Public expenditure and the Nigerian economy
Over the years, the size, structure and growth of government expenditure have increased tremendously and become increasingly complex. Not only have recent political developments engendered expenditure growth; the challenge of raising additional and identifying alternative sources of revenue to meet the ever-increasing needs of governance has made it more imperative to take a more focused […]
Over the years, the size, structure and growth of government expenditure have increased tremendously and become increasingly complex. Not only have recent political developments engendered expenditure growth; the challenge of raising additional and identifying alternative sources of revenue to meet the ever-increasing needs of governance has made it more imperative to take a more focused look at government activities, especially its expenditures.
Some of the reasons for the growth in public expenditure overtime are: inflation; public debt; tax revenue and the population. Inflation is one of the most crucial macroeconomic problems facing most countries of the world, especially the underdeveloped and developing countries. Some of the adverse effects include decreasing purchasing power of the country’s currency, unemployment and uneven distribution of income. The extent to which inflation affects the size of public expenditure in less developed countries such as Nigeria indicates that inflation is truly a notable factor found to be significant.
Tax is a compulsory levy. It is a liability imposed upon the masses which may be individuals or other legal entities. The fund obtained from this levy is what is termed tax revenue. Tax revenue is highly significant indicating the strong impact it has on government’s expenditure.
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The federal government over the years has proved to be a bad manager of resources. Government has failed to play its role in the process of economic growth and development; hence, the need for the gradual withdrawal of government and increased participation of the private sector in the developmental process.
The role of government should be reappraised with more emphasis placed on providing the enabling policy environment for private sector initiatives. Government should stop capital expenditure on economic services and social and community services, since government is not supposed to make profit in the provision of these services. Government should, therefore, only provide the enabling environment for the private sector to take over the provision of these services, so that there would be efficiency and reduction in cost.
Nigeria’s experience in public expenditure management has not been quite inspiring. The current economic crisis, with the attendant macroeconomic problems; high inflation, exchange rate distortions, debt overhang, BOP disequilibrium and high unemployment, has been attributed largely to reckless and poor management of public expenditure, coupled with widespread corruption. It is on this note that current news is preaching the failure of Keynesian economics. The rate of adjustment parameter in the regression re-enforced the position that government is not a good investor.
The magnitude of the parameter shows that it would take approximately four years for the economy to feel the impact of government expenditure in the system. This could also be justified through the budget where the government expects to execute a budget worth trillions and yet the economy feels no impact. There is a need for lesser government participation in economic activity and for government to concentrate on the provision of the enabling environment for the direction of economic activities in all sectors of the economy.
Hence, urgent need to instill fiscal discipline in government expenditures by initiating far-reaching effective internal control measures and more proactive economic management coordination and implementation as well as discouraging all non-productive activities and expenditures in all tiers of government forthwith. Government spending should be channelled to have effects on the economy, enhancing and promoting growth and development in the process. All non-productive activities and expenditure need to be reviewed forthwith while the role of government should be reappraised with more emphasis on providing the enabling policy environment for private sector initiatives.
Felix Oladeji lives in Lagos