State budgetary allocations: an appraisal of budget implementation and effects in Nigeria

STATE BUDGETARY ALLOCATIONS: AN APPRAISAL OF BUDGET
IMPLEMENTATION AND EFFECTS IN NIGERIA*

1. INTRODUCTION

The role of budget in an economy cannot be overemphasized. This is because budget is an important instrument of national resource mobilization, allocation and economic management. It is an economic instrument for facilitating and realizing the vision of the government in a given fiscal year. Since the inception of democratic governance over a decade ago, Nigerians have built up very high expectations that the budget would contain laudable programmes that would lead to poverty reduction in particular and promote their welfare in general. But concern seems to be growing among stakeholders regarding the ability of the budget to fulfill the policy objectives of the government and by implication satisfy the aspirations of the people. The budget can be considered as the engine of the on-going economic reforms. If it is switched off at any time or if it is malfunctioning, the reforms cannot generate the expected outcomes. All the laudable programmes of the government especially in the areas of poverty reduction, infrastructure development as well as development of key sectors of the economy such as agriculture, manufacturing, education, health, communication, tourism and commerce will only bring out the best results if the defects in the budget process are curtailed and eventually eliminated.

The budget process involves key stages such as budget conception, preparation, approval, execution, monitoring and control as well as budget evaluation. A good budget process must attain three important objectives, namely; (i) maintenance of fiscal discipline especially in terms of realistic expenditure proposals, realistic revenue projections, compliance with budget provisions, compliance with financial regulations (maintenance of strict financial management), timely release of funds and avoidance of undue fiscal imbalances; (ii) attaining allocative efficiency and (iii) attaining operational or technical efficiency. In order to fulfill the specified objectives, the budget must possess the following characteristics (a la Olomola, 2000) appropriate spending priorities, comprehensiveness, transparency, timeliness, appropriate balance in recurrent and capital expenditure and proper sequencing.

The budget process in Nigeria still falls short of these qualities and the desired objectives are far from being fully achieved. Up to the end of the 20th century, the budget process was bedeviled with monumental imperfections and suffered myriad of abuses including (i) inability of existing medium- longterm plans to provide useful guide to the budgetary process, (ii) lack of political will and commitment to abide by stipulated rules and budget guidelines, (iii) high incidence of extrabudgetary expenditure, (iv) persistently chronic budget deficit, (v) off-budget resource allocation and (vi) overlapping institutional arrangements in the budget process resulting in lopsided allocation of resources and delays in arriving at a consensus on critical decisions (Olomola, 2009a). Policy reversals are the order of the day, sometimes leading to extra-budgetary spending or abandonment of projects leading to frustration of stakeholders. Despite the various reforms of the budgetary process since 2000, the defects in the budget process including poor implementation of budget continue unabated.

The need arises therefore, to unravel the motivation and root cause of poor budget implementation with a view to identifying ways of plugging the waste pipes and freeing funds for executing projects that will improve the welfare of the people. In doing this, attention should not be limited to the Federal tier of government. This is why the current assessment in NISER is directed at State Governments across the country. To my mind, efficient and effective public spending programmes are critical in promoting economic growth and equitable access to economic opportunities for all segments of society. Well-planned and implemented public spending strategies can promote allocative efficiency and equity through timely and appropriately focussed budget implementation and service delivery especially at the state and local government levels. Specifically therefore, this paper seeks to (i) analyse the performance of the state budgets in Nigeria (ii) examine the structure of government revenue and expenditure at the state level, (iii) ascertain the relationship between government expenditure and output at the state level, (iv) examine the pitfalls in the budget process and (v) proffer policy measures to strengthen the budget process and improve the implementation outcomes. 1.1 Literature Review and Theoretical Framework

A crucial question in the budgetary process in Nigeria is – what does the country have to show for the fabulous amount of money being spent annually in the country? In tacking this puzzle, it is germane to examine the effects of government spending on the economy. This in itself is a hotly debated issue in public economics. The relationship between government spending and national output should provide an appropriate analytical framework (theoretically and empirically) for re-directing the budgetary process towards achieving the desired objectives. Government spending and national output relationship takes its root from classical economics and many economists have considered its various perspectives and consequences. For instance, Landau (1983), Barro and Sala-I-Martin (2004), Folster and Henrekson (2001) claimed that the growth of government spending has a significantly negative impact on economic growth of a country and the state activities are required to be reduced to the barest minimum. Many studies have investigated the relationship between government spending and economic growth across countries (Kolluri and Wahab (2007), Shelton (2007)).

A strand of the literature investigated the relationship between expenditure and economic growth over time while other studies Bird (1971), Georgakopoulos and Loizides (1994) and Dimitrios and Richter (2011) attempted to estimate the elasticity of government expenditure with respect to output and tried to find evidence of the empirical test called “Wagner’s law”, the hypothesis that government spending increases more than proportionally with higher economic activity. 1.1.1 Previous theoretical work.

In the 19th century a German economist, Adolph Wagner (1883), formulated a “Law of expanding state expenditures”, and the main point of his work is the growing importance of government activity and expenditure as an inevitable feature of a “progressive” state. A modern formulation of Wagner’s “law”, proposed by Bird (1971), might run as follows: as per capita income rises in industrializing nations, their public sectors will grow in relative importance. Wagner included in his work three reasons why the development of public spending will take place. Firstly, an expansion of state expenditures would come about with respect to the administrative and protective functions of the state. His explanation based on substitution of public for private activity. After some years, new factors have been added, such as the increase in population density and urbanization, consequently that leads to increased state (public)

Expenditures and on economic regulation. Secondly, he explained why he predicted a considerable relative expansion of “cultural and welfare” expenditures (especially redistribution of income and education). He assumed that these goods are “luxury goods”, hence, the income elasticity of demand is greater than unity. Finally, Wagner claimed that the inevitable changes in technology and investment required in many activities would generate an increasing number of private monopolies. This effect would have to be offset, or the monopolies taken over, by the state interests of economic efficiency (his main example was the railroad).Wagner in his original study also recognised that the state expansion has some limits. He mentioned that the proportion between government spending and national income may not be permanently overstepped. Hence, this suggests that there must be some sort of balance in the individual’s outlays for the satisfaction of various needs.

According to Dutt and Ghosh (1997), Wagner did not present any mathematical form in order to examine his hypothesis and he also was not explicit in the formulation of his hypothesis. However, there are several versions that tested the Wagner’s hypothesis and the most important of them are the following: Peacock and Wiseman(1961), Gupta (1967b), Goffman (1968) , Pryor (1969), Musgrave (1969), Goffman and Mahar (1971) and Mann (1980). The basic specifications of these versions are as follows.
The following studies used this formulation: Bird (1971), Courakis et al.(1993), Mann (1980), Oxley (1994) .
(ii) Peacock-Wiseman share version (Mann version)
Mann (1980) proposed a related specification of Peacock and Wiseman (1979) model, the share version. In his model the share of government expenditures in total output is a function of real output. Support of Wagner’s “law” requires that the elasticity of government share in total output with respect to output exceed zero,

Musgrave version
Another specification of Wagner’s hypothesis is proposed by Musgrave (1969). According to this model, the share of real government expenditures to output is a function of real per capita output. The requirement to support Wagner’s hypothesis is that the elasticity of government expenditures with respect to real output per capita exceed zero, =

Gupta (1967a) models real per capita government expenditures as a function of real per capita output. In that case, the validity of Wagner’s hypothesis requires the elasticity of per capita real government expenditures with respect to real per capita output exceed unity.

Goffman and Mahar (1971) model the real government expenditures as a function of real per capita output. Support for this hypothesis requires that the elasticity of real government expenditures with respect to per capita output exceed unity, Lin (1995) used Goffman version.

Pryor version
Finally, Pryor (1969) models the real government consumption expenditures as a function of real output. The validity of Wagner’s “law” requires that the elasticity of government consumption with respect to income exceed unity,

Where, LG is log of real government expenditures, LGC is log of real government consumption expenditure, LP is log of population, L(G/Y) is log of the share of government spending in total output, L(Y/P) is log of per capita real output, L(G/P) is log of per capita real government expenditures and LY is log of real GDP.

1.2 Review of Empirical Literature
The law introduced by the German economist Adolph Wagner relating government expenditure to output has been very popular among modern economists who have claimed that the economic effects run from output to expenditure making it the other side of the same coin as the Keynesian theory. Since the translation of the law in the 1950’s, a large number of authors tested various specifications of the law using both time series and cross-sectional data sets and empirically examined the law for a single country or a group of countries. In their recent work, Dimitrios and Richter (2011), substantiated the relevance of the law in modern-day economies highlighting various empirical studies using data on government expenditure at the provincial or state level Yousefi and Abizadeh (1992) for developed, developing countries or group of both. Although most of them examined developed or industrial countries, the number of studies examining the case of developing countries from Africa or from South Asia during the last six years has increased. For instance, Halicioglu (2003) used data for 1960 – 2000 and found no support for empirical validity of Wagner’s law in Turkey. Following Mann’s (1980) study, Chang, Liu and Caudill (2004) used time series data for 1951-1996 for seven industrialized countries and three developing countries and found no causality between economic growth and government expenditure in either direction. Florio and Colautti (2005) analyzed the experience of five developed economies (USA, UK, Italy and Germany) for the period 1870 – 1990.

They developed a model based on Wagner’s law and found that the increase in public expenditure to national income ratio was faster for the period until the 20th century. Dependra (2007) attempted to consider if Wagner’s law holds for Thailand using recent advances in econometric technique, the Toda – Yamamota Granger causality test. The Author found no causality flowing from either direction between gross domestic product and government expenditure. The author concluded that there was no much evidence that Wagner’s law holds for Thailand. Sideris (2007) also tested Wagner’s law in the 19th century for Greece using cointegration and causality analysis. The author found support for Wagner’s hypothesis in line with other empirical studies that examined the validity of the hypothesis in 19th century economies.

In Nigeria, many authors have also attempted to examine government expenditureeconomic growth relationship. For example, Oyinlola (1993), examined the relationship between the Nigeria’s defence sector and economic development, and reported a positive impact of defence expenditure on economic growth. Fajingbesi and Odusola (1999) empirically investigated the relationship between government expenditure and economic growth in Nigeria. The econometric results indicated that real government capital expenditure has a significant positive influence on real output. However, the results showed that real government recurrent expenditure affects growth only by little. A study by Ogiogio (1995) also revealed a long-term relationship between government expenditure and economic growth. Moreover, the author’s findings showed that recurrent expenditure exerts more influence than capital expenditure on growth.

Akpan (2005), used a disaggregated approach to determine the components (that include capital, recurrent, administrative, economic service, social and community service, and transfers) of government expenditure that enhances growth, and those that do not. The author concluded that there was no significant association between most components of government expenditure and economic growth in Nigeria. Nurudeen and Usman (2010), investigated the effect of government expenditure on economic growth with disaggregated expenditure data from 1979 to 2007. The results reveal that government total capital expenditure, total recurrent expenditures, and government expenditure on education have negative effect on economic growth. On the contrary, rising government expenditure on transport and communication, and health results in an increase in economic growth.

While the foregoing studies focused on the Keynesian model which stipulates that expansion of government expenditure accelerates economic growth, the most relevant study in tracing the causal relationship from output to government spending is that of Ighodaro and Oriahi (2010). In addition to total government expenditure they used a disaggregated government expenditure data from 1961 – 2007, specifically; expenditure on general administration and that of community and social services to determine the specific government expenditure that economic growth may have significant impact on. Other variables reflecting fiscal policy changes and political freedom were also included in the model to augment the functional form of Wagner’s law. All the variables used were found to be I(1) and long run relationship exist between the dependent and the independent variables except in the case where only GDP was used as the independent variable. Wagner’s hypothesis did not hold in all the estimations rather Keynesian hypothesis was validated.

By and large, there are two types of analysis used to examine Wagner’s law validity, time series and cross section analysis. Studies using time series analysis (Chletsos and Kollias (1997), Islam (2001), Liu et al. (2008)) examine the effect of the national income growth on the expansion of government expenditures over time for a particular country or group of countries. The cross-section analysis (Michas (1974), Abizabeh and Gray (1985), Dao (1995), Shelton 6

(2007)) investigates the relationship between national income and government expenditures across different countries at the same point in time. Bird (1971) implied that studies using crosssectional data in order to examine the validity of Wagner’s law are irrelevant, since a postulated change in the public sector happens over time. Henrekson (1993) used long-term data for the Swedish economy and claimed that the growth of public sector is a process occurring over time in a single country. On the other hand, Michas (1975) argued that cross section analysis is more relevant because there is an examination of a number of countries and the law can be generalized. Wahab (2004) claimed that by including the cross section analysis in his study he maximized sample size and increased the power of empirical tests. Ram (1987) suggested that most authors examining developing countries prefer cross-sectional analysis since long-time series for these countries are unavailable.

1.3 Methodology
This study examines the implementation of budget and the elasticity of government expenditure with respect to output at the state level using quantitative and qualitative techniques. For the quantitative analysis of government revenue, expenditure and gross state product, all the 36 states are included whereas two states from each of the six geopolitical zones are covered in the qualitative analysis of budget implementation. The budget performance is analysed using indicators such as the share of internally generated revenue (IGR) in total revenue, share of IGR in gross state product, share of IGR in total recurrent expenditure, share of personnel in recurrent expenditure and share of recurrent expenditure in total expenditure. The effect of expenditure is examined through its link with output in each state (state GDP). In examining the relationship between government expenditure and output with a view to determining the elasticity of government expenditure with respect to output, a model based on Wagner’s Law is estimated. Two of the theoretical specifications of the law are adapted as follows.

Where LTGE is log of total government expenditure and LSGDP is log of state GDP. There are two major differences between this study and previous studies on Wagner’s Law in Nigeria. First, it is a cross-sectional study and secondly it is concerned with government expenditure at the state level. Due to the non-existent of time series data on state GDP in Nigeria, it has not been possible to apply this type of model using time series data at the state level in the country over the years. Variants of the models in which internally generated revenue and statutory allocation are included as regressors, are also estimated. The study employed both primary and secondary data with a view to achieving its objectives. Primary data were obtained through the use of structured questionnaires and the indepth interview approach. The questionnaires were structured to obtain information on budgetary allocation, actual spending and implementation by ministries, departments and agencies (MDAs) while the in-depth interview was conducted to solicit the views of key officials of ministries, departments and agencies (MDAs) on the opportunities and threats to effective budget implementation. Two states were selected from each of the geo-political zones to make a total of 12 states included in the study. Altogether 1,387 respondents drawn from three categories of government officials (GL 7-9, GL 10-14 and the GL 15-17) who were considered to be neckdeep in the budgeting process participated in the survey which was conducted by the Nigeian Institute of Social and Economic Research (NISER) across the country in 2010. The analysis here derives from this bigger study. Secondary data on revenue and expenditure of all the states were obtained from the Ministries of Economic Planning and Budget and CBN annual reports while data on state GDP for 2008, for the purpose of the econometric analysis, was obtained from UNDP Human Development Report.

2. ANALYSIS OF BUDGET PERFORMANCE
2.1 Revenue Profile
The two categories of revenue in the states are statutory allocation and internally generated revenue (IGR). In 2007, statutory allocation ranged from N17.86 billion in Gombe state to N98.95 billion in Akwa Ibom state. In subsequent years, Gombe state continued to maintain the lowest rank while Akwa Ibom state received the highest followed closely by Delta state which is also an oil-rich state. The revenue (statutory allocation) trend follows a similar pattern in all the states with an increase from 2007 to 2008.

Whereas there is near complete reliance on one or two internal revenue sources little attempt is being made to tap into other sources of wealth (Akande, Olomola and Olokesusi, 2012). Apart from the problem of dwindling revenue accruable to some states, diversion of available revenue constitutes a major threat to their fiscal capacity. Some state governors have threatened to deal with civil servants found tampering with internally generated revenues or siphoning the revenues through dubious means. I ngeneral, availability of revenue also depends on the level of indebtedness of states. Some debt repayments are deducted right from source implying that the net flow of statutory allocation to states concerned may actually not be adequate to meet their requirements for development financing. The revenue flow from this source is also characterised by frequent delays due to lateness in holding Federation Account Allocation Committee (FAAC) meetings. This has adverse consequences on short-term finances of many state governments. In recent times many states are carrying out verification exercises of their accounting systems including staff audit and biometrics with the expectation that the savings made from personnel cost arising from the fraudulent practices discovered will be channelled to offset the shortfall in statutory allocations.

2.2 Expenditure Profile

Government expenditure during the period under review is examined under two major categories – recurrent and capital. There has been substantial increase in both expenditures over the period. In 2007, recurrent expenditure ranged from N9.79 billion in Niger state to N145.76 billion in Lagos state.
Throughout the period, Niger state recorded the least capital expenditure annually from 2007 to 2010. Overall, total government expenditure in Lagos state was the highest from 2008 to 2010 followed by Akwa Ibom and Delta states; while Anambra state recorded the lowest total government expenditure for the three consecutive years.

The implementation of the budget is examined in the selected states beginning with the views of the respondents on the timeliness of activities (budget preparation, screening, approval and release of funds) in the budget process and compatibility with development priorities over a period of four years (2007 to 2010). The results show that there was a major problem with timeliness of budgetary activities in majority of the states.

states – Lagos, Kwara and Oyo demonstrated a satisfactory performance in terms of timeliness based on the percentage of the respondents that claimed to be satisfied annually during the period under review. The proportion of respondents who were satisfied ranged from about 59 to 71percent in Lagos state compared to 58 to 77 percent in Kwara and 59 to 73 percent in Oyo state. In the remaining nine states, the respondents were generally unsatisfied since the proportion who claimed to be satisfied was generally far less than 50 percent. The critical areas of delay were passage of the appropriation bill by the state houses of assembly and release of appropriated funds by the MDAs. In general, delays in the budget process remained increasingly chronic over the period, as evidenced by the level of satisfaction of respondents which continued to decrease from year to year.

By and large, the poor budget performance is due to dwindling revenue flow from the federation account, low level of internally generated revenue and untimeliness of release of available funds quite apart from leakages and weak capacity in the MDAs. Besides, the general pattern of fiscal management is of great concern. Both revenue and expenditure management in the states leaves much to be desired. The initiative and drive to generate more revenue and the capacity to allocate such revenues between categories of expenditure are specific areas that should be carefully managed to ensure that the state development objectives are achieved. 2.3.1 Revenue Mobilization and Structure

The low level of internally generated revenue has been held as the bane of public sector budgeting at the state level. With the low level of collection and limited tax base in many states, it is not surprising that IGR-to-GDP at the state level in 2008 (the only year for which data is available) is generally very low (less than eight per cent) in the selected states. This is an indication that tax revenue is still accorded very low priority in development financing in 13 respectively while Delta, Akwa Ibom, Kano, Lagos, Niger and Zamfara states have sub-standard revenue structure (Figure 2.10). The presence of Lagos state in this category belies its rigorous tax drive and ingenuity in development programming and financing. A low level of revenue-toGDP ratio implies that revenue growth is much slower than GDP growth and even in nominal terms, revenue is much lower than GDP. The ratio for Lagos in 2008 is not unconnected with the problem the state have been having with the seizure of its statutory revenue allocation on account of the inter-government imbroglio that broke out between the state and the Federal Government following the rejection by the latter of the additional LGAs created by the state. 2.3.2 Government Expenditure Structure

The analysis of expenditure structure focuses on three main indicators namely; share of recurrent expenditure in total expenditure, share of personnel cost in recurrent expenditure and IGR-torecurrent expenditure ratio. As shown in Table 2.2, the share of recurrent expenditure is below 60 per cent in Akwa Ibom, Delta, Lagos, Oyo, Gombe and Taraba states. Anambra state has a similar structure except in 2009 when it recorded a share of 63.6 per cent. This is an indication that these states give considerable commitment to the execution of their key priority projects in the design of their budgets. The situation is different in Kano, Zamfara and Imo states where in 2010, the share of recurrent expenditure was higher than 80 per cent. In two other states, Niger and Kwara, recurrent expenditure share ranged between 65 and 76 per cent from 2007 to 2010. This structure of expenditure is inconsistent with the development priorities of the state and has been partly responsible for the limited progress made in infrastructural development in the concerned states during the period under review.

The share of personnel cost in recurrent expenditure appears to be moderate in many states being generally much lower than 50 per cent except in Kwara state where it stood at an average of about 10 per cent during the period. In 2010, however, personnel cost was gulping over 70 per cent of the recurrent expenditure in Niger and Kano states. These results suggest that payment of workers salary did not constitute a burden on the recurrent budget in majority
states although since the passage of the minimum wage bill in 2011, many states have found it increasingly difficult to pay workers’ salary on a timely basis. In this regard, states with high proportion of personnel cost are likely to be worse off in terms of their ability of sustaining their staff strength at the new level of remuneration.

The third indicator is the IGR-to-recurrent expenditure ratio shows the extent to which a state is capable of meeting its recurrent expenditure from funds mobilized directly from the state. As shown in Table 2.4, it is only in Lagos state that a ratio greater than 100 percent has been achieved for three consecutive years (2008 to 2010) implying that the state’s IGR during the period has been greater than the recurrent expenditure annually. In other words, the expenditure of the state has been so structured in such a way as to ensure that the state continues to be economically viable and remain committed to the execution of development projects.

3. Effects of Government Expenditure

The two models earlier specified are estimated to examine the relationship between government expenditure and output as stipulated by Wagner’s law. As shown in Table 3.1there is a positive and statistically significant relationship between government expenditure and state GDP. Since the model is estimated in double-log form, the coefficients can be interpreted directly as elasticities. The results show that a one-percent increase in GDP is associated with a 0.38-percent increase in government expenditure; implying that government expenditure is output inelastic – a violation of Wagner’s law. Other regressors included in the model also have coefficients that are positive and statistically significant but far less than unity. A one-percent increase in IGR is associated with an increase of 0.19 per cent increase in government expenditure. Furthermore, a one-percent increase in statutory allocation to the states is associated with a 0.59 per cent increase in government expenditure. The results indicate that government expenditure is revenue inelastic ( < 1) whether the revenue is IGR or statutory allocation.

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The results from the second model also show that Wagner’s law is not
validated in the relationship between GDP and share of expenditure in GDP. Validation of Wagner’s law requires that the elasticity of government share in total output with respect to output exceed zero. The law predicts that the development of an industrial economy will be accompanied with an increased share of government expenditure in gross national product. Contrary to this stipulation, a one-percent increase in state GDP is associated with a decrease of 0.88 per cent in the share of government expenditure ( < 0). Nigeria is in the process of modernization and industrialization and in the last few years it has recorded positive growth although development indicators point to the fact that there is still a long way to go in the match towards industrialization. Government spending at the state level has been increasing in the process in tandem with the rising demand for changes in various sectors. Government is expected to intensify efforts in the development of education, housing provision, healthcare and other welfare services, maintenance of law and order as well as protection of lives and property. The country has one of the highest rates of urbanization in the world and apart of modernizing the state capitals, the states are required to provide physical and social infrastructural facilities to cope with rapid urbanization, population growth and rising population density in many states. These changes are supposed to lend support to Wagner’s law.

The fact that government expenditure is output inelastic underscores the need to streamline the expenditure structure by re-directing more funds to development projects, reduce cost of governance and curb corruption. Many states are already making efforts to plug some waste pipes. A state government in the southeast (Imo) recently announced a reduction in security vote from N6.5 billion to N2.5 billion while another (Abia) has set up special court where those involved in diverting, stealing and mismanaging state revenue are to be prosecuted.

4. PITFALLS IN THE NIGERIAN BUDGET PROCESS
(i) Persistent Budget Delays
Budget delays have occurred in terms of the preparation, screening, approval and implementation. There is usually a long delay in publishing the approved budget for distribution to the ministries and the general public. In recent years, these have not come out until the third quarter. These delays have tended to undermine the transparency and accountability of the budgetary process. Recently, delays in the release of approved funds have been a subject of heated contention between the legislature and executive at the federal level. In order to accommodate funds that are being untimely released, the budget year has since been operationally extended from 12 to
15 months – a move which signalled the collapse of the budget process.

(ii) Inadequate monitoring of programmes and projects
Although, Monitoring and Evaluation (M & E) is given importance as a management tool, it is not widespread across ministries. Most M & E operations are ad hoc and counterproductive. The M & E activities are weakened by lack of adequate skilled personnel, poor staff remuneration, lack of field vehicles for monitoring as well as lack of appropriate tools and monitoring indicators. To worsen the situation, the independence of the audit and evaluation agencies is routinely compromised by factors such as arms-length status from government, access to information and sources of funding. Invariably, the entire audit and evaluation process is a matter of fait accompli since the outcomes are virtually predetermined or easily predictable. In Nigeria, there is a policy in place for budget performance evaluation but the implementation has been weak or absent. The budget system still lacks adequate control and performance evaluation.

Projects evaluation responsibility lies in large part, with the spending ministry or department and the Finance ministry; but in actual fact, evaluation is never carried out on a regular basis. Although government policy requires that where feasible, outputs be measured and reported, this does not happen in practice. Usually, outputs are not measured for most programmes. Where performance evaluations have been undertaken, the reports are often devoid of systematic interpretations and explanations thus eroding their usefulness for policy decision-making. (iii) Unrealistic budgeting- There is a high tendency for officials to present an exaggerated estimate of expenditure while the revenue is usually grossly underestimated. The exaggeration of expenditure is to allow the admission of as many projects as possible into the budget out of desperation to reduce political tension in the various constituencies. (iv) Non-Compliance with Established Priorities

Spending authorities are unduly flexible when it comes to compliance with established priorities. Priorities change frequently even during a fiscal year due to intense political pressures and in violation of approved budget provisions. In some instances the pressures are from external agencies especially creditors and their cronies who are willingly to ensure that federal expenditure priorities reflect their interests. Such interests often conflict with national interests and undue external pressures are therefore, being questioned in some quarters. (v) Paucity of Good Quality Data for Budget Preparation, Monitoring and Evaluation The inadequacy of good quality data has tended to prevent the articulation and use of relevant indicators for detecting problems, as well as monitoring and evaluation of budget performance. Indeed, data in respect of the budget of each of the three tiers of government are becoming increasingly difficult to come by. Since 1999, final copies of the federal budget are published with considerable time lag and are not easily available. At the state level, allocation of funds for such publication is accorded very low priority. The local governments virtually have no respect for record keeping. Besides, data on fiscal operations are regarded by government officials as very sensitive and are therefore, perceived never to be kept in final form. This makes effective planning, monitoring and coordination virtually impossible.

(vi) Non-Participatory Budgetary Process
At the state level, the budget process is largely non-participatory. The budgeting exercise is an exclusive preserve of the government with the executive and legislative arms dominating the process. In many instances, the Houses of Assembly at the states merely endorse the budget presented by the executive in compliance with the whims and caprices of the executive governors and party leaders. Thus, rather than representing the electorates and ensuring that the budget reflects their felt needs the political leaders often play to the gallery acting in accordance with what they think is convenient for them and their political associates.

Experience over the years, shows that exclusion of the people from having a share of the control of the budget process including decisions about the development priorities is a denial of right and a reflection of a grossly underdeveloped political system. The exclusive tendencies in the budget process grossly undermine the credibility of the budget process and largely account for the flippant cases of project abandonment and other inadequacies in the budget system. The increasingly worrisome gap between the political class and other members of the society can be narrowed effectively if the electorates stop sitting on
the fence and begin to demonstrate a sense of responsibility to participate in the budget process.

(vii) Slippages from Target
There are critical challenges in the budgetary system especially at the implementation stage which can take different shapes, mainly as under-commitment and under-payment. Sometimes, especially in the absence of effective controls, over-commitment and over-payment can also occur. Under-commitment against specific budget line items can occur when the implementation of expenditure programs is jeopardized for reasons ranging from changing political priorities during the fiscal year to miscommunication or divergences of views between state and local government agencies on the one hand and between Federal and State authorities on the other hand. Unexpected changes in anticipated government revenue can also impact the level of subsequent expenditure commitments, as can unforeseen events – which in turn, can have a trickle-down effect on commitments in many different segments of government operations. Moreover, disbursement differences can occur because of a lack of cash at the Treasury level, late availability of invoices, delayed approval of payments or simply because of poor institutional arrangements (lack of qualified staff, poor information and technology infrastructure, etc.).

5. POLICY RECOMMENDATIONS AND CONCLUSIONS
To address the pitfalls and improve the budget process suggestions are targeted at four key areas. They are public finance management and improved budgeting, expansion of revenue base to enhance internally generated revenue, increased participation in the budget process and improved budget implementation.
5.1 Policy Recommendations
5.1.1 Public Finance Management and Improved Budgeting
(i) Determine appropriate spending priorities that reflects the yearnings and aspirations of the people within the limits of available resources.
(ii) Ensure comprehensiveness of budget (not piecemeal). Budget should be comprehensive enough to include all revenues, expenditure as well as key programmes, projects and policies. (iii) There is need for transparency. All revenue sources and expenditure items must be exposed and incorporated into the budget process including consideration by the legislature. (iv) Timeliness should be the watch word in the preparation, approval and release of funds. Currently there is no legal prescription as to the timing of preparation and presentation of the budget to the National Assembly and even endorsement by the President after legislative approval. Similar gaps exist at the state level. Although there are other constitutional provisions to prevent the close down of government on account of undue delays in signing the budget, the timing of budget preparation should have legal backing.

(v) There is Need for Competent, Dedicated and Adequately Remunerated Civil Service Even if there is a high degree of predictability of government fiscal actions and a reasonable level of managerial autonomy for budget implementors, desirable results will not be obtained unless the civil service can attract competent and highly dedicated individuals. The attractions will include adequate compensation that will not make staff vulnerable to bribery and corruption, merit-based employment and promotion procedures that places emphasis on a transparent system of reward and sanction. If the benefits of recurrent expenditure are to be maximized, job vacancies should not be created merely on political consideration. And where vacancies genuinely exist, they should be filled with technically superior staff. (vi)

Building Technical Capacity for the Legislature

There is need to provide adequate resources to enhance the technical capability of legislators. They need relevant information for proper budget scrutiny. Sufficient resources should be provided for them to hire and maintain staff with technical capacity to evaluate government proposals and programmes. When such resources are provided, the onus is on each legislator to utilize them effectively so that the desired results could be obtained. The resources should not be regarded as allowances to be squandered or to be used to provide jobs for deadwoods and political thugs who know nothing about the technical assistance they are to provide to facilitate legislative decision making.

(vii) Strengthen the Planning, Research and Statistics Departments and Budget Divisions in the Ministries. There is need to reinforce the budget-related functions at the ministry level and to strengthen the capacity of budget officers through regular training and re-training. The role of the Planning Research and Statistics Department in each Ministry should be appreciated and upgraded so that it can participate effectively in budget preparation and serve as veritable source 19

of information for monitoring and performance evaluation. The Departments should be well funded, properly guided and provided with necessary facilities and competent staff. (viii) Improve Expenditure Management through Delegation of Authority The issue of delegation of responsibilities must be seriously addressed. There seems to be too much concentration of executive power at the top as far as spending is concerned. In some states, even the commissioners of finance do not have authority to approve money. Approval by them is limited only to overhead expenses. Even some governors do not trust their deputies.

It is recommended that in a Ministry, authority to approve financial commitment and to approve payment should be delegated to other levels of management staff from chief of section to the level of Director. The limits of expenditure and payments to be allowed should be decided by top management with appropriate administrative guidelines to ensure compliance and penalize abuses.

(ix) Strengthen Plan-Budget Linkage
In order to deal with the threat of weak or non-existent plan-budget links, there must be full appreciation by the leadership at all levels of government of the relevance of planning even in a market oriented developing economy. The prevailing tendency to ignore planning on the pretext that it is incompatible with market orientation is both theoretically flawed and indeed retrogressive (Olomola, 2010a). It is a reflection of the preference for arbitrariness and disorder. Once the leadership at all levels of government accepts the inevitability of planning in a market oriented economy and they are ready to commit themselves severally and individually to plan and budget discipline, it will be easy to articulate development plans for each level of government and harmonize these plans to assure
complementarity among sub-national and federal government plans.

(x) Restructure Government Expenditure and Expenditure Responsibilities There are three aspects of restructuring of statutory functions of each tier of government; although all can be achieved at once through a review of the 1999 constitution. First, is the limitless responsibility bestowed on the Federal Government. Second, is the lack of focus in the responsibilities assigned to the lower tiers of government. Third, is the lack of distinction between service financing and delivery. Rather than addressing these issues, the government is pre-occupied with the specification and legislation of the formula for revenue allocation. Working out the inter-governmental revenue allocation formula without appropriate expenditure assignment, is tantamount to putting the cart before the horse. Indeed, it is little wonder that the existing formula even under a democratic setting is still being vehemently contested by the subnational governments.

Thus, there is an urgent need for some inter-governmental debate and consensus on expenditure and tax revenue assignment in Nigeria. A possible outcome of the debate will be the clear demarcation of exclusive responsibilities for each tier of government. The findings of this study and previous others point to the fact that expenditure restructuring is urgently required in the country. According to Olomola (2009b), the structure of government expenditure is rather too constraining for the budget to become a veritable instrument for stimulating investment and growth. It is therefore, imperative for all states to urgently embark on reversing the dominance of recurrent over capital expenditure. A drastic reduction in the number of political appointees in the form of assistants (senior, special, technical), advisers and ad hoc staff is required.

Emphasis must be placed on increasing internally generated revenue in order to brighten the prospects for effective budget implementation. This requires considerable diversification of the production base in each state and intensification of employment generation. This is apt to give rise to a large pool of taxpayers who can contribute significantly to tax revenue on a sustainable basis. Where the size of taxpayers is large and the contribution is significant, the demand for participation in the budget process is bound to be persistent and vehement; and this is apt to engender a brighter prospect for improved budget implementation. Hopefully, the tax reforms being embarked upon by the government and the various policies being put in place to generate employment in the country should be helpful in enlarging the size of taxpayers and strengthening the participation of non-government actors in the budget process. (iii) Enlarge the tax base and reduce tax gap. The states should adopt the following measures. (a) Set up a committee to monitor revenue collection on quarterly basis and take necessary actions to address poor performance.

(b) Narrow the size of the informal sector by registering informal enterprises and provide them with incentives (credit, microfinance and infrastructural facilities) that will empower the operators and make their products and services taxable. (c) Sanitize the use of consultants for tax collection. One of the states is already taking concrete steps in this regard. Specifically in Abia state, the governor had directed the local government officials to disband all the local revenue consultants they engaged without the approval of the state government, noting that they had been unleashing mayhem on the residents of the state, thereby giving the state a bad name. In tackling the problem, the governor warned as follows. “The so called revenue consultants that you have engaged have been generating money for you and your cartel to pocket while the state that engaged you to help them work suffers. You generate N30 million and both of you share it equally, this has to stop from now”. As noted earlier, the state has also set up a special court to try revenue offenders.
(d) Collaborate with the Federal Government (FIRS) to ensure that the tax payers are well identified and captured to ensure that the corporate organisations and individuals pay the appropriate tax as and when due.

(e) Embark on tax payment advocacy with enlightenment campaigns through the print, electronic and social media so as to have significant improvement in IGR. 5.1.3 Increased Participation in the Budget Process

Participatory budgeting refers to a process in which decisions regarding allocation of resources for the provision of services and implementation of projects are taking jointly by all the stakeholders. There can be various forms of participation in budgeting; but the most important mechanisms are consultation, information sharing, joint formulation, final approval and shared responsibility. Participation can take place at various stages of the budget process – budget formulation, preparation, approval, implementation as well as monitoring and evaluation. It is expected that budget screening and approval process should involve adequate consultations with both the public and the private institutions (Olomola, 2007a). The policy makers, advisers, budget officers, project implementers and beneficiaries have a role to play in ensuring smooth functioning of the budget process. The government and civil society organizations have a lot to do to empower the electorates to seek participation in governance beyond voting. The following options are recommended.

(i) After the election of political office holders, the electorates should have a role to play in determining development priorities and in assessing the performance of the government in discharging its responsibilities. Government should therefore, ensure that the budget process is participatory. Participatory budgeting provides an opportunity for stakeholders to be involved in fiscally quantifying and operationalizing plan objectives. In other words, goals are set, objectives are defined, priorities are determined and defined, programmes are planned to achieve prioritised objectives, revenue is mobilised and generated to finance prioritised projects and programmes and there is a clear-cut process of budget approval, implementation, monitoring and evaluation (Olomola, 2002; Olomola and Adesanya, 2004, Olomola, 2010a). Clearly, when relevant stakeholders are actively involved throughout the budget cycle, they are likely to make the budget work.

(ii) As the level of political awareness grows in the country with the stable polity that has been experienced over the last ten years, it is expected that people at various strata of the society should feel concerned about the content, size, structure, implementation, monitoring and analysis of the budget and demand for effective participation at every stage of the budget cycle. 5.1.4 Improved Budget Implementation

(i)
For effective budget implementation there is a need for a paradigm shift in budget preparation. There should be a conscious transformation of the budgeting horizon from the traditional annual budget to multi-year budgeting within a medium-term expenditure framework (MTEF) and the incorporation of performance measurement information into the budget (Olomola, 2007b). The concept of performance budgeting essentially places emphasis on linking budget levels to expected results, rather than to inputs or activities. The focus on results will involve clear definition of missions and outcomes, measuring performance to gauge progress and using performance information within decision processes.

Within the framework of performance budgeting, the preparation of the budget at the level of individual agencies will require proper articulation of targets and indicators and elaborate record keeping for ensuring data availability on regular basis. According to Olomola (2006) such data should provide legislative decisionmakers with information to better evaluate budget proposals and better enable them to ask key questions about the effectiveness of agency programmes. It should also help focus the budget discussions on performance and results.
Moreover, there is need for expenditure tracking as an institutional framework for tracing the flow of resources through the various layers of government bureaucracy and providing local communities with information about funds allocated to particular services in their area. Government should spend public funds in accordance with budgetary allocations, monitor how the funds are being used and determine whether or not they reach the intended beneficiaries. (iii) Besides, there should be effective monitoring and evaluation (M & E) to minimize corruption, promote transparency and accountability and ensure that the people derive the expected benefits. Accountability rests largely on the effectiveness of sanctions and the capacity of existing institutional machinery to monitor the actions, decisions and private interest of public officials. Sanctions and budget monitoring framework are very weak in Nigeria.

To strengthen the evaluation process, rewards and sanctions should be linked to achievement or nonachievement in respect of budget targets, output and outcome. Incentives should be provided to encourage achievement of specified targets while penalties are imposed for failure to achieve. (iv) The legislative oversight functions relating to budget performance should also be strengthened especially at the state and local government levels. The best the legislators have been able to do is to reveal the poor level of performance from time to time with threats of denial of future approval if there is no improvement. The legislators should deploy their enormous constitutional powers and opportunities to create significant improvement in budget performance in the country. Only by so doing can they claim to be true representatives of the people. There should be clear separation of powers between the executives and legislature especially at the subnational level.

5.2 Conclusions

Awareness about the importance and defects of the budget process seem to be rising. Attempts to address the prevailing challenges have been more pronounced at the federal level. Reform measures taken by the federal government to remedy the situation (though unending) contribute to the increased awareness although the impact has not been far-reaching. Similar measures are highly limited at the state level and where undertaken remain largely inconclusive. Thus, budget implementation problems remain widespread and acute across the country. Inadequate revenue is a major implementation constraint. Unfortunately, tax revenue is still accorded very low priority in development financing in Nigeria. Of the 12 states selected from the zones, only Lagos is not heavily dependent on the federation account for its revenue. The low share of IGR is a reflection of narrow tax base and widespread tax gaps. Whereas there is near complete reliance on one or two internal revenue sources little attempt is being made to tap into other sources of wealth. Apart from the problem of dwindling revenue accruable to some states, diversion of available revenue constitutes a major threat to their fiscal capacity. Besides, delays in the budget process remained increasingly chronic over the period and slippages of actual expenditure from budgetary allocations reigned supreme.

The selected states have a poor history of designing budgets to reflect key development priorities with the exception of Lagos, Kwara and Oyo states. Moreover, the structure of expenditure is inconsistent with the development priorities of the state and has been partly responsible for the limited progress made in infrastructural development in the concerned states during the period under review. It is only in Lagos state that the expenditure has been so structured in such a way as to ensure that the state continues to be economically viable and remain committed to the execution of development projects. By and large, the effect of government expenditure seems to fall below expectation as its relationship with state GDP violates Wagner’s law. The fact that government expenditure is output inelastic underscores the need to streamline the expenditure structure by re-directing more funds to development projects, reduce cost of governance and curb corruption.

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