Akabueze: Nigeria Lags Behind African Peers in Public Expenditure-to-GDP Ratio

By Obinna Chima

Nigeria presently lags behind its peers in Africa in terms of public expenditure-to-Gross Domestic Product (GDP) ratio, the Director-General, Budget Office of the Federation, Mr. Ben Akabueze, has said.

Compared with an African average of about 22 per cent, Nigeria’s public expenditure-to-GDP ratio is at 12 per cent, he added.

Akabueze, in a presentation titled: “Key Objectives and Expected Impact of the FGN 2021 Budget,” he delivered at KPMG’s Tax Breakfast seminar, a copy of which was obtained by THISDAY, yesterday, said the size of the federal, states and local governments’ budgets relative to the needs of the three tiers of government were too small, compared with their levels of expenditures.

According to him, the country also lags behind its peers in the continent in terms of domestic revenue mobilisation (DRM), with its revenue-to-GDP ratio still around eight per cent.

He quoted data showing that Algeria presently has 33 per cent revenue-to-GDP ratio; South Africa – 29 per cent; Morocco – 26 per cent; Tunisia – 24 per cent; Angola – 22 per cent and Egypt – 21 per cent.

Some other countries whose revenue-to-GDP are also far above that of Nigeria include Cote d’Ivoire – 20 per cent; Zambia – 19 per cent; Kenya – 18 per cent; Cameroun and Uganda – 16 per cent; Ghana – 14 per cent and Ethiopia – 13 per cent.

Aggregate revenue available to fund the 2021 budget was projected at N7.99 trillion. This is 36.9 per cent higher than the 2020 revised budget of N5.84 trillion, but still low and constrains the size of the budget, Akabueze stated.

He said: “Although the 2016/2017 recession and COVID-19 induced downturn in 2020 have compounded the problem of revenue generation, there is clearly a systemic problem with government domestic resource mobilisation.

“In the five years to 2019, revenue achievement against budget averaged 61 per cent; in 2020, however, 73 per cent of budgeted revenues was achieved.

“It would therefore seem that the revenue projections are unrealistic, but we do not think so.”
But he said the federal government had launched a Strategic Revenue Growth Initiative (SRGI), whose key elements included sustainability in revenue generation; enhancing existing and creating new revenue streams; cohesion in the revenue ecosystem; and cost optimisation and liquidity enhancement.

In addition, he said the annual Finance Act, accompanying the annual budget proposal to the National Assembly, would be a major tool for driving the SRGI.

“The overarching goal is to raise the revenue-to-GDP ratio from 8-9 per cent currently to 15 per cent by a new target date of 2025,” he added.

He listed efforts to boost revenue to include leveraging technology and automation, improving tax administration framework to optimise government revenue, reducing cost of tax collection and enhancing tax-payer convenience, expanding the excise duty base to include carbonated/sugary drinks and telecom airtime.

“Recurrent costs like personnel, pensions, statutory transfers, committed social protection programmes leave limited fiscal space for growth-enabling capital expenditure,” Akabueze said.

He added that the early passage of the 2021 budget for the second consecutive year returned the country to a predictable January-December budget cycle.

According to him, timely approval of the government budget is critical, not just for effective planning for government institutions, but for the private sector.

The budget is critical to developing a well-functioning society and a competitive economy, he added.
“The Nigerian economy has been buffeted by deepening macroeconomic challenges and worsening social order, compounded by the COVID-19 pandemic,” he said.

He stated that high incidence of poverty in the country has been worsened by rising unemployment rate, adding, however, that low skills limit employment opportunities in the formal economy.

According to him, persistent deficit financing has resulted in total national debt rising from N11.24 trillion in December 2014, to N32.9 trillion in December 2020.