Publication: Nigeria : State Finances Study
Date
2003-04
ISSN
Published
2003-04
Author(s)
World Bank
Abstract
Fiscal management and broader
macroeconomic policy is complicated when government
financing is highly dependent on natural resource revenues
and therefore susceptible to wide fluctuations. This
challenge is compounded further in a context of fiscal
federalism, particularly when sub national governments have
considerable autonomy over their spending, constitute a
significant share of consolidated government financing and
lack a tradition of strong fiscal discipline. Nigeria
happens to be in this situation: government is highly
dependent on oil revenues and inappropriate management of
the oil revenue cycle has historically been at the heart of
macroeconomic instability in the country. In recent years,
Nigeria's new fiscal federalism context and the
increased autonomy of states, has added additional
challenges to the conduct of fiscal and macroeconomic
policy. Nigeria is a federation with power and
responsibilities shared between the Federal Government and
thirty-six constituent state governments' Local
governments are constitutionally recognized but are subject
to the creation, control and regulation of State
governments. As in similar federal structures, the power and
ability of state governments to manage their public
expenditure depend largely on the fiscal federalism
arrangements in place. It is necessary therefore to begin
this report on States Finances by examining how fiscal
powers and responsibilities are shared between the various
levels of government and what mechanisms are in place for
securing synergy and avoiding dysfunction(Chapter 1). This
chapter describes the nature of the Nigerian federation.
This is followed by a discussion of revenue assignments
for funding the various levels of government. This will be
closely tied with the arrangements for sharing common
revenues, a very important feature of Nigeria's fiscal
federalism. Section D discusses expenditure assignments. The
concluding section of Chapter 1 briefly discusses key
implications of the April 2002 Supreme Court ruling on
certain aspects of Fiscal Federalism in Nigeria. Chapter 2
reviews the states' finances from 1997 through 2001.
This chapter concludes that In the medium term,
states' will need to vigorously address the structural
constraints to their improved fiscal Performance. This will
require specific actions to: (i) build a tradition of
strong fiscal discipline; (ii) reduce and manage
states' vulnerability to o i l price swings; (iii)
reduce the share of inflexible commitments in states'
expenditure profiles; (iv) promote prudent borrowing and
debt; and (v) strengthen budget processes and institutions
to support fiscal discipline and expenditure efficiency and
effectiveness. The discussion in Chapters 3 and 4 lay out
some concrete proposals for the consideration of state and
federal governments. More specifically, Chapter 3
discusses aspects of current fiscal federalism arrangements
including arrangements for borrowing that might encourage
imprudent or fiscally irresponsible behavior by Nigerian
states. It also examines mechanisms that could be used to
harden budget constraints and promote the fiscal discipline
needed for overall macroeconomic stability and for efficient
use of states' public resources. Actions will be
needed at both state and federal government levels, with the
latter playing a lead role, including through demonstrating
a credible commitment to fiscal discipline. Finally, Chapter
4 reviews budget and financial management practices in
Nigerian states, identifies areas of weaknesses and
proposes key elements of these process and institutional reforms.
Link to Data Set
Citation
“World Bank. 2003. Nigeria : State Finances Study. © Washington, DC. http://hdl.handle.net/10986/14671 License: CC BY 3.0 IGO.”