Wednesday, 6 January 2016

2016: States Increase Expenditure By N700bn

INSPITE of the dwindling economic fortunes of the country and projected drop in revenue accruals from the Federation Account the cumulative financial figures of state governments has shown that about 12 states have effected huge increases in expenditure totalling N697 billion in their 2016 budget with economy experts saying they will run into funding crises.

Though 20 states reduced their figures the massive increases in the 12 states ensured that cumulative figure of N5.388 billion surpassed 2015 figure of N5.267.

The Federal Government and the 32 states that have announced their budgets, collectively, will spend N11.4 trillion this year compared to the N10.3 trillion they spent in 2015.

In the breakdown of their 2016 budgets sent to their various legislatures as at last week, some of the 12 states expanded their expenditure by over 100 per cent.

The states are Cross Rivers which jumped to N350 billion from N127.85 billion, an over 173 per cent increase followed by Oyo state jumping by over 113 per cent to N165.1 billion from N77.1 billion last year.

Other states with huge jump in expenditure estimates include Sokoto with over 55 per cent jump to N174.5 billion against N112.5 billion last year, Jigawa with 35 per cent jump to N137.2 billion from N101.6 billion, Lagos with over 35 per cent jump to N662.6 billion from N489.6 billion and Kano with over 30 per cent raise to N275 billion from N210.7 billion.

Five other states recorded significant increases include Adamawa with over 19 per cent increase, Niger and Yobe states with over 10 per cent increases each and Delta and Ebonyi with about five per cent increases each, while Kwara has a marginal two per cent increase in its expenditure plan.

Altogether, the 12 states that declared higher figures will spend N2.531 trillion this year as opposed to the N1.834 trillion they spent in 2015. In essence, in 2016, they will spend N696.984 billion more than they did last year.

The developments are coming on the heels of a similar significant jump in the expenditure plan of the Federal Government in 2016 Appropriation Bill showing over 20 per cent jump to N6.1 trillion from N5.1 trillion in 2015.

While the Federal Government indicated its intention to bridge the expected funding gap through internal and external borrowings, the affected states did not give any such indication except that they intend to increase their internally generated revenue, IGR, which over the years have consistently fallen short of projections.

Also most of the states are already indebted to banks so much that they can no longer borrow given the debt management option already in place for them.

Some other states, however, slashed their expenditures, apparently reflecting the gloomy revenue prospect of the current fiscal year.

The states include Abia, Akwa-Ibom, Anambra, Benue, Borno, Edo, Ekiti, Enugu, Gombe, Imo, Kaduna, Katsina, Kebbi, Kogi, Nasarawa, Ogun, Osun, Plateau, Rivers and Taraba.

The trend in expenditure increases and reductions cut across party lines as both APC and PDP states were involved in both.
States that are yet to present their 2016 budget proposals are Bauchi, Bayelsa, Ondo and Zamfara states.

The prevailing free fall of crude oil price, which as of yesterday was $37.2 per barrel is already hurting Nigeria’s fiscal plan as the existing revenue projections at $38 per barrel is already hitting a shortfall.

A decline last year accounted for why many states went for a bailout from the Federal Government to pay their workers salary arrears late last year and they are still owing.

Utomi, Akinwunmi speak
Reacting to the expansionary budgetary positions of the states, a leading economist and one-time presidential aspirant, Professor Pat Utomi, told

Chat212: “I am assuming they are either hoping to borrow, but who will lend to states?

“They are either hoping to increase IGR, also likely to be challenged as businesses restructure in the face of difficult access to foreign exchange, or they are hoping for a future bail out. Otherwise it may just be that the budgets are not realistic.

“My hope is that the current challenges may encourage us to rethink how we budget and the discipline of the budget process. What the states need at a time of uncertainty with swinging revenue flow is repetitive budgeting or scenario budgeting”.

Speaking to Chat212 on the 2016 fiscal exposures of the states the Chief Economist at FSDH Merchant Bank Limited, Mr Ayodele Akinwunmi, attributed the increases in the expenditure plan of the states to their push for capital expenditure as a way of stimulating their states’ economy.

But he also warns that the development may have adverse effect on their ability to maintain their current level of workforce except if they plan to retrench, which would also create problems with the labour unions.

Some states are already indicating the possibility of a downward review of the minimum wage, blaming it on revenue decline.

More allocation to recurrent expenditure
As usual, most of the governments have also allocated lower sums to capital expenditure (provision of infrastructure and amenities among others). Collectively, the Federal Government and the 32 state governments that have announced their budgets will spend N4.839 trillion or 43 per cent of their budgets on capital expenditure while spending N6.450 trillion (57 per cent) on recurrent expenditure (salaries, emoluments of public servants and political office holders, running costs, among others).

Last year, the governments allocated 47.63 per cent of their budgets to capital expenditure and 52.37 per cent to recurrent expenditure.
This year, the Federal Government allocated 30.36 per cent of its budget to capital expenditure as opposed to the 14.6 per cent it did in 2015.

High recurrent project states
Among the states, Ekiti (37.19 per cent) is worse off in terms of allocation to capital projects. It is followed by Taraba (37.79 per cent), Abia (39.09 per cent) and Kogi (39.47 per cent).

Pro-capital project states
States that allocated hefty sums to capital projects are Cross River (84 per cent), Sokoto (70.76 [per cent), Kano (69.82 per cent), Kebbi (68.22 per cent), Borno (66.78 per cent), Katsina (65.26 per cent), Kaduna (63.66 per cent), Ebonyi (61.69 per cent) and Rivers (60.91 per cent).

We will stimulate the economy – Buhari
While presenting the budget to a joint session of the National Assembly, President Muhammadu Buhari said the proposal, the first by his government, “seeks to stimulate the economy, making it more competitive by focusing on infrastructural development; delivering inclusive growth; and prioritizing the welfare of Nigerians. We believe that this budget, while helping industry, commerce and investment to pick up, will as a matter of urgency, address the immediate problems of youth unemployment and the terrible living conditions of the extremely poor and vulnerable Nigerians.”

Lagos to borrow from capital market, more tax bullish
Lagos State, according to Mustapha Akinkunmi, the commissioner for finance, will be approaching the bond market to raise N43 billion to partly fund the budget. On the other hand, the chairman of Lagos State Internal Revenue Service, LIRS, Olufolarin Ogunsanwo said the government might be bully about tax collections using the instrumentally of the law.

Cross River budget of deep vision
The Governor of Cross River State, Ben Ayade, who christened the N350 billion proposal, of which N294 billion would be expended on capital projects as “Budget of Deep Vision”, said the increment was as a result of expected funds from Foreign Direct Investments and support for his signature projects by the Federal Government, adding that he would make judicious use of the available resources for the good of the people.

We want to live within our means – Fayose

Unarguably, Ekiti State with N67.04 billion proposal is the least spending state in 2016. Governor, Ayo Fayose, who christened the 2016 appropriation bill as “budget of reality” and promised that 10,000 indigent citizens across the state would be paid N5,000 monthly from this month, said the miserly budget was informed by the desire to live within the means of the state and achievable estimate rather than decorate the budget with unrealistic figures.

He said 39 per cent of the budget would be funded by the revenue from the Federal allocation accounts while the internally generated revenue source is expected to fund 15 per cent of the budget.

Sokoto’s people budget

Speaking on why he is allocating over 70 per cent of the N174.39 billion Sokoto State 2016 budget to capital projects, Governor Aminu Tambuwal, who described the proposal as “Peoples’ budget”, said it represents the government’s overall strategy to meet the needs and yearnings of its citizens.

“The policy thrust of the Budget is to ensure sustainable development of the State by focusing on the critical sectors of investment in Education, Agriculture, Health, Environment Solid Minerals and Rural Development.”

Anambra’s productivity and efficiency budget

In Anambra, Governor Willie Obiano, who is one of the few governors who announced lower budgets than they had last year and allocated the larger chunk of it to capital projects, tagged the N101.4 billion proposal as “Budget for efficiency, optimisation, productivity and Job creation.”

The governor projected the capital expenditure at N52.8 billion while the recurrent expenditure was pegged at N48.6 billion. The figures imply a Capital to Recurrent Expenditure ratio of 52:48 as against 67:33 in the current year.