Examining the Relationship between Federal Government of Nigeria’s Revenue and Expenditure Profiles

Abstract

This paper examines the relationship between federal government of Nigeria’s revenue and expenditure profile for the period 1970 to 2011. With the aid of E-view statistical package - version 7.0, granger causality tests were carried out on a time series data and to avert the emergence of spurious results, unit root tests were conducted. Other econometric advances of co- integration test and descriptive statistics were deployed to ascertain the order of co- integration and the level of relationships. Outcome of study provides us with mixed results. First, there is a significant unidirectional causal movement from expenditures to revenues for 4 of the 8 revenue–expenditure pairs. This represents an average level of adherence to the Spend -Revenue hypothesis. Second, a significant bidirectional causal effect exists between 4 of the 8 receipt –expenditure pairs. This also indicates that Revenue –Expenditure relationship at the federal level of government in Nigeria finds prevalence in the fiscal synchronization hypothesis. It was ascertained that, ratio of Nigeria’s oil revenue to her federally collected revenue stood at 81%., while that of non –oil accounted for 19% of the total. That is a clear manifestation of her age’s long dependence on crude oil exports. It was equally noted that, the ratio of federal government’s retained revenue to her federally collected revenue stood at about 39%. A functional classification of the expenditure profile reveals that outlays on recurrent expenditure accounted for about 68% of total expenditure, while the remaining balance of 32 % went to capital expenditure. That is certainly not good enough for a nation that is aspiring to grow. A further classification of the expenditure profile indicates that outlays on Administrative services accounted for 33% of the total, economic services 22%, Social and community services 15% and transfers 30%. The indications are rife that, the administration sector and external debt service transfers attracted more than their fare share of public expenditure to the detriment of the economic and social / community welfare sectors. The implication is that directly productive activities such as agriculture, industry and commerce, construction, transport and communication, education, health services and environmental development were relatively underfunded as compared to defense, internal security, general administration and external debt servicing. From the foregoing analysis, it has become imperative that changes must occur in the expenditure structure of federal government of Nigeria, in order to enhance the effectiveness of her fiscal policy instruments and to achieve set goals and objectives. There is therefore the need for a policy shift from the present protective-sectors-dominance to productive- sectors –dominance. The study recommends that as government plans, budgets and implements her expenditure decisions; she should be mindful of her overall level of revenue accruals; set priorities for its allocation and to ensure quality within each of the expenditure categories. These calls for fiscal planning whose primary goals should be to forecast and to take cognizance of resource constraints and the linkages it spurs within the larger economy

Keywords: Total Revenue, Retained Revenue, Recurrent Expenditure, Capital Expenditure, Total Expenditure, Fiscal Deficits.