 10 | 12 | 13 | 14 | 18 | 148 | |
| Net Federation Account, after derivation | 164 | 165 | 149 | 135 | 127 | 110 | 159 | 119 | 142 | 150 | 160 | 206 | 1,786 | |
| Federal government | 89 | 90 | 81 | 74 | 70 | 60 | 87 | 65 | 78 | 82 | 87 | 109 | 973 | |
| State governments | 40 | 41 | 37 | 33 | 32 | 27 | 39 | 29 | 35 | 37 | 39 | 54 | 445 | |
| Local governments | 34 | 34 | 31 | 28 | 26 | 23 | 33 | 24 | 29 | 31 | 33 | 42 | 368 | |
| VAT revenue | 10 | 9 | 10 | 10 | 12 | 12 | 10 | 12 | 11 | 10 | 14 | 13 | 135 | |
| Federal government | 1 | 1 | 1 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 20 | |
| State governments | 5 | 5 | 5 | 5 | 6 | 6 | 5 | 6 | 5 | 5 | 7 | 6 | 67 | |
| Local governments | 3 | 3 | 3 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 5 | 4 | 47 | |
| FG federation account share | 67 | 89 | 90 | 81 | 74 | 70 | 60 | 87 | 65 | 78 | 82 | 87 | 931 | |
| Deductions for debt service | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 194 | |
| Consolidated revenue fund | 45 | 65 | 66 | 58 | 51 | 47 | 39 | 63 | 43 | 55 | 58 | 63 | 654 | |
| Federal Capital Territory | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 13 | |
| Ecological Fund | 1 | 2 | 2 | 2 | 2 | 1 | 1 | 2 | 1 | 2 | 2 | 2 | 20 | |
| Statutory Stabilization | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 10 | |
| Residual Transferred to Stabilization | 3 | 4 | 4 | 4 | 3 | 3 | 2 | 4 | 3 | 3 | 4 | 4 | 40 | |
Deductions for cash call payments and accumulation of excess crude (subsequently distributed within the year).
Nigeria: Revenue sharing, 2002-03
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In billions of naira) | ||||||||||||||
| 2002 revenue sharing | ||||||||||||||
| Total receipts | 126 | 128 | 127 | 120 | 118 | 124 | 124 | 114 | 126 | 135 | 131 | 131 | 1,503 | |
| Oil and gas revenue | 108 | 109 | 101 | 94 | 99 | 102 | 93 | 93 | 105 | 108 | 107 | 111 | 1,231 | |
| Non-oil revenue | 18 | 18 | 26 | 26 | 19 | 22 | 31 | 21 | 20 | 27 | 24 | 20 | 272 | |
| Deductions | 57 | 58 | 6 | 4 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 126 | |
| Net Federation Account | 69 | 70 | 121 | 116 | 118 | 124 | 124 | 114 | 126 | 135 | 131 | 131 | 1,377 | |
| Derivation grants | 5 | 5 | 8 | 7 | 8 | 8 | 7 | 7 | 8 | 8 | 8 | 9 | 89 | |
| Net Federation Account, after derivation | 64 | 65 | 113 | 109 | 110 | 116 | 117 | 107 | 117 | 127 | 122 | 123 | 1,288 | |
| Federal government | 32 | 33 | 59 | 57 | 58 | 63 | 64 | 58 | 64 | 69 | 67 | 67 | 692 | |
| State governments | 15 | 15 | 29 | 28 | 29 | 29 | 29 | 26 | 29 | 31 | 30 | 30 | 321 | |
| Local governments | 13 | 14 | 24 | 23 | 24 | 24 | 24 | 22 | 24 | 26 | 25 | 25 | 269 | |
| Funds | 2 | 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 5 | |
| VAT revenue | 8 | 7 | 10 | 9 | 7 | 10 | 13 | 9 | 9 | 9 | 8 | 10 | 109 | |
| Federal government | 1 | 1 | 1 | 1 | 1 | 1 | 2 | 1 | 1 | 1 | 1 | 1 | 16 | |
| State governments | 4 | 4 | 5 | 4 | 4 | 5 | 6 | 5 | 4 | 4 | 4 | 5 | 54 | |
| Local governments | 3 | 3 | 3 | 3 | 3 | 3 | 5 | 3 | 3 | 3 | 3 | 3 | 38 | |
| FG federation account share | 36 | 32 | 33 | 59 | 57 | 58 | 63 | 64 | 58 | 64 | 69 | 67 | 661 | |
| Deductions for debt service | 0 | 0 | 0 | 19 | 17 | 17 | 22 | 4 | 4 | 8 | 7 | 16 | 115 | |
| Consolidated revenue fund | 36 | 32 | 33 | 40 | 40 | 41 | 37 | 53 | 48 | 50 | 55 | 45 | 509 | |
| Federal Capital Territory | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 1 | 1 | 1 | 1 | 1 | 6 | |
| Ecological Fund | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 2 | 1 | 2 | 2 | 1 | 9 | |
| Statutory Stabilization | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 1 | 1 | 1 | 1 | 1 | 4 | |
| Residual Transferred to Stabilization | 0 | 0 | 0 | 0 | 0 | 0 | 2 | 3 | 3 | 3 | 3 | 2 | 17 | |
| 2003 revenue sharing | ||||||||||||||
| Total receipts | 175 | 211 | 196 | 180 | 180 | 166 | 191 | 190 | 200 | 225 | 207 | 273 | 2,395 | |
| Oil and gas revenue | 147 | 190 | 170 | 159 | 155 | 141 | 160 | 165 | 173 | 196 | 179 | 239 | 2,074 | |
| Non-oil revenue | 28 | 21 | 26 | 22 | 25 | 26 | 28 | 25 | 26 | 29 | 25 | 31 | 310 | |
| Drawdown of excess crude | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 | 2 | 0 | 3 | 3 | ||
| Deductions 1/ | 0 | 34 | 34 | 34 | 42 | 47 | 52 | 61 | 64 | 63 | 59 | 74 | 564 | |
| Net Federation Account | 175 | 177 | 162 | 147 | 138 | 119 | 139 | 129 | 137 | 163 | 148 | 198 | 1,832 | |
| Derivation grants | 11 | 12 | 13 | 12 | 11 | 9 | 14 | 10 | 12 | 13 | 14 | 18 | 148 | |
| Net Federation Account, after derivation | 164 | 165 | 149 | 135 | 127 | 110 | 159 | 119 | 142 | 150 | 160 | 206 | 1,786 | |
| Federal government | 89 | 90 | 81 | 74 | 70 | 60 | 87 | 65 | 78 | 82 | 87 | 109 | 973 | |
| State governments | 40 | 41 | 37 | 33 | 32 | 27 | 39 | 29 | 35 | 37 | 39 | 54 | 445 | |
| Local governments | 34 | 34 | 31 | 28 | 26 | 23 | 33 | 24 | 29 | 31 | 33 | 42 | 368 | |
| VAT revenue | 10 | 9 | 10 | 10 | 12 | 12 | 10 | 12 | 11 | 10 | 14 | 13 | 135 | |
| Federal government | 1 | 1 | 1 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 20 | |
| State governments | 5 | 5 | 5 | 5 | 6 | 6 | 5 | 6 | 5 | 5 | 7 | 6 | 67 | |
| Local governments | 3 | 3 | 3 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 5 | 4 | 47 | |
| FG federation account share | 67 | 89 | 90 | 81 | 74 | 70 | 60 | 87 | 65 | 78 | 82 | 87 | 931 | |
| Deductions for debt service | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 194 | |
| Consolidated revenue fund | 45 | 65 | 66 | 58 | 51 | 47 | 39 | 63 | 43 | 55 | 58 | 63 | 654 | |
| Federal Capital Territory | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 13 | |
| Ecological Fund | 1 | 2 | 2 | 2 | 2 | 1 | 1 | 2 | 1 | 2 | 2 | 2 | 20 | |
| Statutory Stabilization | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 10 | |
| Residual Transferred to Stabilization | 3 | 4 | 4 | 4 | 3 | 3 | 2 | 4 | 3 | 3 | 4 | 4 | 40 | |
Deductions for cash call payments and accumulation of excess crude (subsequently distributed within the year).
Nigeria: Revenue sharing, 2002-03
In percent of oil revenue.
Nigeria: Revenue sharing, 2002-03
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In percentage) | ||||||||||||||
| 2002 revenue sharing | ||||||||||||||
| Net Federation Account, after derivation | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Federal government | 51.1 | 50.8 | 52.4 | 52.4 | 52.4 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 53.7 | |
| State governments | 23.9 | 23.9 | 25.9 | 25.9 | 25.9 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 25.0 | |
| Local governments | 21.2 | 21.1 | 21.6 | 21.6 | 21.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.9 | |
| Funds | 3.7 | 4.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.4 | |
| VAT revenue | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Federal government | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | |
| State governments | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | |
| Local governments | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | |
| Derivation grants 1/ | 5.0 | 4.4 | 7.8 | 7.6 | 7.8 | 7.8 | 7.8 | 7.8 | 7.8 | 7.8 | 7.8 | 7.8 | 7.2 | |
| FG federation account share | 51.1 | 50.8 | 52.4 | 52.4 | 52.4 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 51.3 | ||
| Deductions for debt service | 0.0 | 0.0 | 16.6 | 15.6 | 15.5 | 18.8 | 3.7 | 4.0 | 6.8 | 5.9 | 13.2 | 8.9 | ||
| Consolidated revenue fund | 51.1 | 50.8 | 35.8 | 36.8 | 37.0 | 31.7 | 45.2 | 44.9 | 42.4 | 43.3 | 36.9 | 39.5 | ||
| Federal Capital Territory | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.7 | 0.9 | 0.9 | 0.9 | 0.9 | 0.8 | 0.5 | ||
| Ecological Fund | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 1.0 | 1.4 | 1.4 | 1.3 | 1.3 | 1.1 | 0.7 | ||
| Statutory Stabilization | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.5 | 0.7 | 0.7 | 0.6 | 0.6 | 0.5 | 0.3 | ||
| Residual Transferred to Stabilization | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 2.0 | 2.8 | 2.8 | 2.7 | 2.7 | 1.6 | 1.3 | ||
| 2003 revenue sharing | ||||||||||||||
| Net Federation Account, after derivation | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Federal government | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 52.9 | 54.5 | |
| State governments | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 26.5 | 24.9 | |
| Local governments | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | |
| VAT revenue | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Federal government | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | |
| State governments | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | |
| Local governments | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | |
| Derivation grants 1/ | 7.8 | 6.4 | 7.5 | 7.4 | 6.8 | 6.2 | 8.5 | 5.9 | 7.0 | 6.4 | 7.8 | 7.6 | 7.1 | |
| FG federation account share | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 52.1 | ||
| Deductions for debt service | 9.8 | 9.8 | 10.8 | 12.0 | 12.7 | 14.6 | 10.1 | 13.6 | 11.3 | 10.8 | 10.1 | 10.8 | ||
| Consolidated revenue fund | 39.8 | 39.8 | 38.9 | 37.9 | 37.3 | 35.5 | 39.5 | 36.5 | 38.5 | 39.0 | 39.5 | 36.6 | ||
| Federal Capital Territory | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.7 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | ||
| Ecological Fund | 1.2 | 1.2 | 1.2 | 1.1 | 1.1 | 1.1 | 1.2 | 1.1 | 1.2 | 1.2 | 1.2 | 1.1 | ||
| Statutory Stabilization | 0.6 | 0.6 | 0.6 | 0.6 | 0.6 | 0.5 | 0.6 | 0.5 | 0.6 | 0.6 | 0.6 | 0.5 | ||
| Residual Transferred to Stabilization | 2.5 | 2.5 | 2.4 | 2.3 | 2.3 | 2.2 | 2.4 | 2.3 | 2.4 | 2.4 | 2.4 | 2.3 | ||
In percent of oil revenue.
Nigeria: Revenue sharing, 2002-03
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In percentage) | ||||||||||||||
| 2002 revenue sharing | ||||||||||||||
| Net Federation Account, after derivation | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Federal government | 51.1 | 50.8 | 52.4 | 52.4 | 52.4 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 53.7 | |
| State governments | 23.9 | 23.9 | 25.9 | 25.9 | 25.9 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 25.0 | |
| Local governments | 21.2 | 21.1 | 21.6 | 21.6 | 21.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.9 | |
| Funds | 3.7 | 4.2 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.4 | |
| VAT revenue | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Federal government | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | |
| State governments | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | |
| Local governments | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | |
| Derivation grants 1/ | 5.0 | 4.4 | 7.8 | 7.6 | 7.8 | 7.8 | 7.8 | 7.8 | 7.8 | 7.8 | 7.8 | 7.8 | 7.2 | |
| FG federation account share | 51.1 | 50.8 | 52.4 | 52.4 | 52.4 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 51.3 | ||
| Deductions for debt service | 0.0 | 0.0 | 16.6 | 15.6 | 15.5 | 18.8 | 3.7 | 4.0 | 6.8 | 5.9 | 13.2 | 8.9 | ||
| Consolidated revenue fund | 51.1 | 50.8 | 35.8 | 36.8 | 37.0 | 31.7 | 45.2 | 44.9 | 42.4 | 43.3 | 36.9 | 39.5 | ||
| Federal Capital Territory | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.7 | 0.9 | 0.9 | 0.9 | 0.9 | 0.8 | 0.5 | ||
| Ecological Fund | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 1.0 | 1.4 | 1.4 | 1.3 | 1.3 | 1.1 | 0.7 | ||
| Statutory Stabilization | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.5 | 0.7 | 0.7 | 0.6 | 0.6 | 0.5 | 0.3 | ||
| Residual Transferred to Stabilization | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 2.0 | 2.8 | 2.8 | 2.7 | 2.7 | 1.6 | 1.3 | ||
| 2003 revenue sharing | ||||||||||||||
| Net Federation Account, after derivation | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Federal government | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 52.9 | 54.5 | |
| State governments | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 24.7 | 26.5 | 24.9 | |
| Local governments | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | 20.6 | |
| VAT revenue | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Federal government | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | |
| State governments | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | 50.0 | |
| Local governments | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | 35.0 | |
| Derivation grants 1/ | 7.8 | 6.4 | 7.5 | 7.4 | 6.8 | 6.2 | 8.5 | 5.9 | 7.0 | 6.4 | 7.8 | 7.6 | 7.1 | |
| FG federation account share | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 54.7 | 52.1 | ||
| Deductions for debt service | 9.8 | 9.8 | 10.8 | 12.0 | 12.7 | 14.6 | 10.1 | 13.6 | 11.3 | 10.8 | 10.1 | 10.8 | ||
| Consolidated revenue fund | 39.8 | 39.8 | 38.9 | 37.9 | 37.3 | 35.5 | 39.5 | 36.5 | 38.5 | 39.0 | 39.5 | 36.6 | ||
| Federal Capital Territory | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.7 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | ||
| Ecological Fund | 1.2 | 1.2 | 1.2 | 1.1 | 1.1 | 1.1 | 1.2 | 1.1 | 1.2 | 1.2 | 1.2 | 1.1 | ||
| Statutory Stabilization | 0.6 | 0.6 | 0.6 | 0.6 | 0.6 | 0.5 | 0.6 | 0.5 | 0.6 | 0.6 | 0.6 | 0.5 | ||
| Residual Transferred to Stabilization | 2.5 | 2.5 | 2.4 | 2.3 | 2.3 | 2.2 | 2.4 | 2.3 | 2.4 | 2.4 | 2.4 | 2.3 | ||
In percent of oil revenue.
79. Besides data on revenue sharing, there is very little information sharing between the three tiers of government and no well-developed system for reporting of fiscal developments:
The states and local governments do not report in a systematic manner on their annual budgets to the federal government.
The states and local governments do no report any information to the federal government on their budget execution and (domestic) debt issuance, neither during the year, nor at the end of the year.
The only consolidated source of information on fiscal activities at the subnational level is an annual survey carried out by the CBN.
While the states and the federal government meet monthly in the Federation Account Allocation Committee to finalize the monthly revenue sharing, there is little information being provided to the states on broader fiscal developments, including on the implementation of the federal government budget.
80. There is no coordination of fiscal policy across the three tiers of government:
The extensive revenue sharing implies that subnational government activities have macroeconomic consequences. While the federal government has the responsibility for determining fiscal policy at the aggregate level, achieving this is difficult unless the subnational governments contribute their share to achieving macroeconomic stability.
Despite regular meetings between the federal government and the states to finalize the monthly revenue transfer, there is no attempt at coordinating fiscal policy more broadly.
Subnational governments need to pursue public expenditure reforms similar to the federal government’s, including reallocating more of their spending toward infrastructure and enhancing the transparency of the budget process. The World Bank has taken the lead in assisting subnational governments strengthen their public expenditure management systems. Work has focused on expenditure reviews, state finances, governance, and overall capacity building.
Policy coordination would be enhanced if subnational governments adopted standardized economic and functional classification systems and improved budget reporting. This would also help identify whether expenditure programs are properly targeted to meet the governments’ development objectives.
81. The revenue transfers to the subnational governments are highly volatile, in particular between years.
In the absence of a fiscal rule being adhered to across all tiers of government, the revenue transfer is at the whim of oil market volatility. In practice, this introduces substantial uncertainty to the execution of budgets and public service delivery at all levels of government. This is a particular concern for the subnational governments, to which many social spending responsibilities have been devolved to.
A fiscal rule extended to all levels of government would provide some “insurance” against this volatility and introduce an element of certainty and predictability that is currently absent from the intergovernmental fiscal relations. The authorities are preparing a Fiscal Responsibility Bill that would introduce a fiscal rule for all government levels.
Recommendations
82. In the short term, efforts should be made (i) to establish a system of fiscal reporting by states and local governments on their budget approval and execution; and (ii) to strengthen information sharing between the BOF and states on budget and revenue assumptions. In the medium term, (i) the coordination of fiscal policies across the three tiers of government should be strengthened; (ii) more oversight of subnational borrowing could be introduced; and (iii) the volatility in state budgets could be reduced by getting agreement on adhering to a fiscal rule and introducing individual savings accounts with the CBN for all states.
G. Conclusions
83. The Nigerian authorities’ reform agenda includes a strategy to improve fiscal management capacity. In the past, shortcomings in fiscal management capacity led to a procyclical fiscal policy stance driven by volatile oil revenue, a relatively high debt level, and waste and misplaced priorities in government expenditure.
84. Many measures have been already implemented in several areas, but key challenges remain. Among other things, the BOF has taken a clear leadership in the budget formulation process, the execution of the budget and the reporting of fiscal data have improved lately, reflecting the implementation of budget automation reforms in the OAGF, a Cash Management Committee was established to facilitate institutional coordination and determine borrowing needs in advance, and a Fiscal Responsibility Bill is being prepared to institutionalize a fiscal rule for all levels of government. The formulation of the 2005 budget should provide another opportunity to set “hard” expenditure limits and spending allocations in line with NEEDS’ priorities. Cash management will need to be enhanced, partly through a rationalization of banking arrangements, and expenditure arrears should be identified, audited, and eliminated over time. Fiscal reporting and payroll management should continue to benefit from the institutional strengthening of BOF and OAGF and the coordination mechanisms with other public entities. All these reforms at the federal government level would need to be extended to the operation of state and local governments in the context of a fiscal rule aimed at bringing the non-oil deficit to more sustainable levels and at reducing the economy’s vulnerability to the volatility in oil exports.
Prepared by Thomas Baunsgaard and updated by Mauricio Villafuerte. This chapter draws on the recent FAD Country Strategy Brief for Nigeria, various technical assistance (TA) reports prepared by FAD, the World Bank Public Expenditure Review, as well as the Phillips Commission report on the budget process. It has been updated based on recent developments.
For a detailed description of the federal system and intergovernmental finances in Nigeria, see Nigeria: Selected Issues and Statistical Appendix, IMF Country Report No. 03/60, http://www.imf.org.
The creation of a central capital account was necessary, as the CBN did not recognize the line ministry capital accounts as being under the control of the federal government.
For example, in June 2003 the presidentially appointed Committee on the Monetisation of Fringe Benefits in the Public Service of the Federation recommended an extension of monetized benefits across the public sector employees without assessing the financial implications.
For example, in June 2003 the presidentially appointed Committee on the Monetisation of Fringe Benefits in the Public Service of the Federation recommended an extension of monetized benefits across the public sector employees without assessing the financial implications.
As a recent example, the supplementary appropriation bill in November 2003 included N 40.5 billion explicitly tagged for arrears clearance.
Since a Supreme Court ruling in 2002, primarily cash call payments are deducted.