Capital Budget Implementation in Nigeria: Evidence from the 2012 Capital Budget

The performance of the capital budget has been a subject of debate between the legislative and executive arms of the Nigerian government since 1999. Available statistics suggest that the annual budget has not been able to improve the lives of Nigerians over the past several years because of the weak link between capital budget implementation and poverty reduction, as indicated by the prevailing low index of capture in public expenditures. Using descriptive analysis, this paper examines the capital budget implementation in Nigeria by focusing on the 2012 Federal Government Budget. The findings indicate that only 51% of the total appropriated funds for capital expenditures were utilized as of December 31st, 2012. The observed level of performance is insufficient to foster rapid economic development and reduce poverty. Some of the challenges that are responsible for the low performance include poor conceptualization of the budget, the inadequacy of implementation plans, the non-release or late release of budgeted funds, the lack of budget performance monitoring, the lack of technical capacity among MDAs, and delays in budget passage and enactment. The paper recommends that Nigerian government formulate a realistic and credible budget, release appropriated funds early to Ministries, Departments, and Agencies (MDAs), and strengthen MDAs’ technical capacity to utilize capital expenditures in order to improve the index of capture in public expenditures.


Introduction
The Federal Government of Nigeria has a constitutional obligation to develop a budget every fiscal year.
The budget, simply put, is a statement of income and expenditures and provides an indication of the government's priorities regarding expenditures for the year.
The national budget is the most important economic policy instrument for a government and it reflects the government's priorities regarding social and economic policy more than any other document. In addition, the instrument translates policies, campaign promises, political commitments, and goals into decisions regarding where funds should be spent and how funds should be collected. A well-functioning budget system is vital growth, promote employment opportunities, and reduce poverty and income inequality. Government expenditures can be either recurrent or capital expenditures, and governments at all levels use budgets to finance government expenditures.
The political economy of national budgets is an aspect that every nation must take seriously, particularly in the contemporary era of near financial accuracy, because of the Internet and telecommunications technology. With its population of over 150 million, effective budget monitoring and implementation remains one sure route to Nigeria's economic and socio-infrastructural rejuvenation. Thus, the budget cycle in Nigeria usually proceeds in four stages: budget formulation, during which the budget plan is established by the executive arm of government; enactment, during which the budget plan is debated, altered, and approved by the legislative arm; execution, during which the policies of the budget are implemented by the government; and auditing and assessment, during which the actual budget expenditures are accounted for and assessed for effectiveness. Each of the stages creates different opportunities for participation by the people (Ohanele, 2010).
The continued delays in budget formulation and implementation in Nigeria are worrisome. It is no longer news that unnecessary delays in passing and implementing Nigeria's national budget have continued to slow economic activities in Nigeria and prevent the implementation of projects that would enhance the quality of life of the people. These unfortunate delays have become recurring events since 1999 and have painfully slowed Nigeria's democratic journey to economic prosperity.
It must be noted that delays over the past several years have resulted in a low national budget performance and have limited the executive arm's ability to effectively execute projects that would improve the living conditions of the citizenry (Ibrahim, 2011). Furthermore, the low level of budget implementation has been a consistent problem in Nigeria. Thirteen years into the fourth republic, there has never been a year in which the capital budget attained 75% implementation.
Since 1999, there have been disagreements between the legislative arm of the government and the presidency over the budget performance. The federal government has always insisted that it is committed to the proper implementation of the annual budget, whereas the National Assembly has insisted that the federal government does not always implement the annual budget as it has been enacted. Similarly, many analysts have asserted that the rate of capital budget implementation over the past decade has varied widely; indeed, it was 50% in 2002, 52% in 2004, 43.9% in 2008, and 54% in 2009(Oladipo et al., 2012 The capital budget therefore is the aspect of the overall national budget that determines the allocation of funds to finance capital projects and critical infrastructure, such as the construction of roads, bridges, hospitals, schools, prisons, public administrative buildings, highways, dams, and irrigation systems; the purchase of machinery and equipment; and the supply of water, electricity, and transport, health, and educational facilities. The capital budget, unlike the recurrent budget, is intended to provide funds to finance capital expenditures, such as the construction of durable assets. By contrast, the recurrent budget determines the allocation of funds to finance recurring governmental expenditures, such as expenditures related to personnel, overhead, civil administration, defense, health, education, and government machinery maintenance. For a public budget to effectively perform its role, it should be well designed, effectively and efficiently implemented, and adequately monitored, and ultimately, its performance should be evaluated (Faleti & Myrick 2012 propriation Act continues between the executive and legislative arms of the government. While the executive claimed that 56% of the budget had been released and implemented by July 20, 2012, the National Assembly submitted that less than 30% of the budget was implemented by September 30, 2012. As the debate to ascertain the level of implementation of the 2012 Appropriation Act continues, it becomes pertinent to examine the level of implementation of the capital budget in the 2012 Appropriation Act. The main objective of this paper is to answer the following question: Is the capital budget being implemented in Nigeria?
Specifically, the paper seeks to examine the level of implementation of the 2012 Appropriation Act. The paper also seeks to identify the main factors that are responsible for the poor capital budget implementation in Nigeria.
Following this introduction, the remainder of the paper is divided into four sections. Section two presents the conceptual issues and reviews the related literature on capital budget implementation, section three presents the analytical framework that is adopted for this study, and section four presents the performance of the 2012 FGN Appropriation Act. The last part of the paper presents the conclusions and provides recommendations.

The Impact of Capital Budget Expenditures on Economic Development
Different forms of government expenditures and economic growth have been examined in the literature. Rizvi,Qamar and Shamim (2010) Pryor (1968) used government consumption expenditures to determine the impact of government expenditures on economic growth, while Peacock-Wiseman (1961) used total government expenditures to assess the same relationship. Goffman (1968), Musgrave (1969), Gupta (1967), and Michas (1975) used per-capita income instead of GDPt, as in Mann (1980).

Wagner's law proposed by the German economist
Adolph Wagner  predicts that the development of an industrial economy will be accompanied by an increased share of public expenditures in Gross National Product. During the last three decades, Wagner's law has been tested very intensively, particularly for the developed countries and more recently for developing countries (Rizvi et al., 2010). Lucas (1988) argued that public investment in education increases the level of human capital and that human capital constitutes a primary source of long-run economic growth. Henrekson (1993) claimed that there are three main reasons for an increase in the role of government.
First, industrialization and modernization would lead to a substitution of public for private activities. Second, an increase in real income leads to an expansion of income-elastic "cultural and welfare" expenditures.
Third, natural monopolies, such as railroads, have to be taken over by government because private companies would otherwise be unable to run these undertakings efficiently because it would be impossible to raise the huge financing needed to develop them. Oluwatobi and Ogunrinola (2011) examined the relationship between human capital development efforts by the government and economic growth in Nigeria.
The authors of this paper sought to determine the impact of government recurrent and capital expenditures on education and health in Nigeria and to assess their effect on economic growth. The data that were used for the study were taken from secondary sources, and the augmented Solow model was adopted. The result showed that a positive relationship exists between government recurrent expenditures on human capital development and the level of real output but that a negative relationship exists between capital expenditures and the level of real output. The authors therefore recommended that the government appropriately channel the nation's capital expenditures on education and health to promote economic growth.
A study of the joint development of government expenditures and economic growth in 23 OECD countries conducted by Lamartina and Zaghini (2007) showed that there is a structural positive correlation between public spending and per capita GDP. Thus, an increase in government spending on human capital development is expected to culminate in an increase in per capita output. Maku (2009) examined the connection between total government spending and economic growth in Nigeria over 30 years .

The Relationship between Capital Budget Implementation and Poverty Reduction
The relationship between poverty and government spending has received substantial attention in the literature. Researchers argue that government can contribute to poverty reduction by increasing government spending in sectors that may accelerate economic growth, increase human capabilities, and reduce transaction costs. Further, government spending can enhance economic growth and reduce poverty through the provision of social services and infrastructure facilities that are needed for rapid economic development (Asghar, Hussain, & Rehman, 2012).

During 1990s, the World Bank's Poverty Reduction
Strategies Programme (PRSP) emphasized investment in the health, primary education, and social sectors to boast human capital formation in order to reduce poverty. Such government spending helps enhance human capabilities and improve the skills and productivity of the masses. The capabilities and skills provide the public with more and better job opportunities, increasing the income of the people and bringing them out of the poverty trap. Fan, Hazell, and Thorat (2000) investigated how government capital expenditures affect poverty in India and found that expenditures on roads, research, and development have the greatest impact on poverty. Fan, Zhang, and Zhang (2002) concluded that government expenditures on rural education and infrastructure reduced the rural poverty rate. Jung and Thorbecke (2003) found that increased expenditures on education, followed by an excess supply of more educated and skilled labor, can contribute to economic growth and poverty alleviation. Gomanee et al. (2005) found that public spend-ing on social services was not effective in reducing poverty and highlighted the need for new techniques to improve the efficiency of public spending. Lipton and Ravallion (1995)

Stylized Facts: Capital Budget Implementation in Nigeria
Emphasizing the importance of capital budget implementation in the process and promotion of democracy within the territory of a nation state, Makstutis (2007) analyzed the global economic factors that drive the development of a nation state and examined the place of a nation state in the development of progress, the promotion of democracy in the territory of the state, and activation of public activity in light of globalization The capital budget is important to the public because it is a major source of funding for capital projects. It is imperative to point out that the capital budget has a direct impact on the lives of the people in a country and that the level of capital budget implementation remains a measure of government performance (Onike, n.d.). Bak (2009) examined the current concepts of budgeting with a special focus on innovative budgets as well as the evolution of the budgeting concept and concluded that budgets constitute a primary tool for the achievement of a country's predetermined goals. It is indeed worrisome that practically every year, the implementation of the capital budget in Nigeria has been the major source of friction between the Executive and the House of Representatives. In 2010 and 2011, the Executive also accused of poorly implementing the capital budget. While further reflecting on the cause of the dispute, Onike (n.d.) opined that it is not surprising that there was no serious contention regarding the recurrent budget, as the recurrent budget mainly involves the statutory budget allocation and general costs of administration/overhead. Critics, nonetheless, recognized that in the last 13 years or so, the federal budget has never been implemented satisfactorily. Further, a credible explanation for the disbursement of the billions of naira that remained unspent at the end of each year has never been given. Boyo (2012) asserted that Nigerians may be misguided, however, for expecting substantial improvements in social welfare resulting for the appropriate and full disbursement of the capital budget. Indeed, the seemingly traditional pattern of less than 30% allocation for capital projects cannot truly support rapid infrastructural improvement for a country of over 160 million people. Furthermore, tangible progress is further precluded by the prevalent culture of impunity and corruption, which inevitably substantially diminishes the already meager capital budget.

305
Capital Budget Implementation in Nigeria: Evidence from the 2012 Capital Budget arms of the government at the local, state, and federal levels. It is unfortunate to note that no state or federal administration in Nigeria has been able to achieve a level of annual capital budget implementation above 45% in the last twelve years. Administration officials are always quick to blame the abysmal budget performance on dwindling revenue, however.
Despite the poor capital budget implementation in Nigeria, the country continues to witness budget deficits, with consequential effects on the economy. Examining the impact of deficit financing, Kocurek (2008) analyzed the sources of budget deficit financing in the transformation period and noted that different instruments that can be used to balance the expenses of a state's budget over its income. In analyzing the struc- The challenges facing the Nigerian economy do not principally concern the planning of projects (public allocation of resources) but essentially concern the execution of the projects with the allocated resources. One of the reasons for the poor performance in executing projects is inadequate monitoring and evaluation of capital projects. Bivainis and Butkevicius (2003)  Assessing the performance of the 2012 capital budget, Onike (n.d.) asserted that the impact of the FGN budget of over 4.8 trillion naira has yet to be truly felt by the average Nigerian because of poor capital budget implementation. He added that Nigeria has become characterized by a culture of poor capital budget implementation, given the level of budget performance since the return to civil rule in 1999, which has never been above 75%. Commenting on the poor capital budget implementation in Nigeria, Olurankinse (2012) opined that every year, Nigerians hear about billions and trillions of naira budgeted for capital expenditures in our annual budget. This amount undoubtedly continues to increase with each passing year, but the society is always at a loss as to where the money is invested.
There seems to be wide disparity between the budget proposal and budget accomplishment.

Analytical Framework
The study adopts descriptive statistics as the analytical framework to analyze data on capital budget imple-  It also encompasses budget monitoring to ensure that the disbursed funds are used economically and efficiently and that the financial commitments and expenditures do not exceed the approved amounts (Akande et al. 2009). Budget appraisal also ensures that projects that have not been approved by the government are not pursued or prosecuted. It also aims to ensure that actual expenditures by MDAs are in conformity with the stated programs and objectives. During budget appraisal, the executed programs are examined to ensure that they comply with policy objectives and targets. The National

The Public Budget Process in Nigeria: Conceptual Issues
Assembly assumes this role as part of its oversight responsibilities.

Revenue Performance
A low level of revenue was collected in 2012. This low performance occurred across all the major sources of federal government revenue, although it was most pronounced for the FGN share of the federation account and the Federal Government independent revenue.
Available data indicate that the budgeted revenue estimate for the period was N4,329 billion, whereas

Recurrent Expenditure performance
The 2012

Capital Expenditure Performance
Despite the revenue and recurrent expenditure performance, which were 96.1% and 105.3%, respectively, by December 2012, the capital budget performance during the same period was poor. The approved level of capital expenditures was N1,343.99 billion, which was about 17.2% higher than the 2011 figure; however, the actual level of capital expenditures was only N686.3 billion-or 51% of the approved estimate (see Table 1). The amount cash backed during the period was N739.3 billion, while the MDA balance was N53 billion. However, the detailed capital budget performance of MDAs, as measured by the ratio of capital utilization to the amount cash backed of total capital budget releases, was relatively unsatisfactory. Specifically, on average, the ratio of capital utilization to the amount cash backed of total releases was 51%. Thus, although only about 25% of the capital budget had not been released by December 31st, 2012, half of the capi-  Table 2 shows the MDAs that recorded the highest percent-

Factors Affecting Capital Budget Implementation in Nigeria
Several factors were observed to be responsible for the poor capital budget implementation in Nigeria:    The implication of late budget enactment is that only a few months are left for budget implementation, which hinders project implementation.

(iv) Late Release or Non-Release of budgeted Funds:
To implement the capital budget, budgeted funds need to be released promptly and adequately to the MDAs to operate. Irregular and uncertain release of funds is a key factor in the poor capital budget implementation in Nigeria. Sometimes, revenue shortfall is the cause, but the implications include delays in initiating and completing projects and the abandonment of projects.
(v) Problem of Cash-flow Management: The problem here is that the quarterly release of capital funds had been tied to projects. However, such release to projects tends to be inadequate in some cases to execute projects entailing huge procurements.
(vi) Challenges associated with the Due Process Mechanism and Public Procurement Act: The challenges associated with the due process mechanism and Public Procurement Act have led to serious setbacks in capital budget implementation in Nigeria.
The due process mechanism and Public Procurement Act are major reforms designed to purify the public procurement process by eliminating waste and corruption. However, there has been institutional resistance, and the reform to the due process mechanism has resulted to some sort of blackmail from interested quarters. Furthermore, some MDAs have found it uncomfortable to comply with the due process requirements. There have been some genuine complaints related to delays. These arise from the time involved in the verification and certification of projects and in the processing of requests for payment.   (v) The capacity of Ministries, Departments, and Agencies (MDAs) to utilize funds released to them should be strengthened. Finally, there is a need to address the challenges confronting capital budget implementation in Nigeria by improving the index of capture, which is currently abysmally low.