Budget: States to spend 5% less y-o-y as economic realities bite

The total amount budgeted by 35 states for the 2016 fiscal year is 5% less than what they spent in 2015. The states presented a combined appropriation of N5.77 trillion for 2016, as against the N6.07 trillion appropriation they presented in 2015 (Zamfara State is yet to release its budget,). 

This is the steepest drop in budgeted sum in the last five years which has seen more increments in budgets than drops thus raising concerns that the drop will hamper infrastructural buildup and development. In the 2012/13 budget cycle, total budgeted sum was up 13% while it dipped by 0.05% in the 2014/15 cycle.

Buchi Ejiogu, head of research and strategy at Equator Capital Limited, an investment bank in Lagos says the drop in budgeted sums may not directly translate to a slowdown in development.

“The level of development will actually depend on the proportion of the budget that targets capital projects. Given historical antecedent, states budgets have always been drawn to meet recurrent needs essentially, so if the allocation to capital projects is higher than it used to be and funds are judiciously used, we could still see some development,” he says.

The budget figures show that cut in spending is not uniform across the six geopolitical zones. Total budget in two zones, the South-West and North-West did not in fact drop. While the North-West had a budget increase of 8%, the South-West’s budget rose by 7% albeit, Lagos State’s budget accounts for over 70% of budget in the South-West.

The South-South, South-East, North-Central and North-East recorded budget cuts of 13%, 17%, 14%, 2% respectively. Ikechukwu Kelikume, an Economist with the Pan African University says “the states have to budget less because subventions from the federal government are lower as oil price continues to declines.” In the South-West, only Lagos and Oyo budgeted higher for 2016 than they did for 2015. Lagos State’s budget rose by 35% while that of Oyo rose by 17%. The zone had a combined budget of N1.38 trillion as against the N1.29 trillion it spent in 2015. The other states in the zone, Osun, Ogun, Ekiti and Ondo had budget cuts of 24%, 5%, 17% and 20%.

Of the seven states in the North West, the budgets of Kano, Jigawa, Sokoto, and Kastina were responsible for total budget growth, while Kebbi and Kaduna states budgeted less than they did for the previous year.

Kano not only has the highest budget in the North-West at N275billion, but also increases its budget by 31% year-on-year. Kebbi has the deepest cut in the zone with a cut of 35%. Zamfara, which is the only state yet to release its budget, is located in the North-West.

The oil bearing South-South states were not exempted from the cuts. From a combined budget of N1.9 trillion in 2015 their budgets reduced to N1.7 trillion. The biggest cuts were from Bayelsa which is spending 53% les and Edo which cut spending by 30%. Apart from Cross River, which increased its budget by 134%, all other states in the zone cut spending.

All state in the South-East, except Ebonyi had budget cuts. States in the zone had a combined budget of N486.50 billion for 2016 as against N584.74 billion in the 2015 financial year. Anambra and Imo had the highest budget cuts of 38% and 28% respectively. Enugu cut its budget by 12% while Abia cut its budget by 6%. Ebonyi increased its budget by 26%.The North-Central budgeted N100.2 billion less. 

Total budgeted sum was N632.00 billion for the current year; it was N732.20 billion for the 2015 fiscal year. Except for Benue which raised its budget by 35% all other states in the zone reduced their budgets. With cut of 31%, Kogi has the highest percentage drop.  Other states like Plateau and Nassarawa, cut their budgets by 28.37% and 27.80% respectively.

The North-East, which has had the highest impact of Boko Haram’s activities, towed the line of most zones. It recorded a budget drop of N15 billion, with only Adamawa, Yobe and Bauchi states recording higher budget figures.

 Adamawa increased its budget 30%, Yobe’s budget was increased by 10% while Bauchi’s budget increased by 5%. Taraba’s budget dropped by 28% while Borno’s budget dropped by 12%.

Ejiogu says “…the panacea for development at state level is to make them (states) viable. The political leaders at states level should embark on increasing their Internally Generated Revenue by developing their individual, but peculiar, capabilities.

"There is no state in Nigeria that cannot sustain itself if they tap their own potential," he adds.

But as states currently stand just a handful can sustain themselves with their internally generated revenues.

In the 2012 financial year, states had a combined budget of N5.57trillon while their combined IGR amounted to just N584.40 billion. In 2013, states had a combined budget of N6.31 trillion while their IGR amounted to N810.12 billion. In the 2014 financial year states had a combined budget of N6.02trillion, while their IGR amounted to N707.86 billion. Kelikume says: “states may not be answering the question: Where do our comparative advantages.”

“The states have to go to universities within their localities and study researches which have been done by intellectuals in their domain about their particular comparative advantages. They can then adopt income generating recommendations in those papers.”

“States should increase tax efficiency and tax collection mechanisms. Research suggests that there is a strong correlation between development and tax collection,” Ayodeji Ebo, Head Investment Research, Afrinvest.