Wazobia State Government
Economic and Fiscal Update (EFU),
Fiscal Strategy Paper (FSP) and
Budget Policy Statement (BPS)
May 2015
To Cover Period: 2016-2018
EFU-FSP-BPS 2016-2018 - Wazobia State Government
Document Control
Document Version Number:
v1
Document Prepared By:
Chris Rowe
Document Approved By:
Chidiebere Ibe
Date of Approval:
30 April 2015
Date of Publication:
15 May 2015
Distribution List:
Published online at Wazobia MEPB website
Hard copy submitted to all MDA’s and all SHoA Members
ii
EFU-FSP-BPS 2016-2018 - Wazobia State Government
Table of Contents
Section 1
Introduction and Background .......................................................................... 1
1.A
Introduction ....................................................................................................... 1
1.B
Background........................................................................................................ 3
Section 2
Economic and Fiscal Update ............................................................................ 5
2.A
Economic Overview ............................................................................................ 5
2.B
Fiscal Update ................................................................................................... 10
Section 3
Fiscal Strategy Paper .................................................................................... 22
3.A
Macroeconomic Framework ............................................................................... 22
3.B
Fiscal Strategy and Assumptions ....................................................................... 22
3.C
Indicative Three Year Fiscal Framework ............................................................. 23
3.D
Fiscal Risks ...................................................................................................... 27
Section 4
Budget Policy Statement ............................................................................... 28
4.A
Budget Policy Thrust......................................................................................... 28
4.B
Sector Allocations (3 Year) ................................................................................ 28
4.C
Considerations for the Annual Budget Process .................................................... 32
Section 5
Summary of Key Points and Recommendations .............................................. 33
iii
EFU-FSP-BPS 2016-2018 - Wazobia State Government
List of Tables
Table 1: Budget Calendar .................................................................................................. 4
Table 2: Real GDP Growth - Selected Countries .................................................................. 6
Table 3: Inflation (CPI) - Selected Countries ....................................................................... 6
Table 4: Nigeria Key Macroeconomic Indicators .................................................................. 8
Table 5: Nigeria Mineral Statistics ...................................................................................... 9
Table 6: Sector Recurrent Expenditure – Budget Vs Actual ................................................ 20
Table 7: Sector Capital Expenditure – Budget Vs Actual ..................................................... 20
Table 8: Debt Position as at 31st December 2014 .............................................................. 21
Table 9: Wazobia State Medium Term Fiscal Framework ................................................... 23
Table 10: Fiscal Risks ...................................................................................................... 27
Table 11: Indicative Sector Expenditure Ceilings 2016-2018 – Recurrent ............................ 30
Table 12: Indicative Sector Expenditure Ceilings 2016-2018 – Capital ................................ 31
List of Figures
Figure 1: MTEF Process ..................................................................................................... 1
Figure 2: Statutory Allocation ........................................................................................... 10
Figure 3: Excess Crude .................................................................................................... 11
Figure 4: VAT ................................................................................................................. 11
Figure 5: IGR .................................................................................................................. 12
Figure 6: Grants .............................................................................................................. 13
Figure 7: Other Capital Receipts ....................................................................................... 14
Figure 8: Loans / Financing ............................................................................................. 14
Figure 9: CRF Charges..................................................................................................... 15
Figure 10: Personnel ....................................................................................................... 16
Figure 11: Overheads ...................................................................................................... 17
Figure 12: Capital Expenditure ......................................................................................... 17
Figure 13: Recurrent : Capital Expenditure Ratio ............................................................... 18
Figure 14: Wazobia State Macroeconomic Framework ....................................................... 22
Figure 15: Wazobia State Revenue Trend ......................................................................... 25
Figure 16: Wazobia State Expenditure Trend .................................................................... 26
Figure 17: Sector Allocations (proposed 2016-2018) for Capital Development ..................... 29
iv
EFU-FSP-BPS 2016-2018 - Wazobia State Government
Abbreviations
BRINCS
Brazil, Russia, India, Nigeria, China, South Africa
CBN
Central Bank of Nigeria
CPIA
Country Policy and Institutional Assessment
CRF
Consolidated Revenue Fund
DMD
Debt Management Department
EFU
Economic and Fiscal Update
ExCo
Executive Council
FAAC
Federal Allocation Accounts Committee
FSP
Fiscal Strategy Paper
GDP
Gross Domestic Product
HRM
Human Resource Management
IGR
Internally Generated Revenue
IMF
International Monetary Fund
MDA
Ministry, Department and Agencies
MTBF
Medium Term Budget Framework
MTEF
Medium Term Expenditure Framework
MTFF
Medium Term Fiscal Framework
MTSS
Medium Term Sector Strategy
NBS
National Bureau of Statistics
NNPC
Nigerian National Petroleum Company
NPC
National Planning Commission
OAG
Office of the Accountant General
ODA
Official Development Assistance
OECD
Organisation forEconomic Cooperation and Development
PFM
Public Financial Management
PIB
Petroleum Industry Bill
PITA
Personal Income Tax Act
PMS
Petroleum
SHoA
State House of Assembly
VAT
Value Added Tax
WEO
World Economic Outlook
WSBIR
Wazobia State Board of Internal Revenue
WSFRC
Wazobia State Fiscal Responsibility Commission
WSPPB
Wazobia State Public Procurement Board
WZBG
Wazobia State Government
v
Section 1
1.A
Introduction and Background
Introduction
1.
The Economic and Fiscal Update (EFU) provides economic and fiscal analyses which form
the basis for the budget planning process. It is aimed primarily at policy makers and
decision takers in Wazobia State Government. The EFU also provides an assessment of
budget performance (both historical and current) and identifies significant factors affecting
implementation.
2.
On the other hand, Fiscal Strategy Paper (FSP) and Budget Policy Statement (BPS) are key
elements in Medium Term Expenditure Framework (MTEF) and annual budget process, and
as such, they determine the resources available to fund Government projects and
programmes from a fiscally sustainable perspective.
3.
Wazobia State Government decided to adopt the preparation of the EFU-FSP-BPS for the
first time in 2014 as part of the movement toward a comprehensive MTEF process. This is
the xx rolling iteration of the document and covers the period 2016-2018.
1.A.1
4.
Budget Process
The budget process describes the budget cycle in a fiscal year. Its conception is informed
by the MTEF process which has three components namely:
i.
Medium Term Fiscal Framework (MTFF);
ii.
Medium Term Budget Framework (MTBF);
iii.
Medium Term Sector Strategies (MTSS).
5.
It commences with the conception through preparation, execution, control, monitoring and
evaluation and goes back again to conception for the ensuing year’s budget.
6.
The MTEF process is summarised in the diagram below:
Figure 1: MTEF Process
Page 1
1.A.2
Summary of Document Content
7.
In accordance with international best practice in budgeting, the production of a combined
Economic and Fiscal Update (EFU), Fiscal Strategy Paper (FSP) and Budget Policy
Statement (BPS) is the first step in the budget preparation cycle for Wazobia State
Government (WZSG) for the period 2016-2018.
8.
The purpose of this document is three-fold:
9.
10.
i.
To provide a backwards looking summary of key economic and fiscal trends that will
affect the public expenditure in the future - Economic and Fiscal Update;
ii.
To set out medium term fiscal objectives and targets, including tax policy; revenue
mobilisation; level of public expenditure; deficit financing and public debt - Fiscal
Strategy Paper and MTFF; and
iii.
Provide indicative sector envelopes for the period 2016-2018 which constitutes the
MTBF.
The EFU is presented in Section 2 of this document. The EFU provides economic and fiscal
analysis in order to inform the budget planning process. It is aimed primarily at budget
policy makers and decision takers in the Wazobia State Government. The EFU also
provides an assessment of budget performance (both historical and current) and identifies
significant factors affecting implementation. It includes:

Overview of Global, National and State Economic Performance;

Overview of the Petroleum Sector;

Trends in budget performance over the last six years.
The FSP is a key element in the WZSG Medium Term Expenditure Framework (MTEF)
process and annual budget process. As such, it determines the resources available to fund
the Government’s growth and poverty reduction programme from a fiscally sustainable
perspective.
1.A.3
11.
12.
Preparation and Audience
The purpose of this document is to provide an informed basis for the 2016-2018 budget
preparation cycle for all of the key stakeholders, specifically:

State House of Assembly (SHoA);

Executive Council (ExCo);

Ministry of Economic Planning and Budget;

Ministry of Finance;

All Government Ministries, Departments and Agencies (MDA's);

Civil Society.
The document is prepared within in the first two quarters of the year prior to the annual
budget preparation period. It is prepared by Wazobia State Government (EFU-FSP-BPS)
Working Group using data collected from International, National and State organisations.
Page 2
1.B
Background
1.B.1
Legislative and Institutional arrangement for PFM1
13.
Legislative Framework for PFM in Wazobia State - Legislative Framework for PFM in
Wazobia State - The legal instruments and enactments governing PFM in Wazobia state
include the 1999 Constitution of the Federal Republic of Nigeria as amended, the Personal
Income Tax Act (PITA), 1993, and the Financial Regulations, 2011, and occasional service
circulars issued by the Accountant General. As the ground-norm of the country, the 1999
Constitution is the overriding law governing public financial management in Wazobia state.
Its provisions supersede and override the contents of any other law or provision in the
State (and country) to the extent that the other law is inconsistent with the Constitution.
The other PFM-related laws and provisions elaborate and expand on the provisions of the
Constitution; however, they cannot contradict its letters or intent.
14.
Wazobia state recently (2011) revised its financial instructions, this time titling it Financial
Regulations. The law is the organic finance law that sets the agenda and established
institutions for public financial management. The Financial Regulations are the derived set
of detailed operational rules and guidelines for day-to-day management of financial
activities. The regulations describe detailed accounting, internal auditing and stores
procedures and routines. However, the Northern Nigerian finance law (which is the basis of
the Regulations) is archaic in many respects; for instance, it does not provide for
computerization and other modern developments in fiscal transparency and reporting.
Besides, the law suits a parliamentary system of government, which Nigeria practiced then,
rather than the presidential executive system it does now.
15.
State governments usually have Public Service rules that further define the roles of public
officers in the PFM system. The Rules detail human resource management (HRM)
processes and tools including, job descriptions, roles and responsibilities, recruitment,
career, discipline, and boarding procedures.
16.
As at May 2014, draft Fiscal Responsibility and Public Procurement bills have passed second
reading in the SHoA.
17.
Institutional Framework for PFM in Wazobia state - The Executive arm of the
government proposes the budget and implements it after legislative approval. Ministries,
Departments and Agencies (MDAs) assist the Executive to perform these functions. MDAs
receive authorization of the Governor to commence project execution, notwithstanding
legislative approval. The Governor’s express authorization is necessary for MDAs to award
contracts (notwithstanding that it is the approved budget) and for the treasury to honour
due certificates. The House of Assembly appropriates expenditure in the budget, maintains
oversight over budget execution, and enforces audit findings. The Auditor General reviews
and reports on budget implementation. The Ministry of Finance (MoF), the Ministry of
Economic Planning and Budget (MEPB), the Wazobia State Fiscal Responsibility Commission
(WSFRC), the Wazobia State Public Procurement Board (WSPPB) and the Wazobia State
Board of Internal Revenue (WSBIR) are key executive PFM institutions. The MEPB
coordinates strategic and fiscal planning and the budget. The MoF manages public
finances. The Office of the Accountant General (OAG) and the Debt Management
Department (DMD) are semi-autonomous and professional arms of the MoF, each charged
with a specific function. The WSBIR performs revenue administration; the OAG performs
treasury and accounting functions, while the DMD manages public debt. Treasury and
accounting functions include receipt of revenue (not generation), expenditure
management, financial reporting and internal audit. The OAG deploys personnel to run the
finance and internal audit departments of MDAs. MDAs prepare monthly returns of
transcripts and bank reconciliation statements to the Accountant General. The WSFRC
1
Based on 2014 PEFA Assessment for Wazobia State
Page 3
ensures fiscal discipline and that MDAs comply with the budgetary provisions. The WSPPB
regulates public procurement, ensuring compliance with good practices.
1.B.2
18.
Overview of Budget Calendar
Indicative Budget Calendar for Wazobia State Government is presented below:
Table 1: Budget Calendar
Stage
Date (s)
Responsibility
Preparation and Publication of EFU-FSP-BPS
May
MEPB and MoF
Update of MTSSs by Sectors
June
MDA’s
July
MEPB
August
MDA’s
Preparation and Issuance of Budget Call Circular
Preparation of MDA Budget Submissions
Budget Negotiations
September
MEPB and MDA’s
Compilation of Draft Budget
October
MEPB
Review and Approval of Budget by ExCo
October
ExCo
Review and Approval of Budget by SHoA
November
SHoA
Signing Appropriation Bill
December
Governor
Page 4
Section 2
Economic and Fiscal Update
2.A
Economic Overview
2.A.1
Global Economy
19.
Oil price shock - The start to 2015 has been dominated by the continuing slide in the
global price of oil which started towards the end of 2014. This has been driven by both
supply (increase) and demand (reduction) side factors. Supply has been boosted by
fracking activities, particularly in the USA. At the same time, economic growth rates in
some of World’s dominant economies are falling (specifically, China and USA). OPEC has
also taken the decision to maintain current production levels in the hope that the declining
oil price will make some production financially unviable and hence drive competition out of
the market. The result has been a sharp decline in global oil prices over the second half of
2014 from a high of $114 per barrel in June to $63 per barrel in December (Bonny Light),
and further declines in January 2015 (which as at January 20th was $49.80 per barrel).
This comes after three years of relatively stable price between around $100 and $120 per
barrel.
20.
The IMF’s recent update of its World Economic Outlook (January 2015) has identified other
key developments which will continue to shape the broader global economic environment:
21.
Growth divergence - while global growth increased broadly as expected to 3¾ percent
in the third quarter of 2014, up from 3¼ percent in the second quarter, this masked
marked growth divergences among major economies. Specifically, the recovery in the
United States was stronger than expected, while economic performance in all other major
economies—most notably Japan—fell short of expectations. The weaker-than-expected
growth in these economies is largely seen as reflecting ongoing, protracted adjustment to
diminished expectations regarding medium-term growth prospects. Slowdown in China the
Eurozone and Russia has continued to have a depressing effect on overall global economic
performance. Global growth in 2015-16 is projected at 3.5 percent and 3.7 percent
respectively.
22.
Strengthened U.S. dollar - with more marked growth divergence across major
economies, the U.S. dollar has appreciated in real effective terms while in contrast, the
euro and the yen have depreciated, and many emerging market currencies have
weakened, particularly those of commodity exporters.
23.
Interest rates - interest rates and risk spreads have risen in many emerging market
economies, notably commodity exporters, and risk spreads on high-yield bonds and other
products exposed to energy prices have also widened. Long-term government bond yields
have declined further in major advanced economies, reflecting safe haven effects and
weaker activity in some, while global equity indices in national currency have remained
broadly unchanged since the end of 2014.
24.
Countries selected are chosen to represent G20, BRINCS, MINT, N-11, Petro-economies
and other large African countries.
Page 5
Table 2: Real GDP Growth - Selected Countries
Actual2
Country
Forecast
2010
2011
2012
2013
2014
2015
2019
Mexico
5.1
4.0
4.0
1.1
2.4
3.5
3.8
Indonesia
10.3
6.6
4.7
5.0
5.6
6.4
6.7
Turkey
9.2
8.8
2.1
4.0
3.0
3.0
3.5
United States
2.5
1.6
2.3
2.2
2.2
3.1
2.6
Germany
3.9
3.4
0.9
0.5
1.4
1.5
1.3
United Kingdom
1.7
1.1
0.3
1.7
3.2
2.7
2.4
China
10.4
9.3
7.7
7.7
7.4
7.1
6.3
Ghana
8.0
15.0
8.8
7.1
4.5
4.7
3.1
South Africa
3.1
3.6
2.5
1.9
1.4
2.3
2.7
Brazil
7.5
2.7
1.0
2.5
0.3
1.4
3.0
Angola
3.4
3.9
5.2
6.8
3.9
5.9
6.2
Source: IMF’s World Economic Outlook, April 2015.
25.
MINT and BRINCS countries enjoyed significantly higher annual real GDP growth than
European and US economics. Ghana had the highest average growth rate between 2010
and 2013 from the countries observed above. Growth is projected to increase in most
countries in 2015 and stabilise by 2019.
Table 3: Inflation (CPI) - Selected Countries
Country
Actual
Forecast
2010
2011
2012
2013
2014
2015
2019
Mexico
4.2
3.3
4.1
3.8
3.9
3.6
3.0
Indonesia
5.1
5.3
4.0
6.4
6.0
6.7
5.0
Turkey
8.6
6.5
8.9
7.5
9.0
7.0
6.2
United States
1.6
3.1
2.1
1.5
2.0
2.1
2.0
Germany
1.2
2.5
2.1
1.6
0.9
1.2
1.7
United Kingdom
3.3
4.5
2.8
2.6
1.6
1.8
2.0
China
3.3
5.4
2.6
2.6
2.3
2.5
3.0
Ghana
6.7
7.7
7.1
11.7
15.7
16.8
11.1
South Africa
4.3
5.0
5.7
5.8
6.3
5.8
5.3
Brazil
5.0
6.6
5.4
6.2
6.3
5.9
4.5
Angola
14.5
13.5
10.3
8.8
7.3
7.3
6.3
Source: IMF’s World Economic Outlook, April 2015.
26.
Ghana and Angola both experienced high inflation rates together with their high real GDP
growth. Globally inflation rates are set to decrease over the next five years as mineral and
agriculture prices stabilise.
2.A.2
27.
2
Africa
According to the African Development Banks (AfDB) African Economic Outlook (2014),
Africa’s macroeconomic prospects remain favourable. In 2013, Africa maintained an
average growth rate of about 4 percent. This compares to 3 percent for the global
* = estimate
Page 6
economy and underscores again the continent’s resilience to global and regional
headwinds. However, growth performance varied widely across country classifications and
regions. Growth in sub-Saharan Africa was 5 percent in 2013 and is projected to be 5.8
percent in 2014. Excluding South Africa, the figures are 6.1 percent and 6.8 percent,
respectively. East and West Africa recorded the fastest growth in 2013, above 6 percent. It
is projected that growth for the continent as a whole could return in 2015 to 5 percent-6
percent, a level last seen before the onset of the 2009 global recession. With stabilising
energy costs and retreating food prices, the continent’s inflation rate decelerated in 2013.
Nonetheless, in some countries inflation remained relatively high, due to a weakening of
currencies. Monetary policy has eased in many countries in response to lower inflation.
However, in some countries where currencies have weakened monetary policy has
tightened to stem inflationary pressures. Fiscal policy stances also differed between
countries. While many countries pursued prudent fiscal policies in order to reduce budget
deficits, in others, fiscal policy remained expansionary to boost growth. Current account
deficits have remained elevated in oil importing countries.
28.
Africa’s trade performance has improved in recent years. However, Africa’s exports
remained dominated by primary commodities, and the observed strong performance was
fuelled by rising commodity prices. In particular, trade in agriculture goods and, trade in
services have remained below their potential. As mentioned above, the oil price shock will
likely impact significantly on some African nations foreign exchange earnings and by
association their exchange rates, including Nigeria which has most recently seen a
significant fall in the value of the Naira against the U.S. Dollar.
29.
External financial flows and tax revenues continue to be an important contributor to Africa’s
development. If the current pace of growth is sustained, foreign direct investment and
portfolio investment could soon constitute Africa’s main source of financial flows. Foreign
direct investment continues to primarily benefit resource rich countries. However, overall,
anaemic economic growth in advanced countries has continued to affect the flow of direct
investment and remittances to Africa, with the share from OECD countries sharply reduced
against rising contribution from non-OECD countries. Official development assistance
(ODA) has continued to increase despite the reduced fiscal space in advanced countries.
But its share in total inflows has significantly declined since 2000 as other financial inflows
have increased more. Nonetheless, ODA remains the largest external financial flow to the
continent’s low-income countries.
2.A.3
Nigerian Economy3
Macroeconomic
30.
Nigeria’s economy has continued to grow strongly in 2014. Real Gross Domestic Product
(GDP) grew by 6.1 percent in the third quarter of 2014 (compared to third quarter 2013),
supported by robust performances in the non-oil economy (agriculture, trade, and
services). Inflation continued to decline for the third month in a row, registering 7.9
percent for end-November 2014, from lower food inflation. Despite lower oil production in
2014 (compared to budget), the overall fiscal balance is expected to be broadly on target
(1 percent deficit) and the non-oil primary deficit to improve, but the current account
surplus is projected to decline to about 2.4 percent of GDP and reserves to fall to about
USD35 billion at end−2014 (5.6 months of imports of goods and services).
31.
Growth is expected to decline in 2015 to about 5 percent. The magnitude of the adverse oil
price shock (projected at about 25 percent for 2015) will sharply reduce fiscal revenues
and limit fiscal spending. However, the overall impact on non-oil sector GDP will be
relatively muted, because of limited direct channels from the oil sector. Further, the non-oil
sector is expected to remain the main driver of growth over the medium term. Similarly,
3
Source: (Economic Outlook) National Bureau of Statistics, IMF WEO APR-2015; CBN, FAAC
Page 7
the depreciation of the exchange rate is expected to increase inflation, reflecting passthrough effects of higher domestic prices for imports, but the effect is likely to be
contained, in part owing to lower food prices from increased local production of staple food
crops.
32.
Nigeria remains vulnerable to oil price volatility and global financial developments. The
measures already taken by the authorities demonstrate their commitment to
macroeconomic stability. However, fiscal and external buffers are low and there is less
policy space for manoeuvring, compared to the onset of the 2008-09 financial crisis – the
Excess Crude Account (ECA) in 2008 was USD21 billion compared to USD 3billion now,
while gross international reserves were USD52 billion. Further, the exigencies of public
financial management apply equally to all tiers of government: although the focus has
been on the response of the federal government, lower oil receipts, low internal generated
revenues, and a constrained ability to reduce recurrent expenditure could have a significant
impact on delivery of social services by state and local governments, suggest the need for
robust risk management frameworks across all tiers of government.
33.
The longer-term challenge is to put the economy on a path to lower oil-dependency and a
diversified and competitive investment-driven non-oil sector. In that regard, the
Government is redoubling its effort to promote targeted and core infrastructure (in power,
integrated transport network, aviation); reduce business environment costs and encourage
high value-chain sectors (agriculture); promote employment of youth and female
populations, and advance human capital development (health and education).
34.
A statistical reassessment of national accounts data in the form of a GDP rebasing indicates
a quite different size, structure, and sectoral distribution of growth in the Nigerian
Economy. The Nigerian economy now appears more diversified, with important sources of
growth coming from manufacturing (especially food and beverages) and previously
undocumented services (including the entertainment industry). Slower assessed growth in
agriculture in the newly re-based GDP figures is consistent with apparently slow recent
progress in poverty reduction in rural areas.
Table 4: Nigeria Key Macroeconomic Indicators
Indicator
2011
5.3
4.2
5.5
2014
7.4
57883.3
64925.8
72620.0
83100.0
10.3
12.0
8.0
7.5
158
157
158
159
Unemployment
21.1%
23.9%
NA
NA
Balance of Payments (% of GDP)
0.13%
4.31%
NA
NA
GDP Growth
GDP (Billion Naira)
Inflation (%)
Exchange Rate (NGN:USD FX Rate)
2012
2013
Source: (Economic Outlook) National Bureau of Statistics, (WEO) IMF; CBN (NA - not available)
Petroleum Sector
35.
Notwithstanding recent significant turbulence in regards to the oil price, the petroleum
sector still accounts for a strong majority of exports and budgetary revenues in Nigeria,
and is therefore critical to macroeconomic and budgetary stability. The oil sector has faced
a number of challenges in recent years in slower output growth, vandalism and theft, an
uncertain regulatory environment, and low levels of investment. The Petroleum Industry
Bill (PIB), which was intended to clarify and improve regulatory conditions in the industry,
has still not been passed into law in light of long standing controversies surrounding
various PIB drafts under consideration in the National Assembly.
Page 8
Table 5: Nigeria Mineral Statistics
2.A.4
Year
Average Actual
Price USD (CBN)
FAAC Benchmark
Price USD
Average Actual
Production (CBN)
2008
101
60
2.099167
2009
64
45
2.110833
2010
81
60
2.4675
2011
114
75
2.080833
2012
113
70
2.318333
2013
111
79
2.2
2014
100
79
2.2
Wazobia State Economy
36.
Wazobia State has enjoyed impressive GDP performance over the years, although not quite
as high as the national average since Wazobia does not benefit directly from the mineral
sector.
37.
According to the United Nations’ Human Development Index report on Nigeria - Achieving
Growth with Equity, Wazobia State was ranked as having the eighth highest GDP in the
country in 2007. Two years later, the State emerged 6th under the GDP per capita index
leading the Northern States, Kano state coming 8th out of the 36 States of the Federation
including the Federal Capital Territory (FCT). Inflation is consistent with the national
average.
38.
The Wazobia state economy from the perspective of the GDP is unbalanced. It is heavily
tilted on agriculture production.
39.
Under the business environment in Nigeria, 2010, Wazobia state ranked 18th out of the 36
States of the Federation and the FCT.
40.
The economic fortunes of the state are heavily dependent on the national economy. The
economic fundamentals of the state economy have been linked to national indices on the
affected specific variables.
41.
The state is still a net importer of goods and services but is a net exporter of agriculture
produce to other states. The movement of agricultural produce is not well-documented and
computed to register meaningful contribution to the state economy.
42.
In spite of the steady progress in economic growth and development, available data
indicate that agriculture, especially crops and livestock, and fisheries as well as SMEs,
which have the potential to generate large scale employment opportunities, are undergoing
transformation.
43.
There is the predominance of subsistence and non-mechanized agriculture in the state.
That is why the growth of the state's economy is predicated on increased transformation of
the agricultural value chain (large scale agricultural production and agro-based industrial
production).
44.
Although the trend of IGR in the State over the years has been varied, the present
administration has demonstrated strong determination to change the prevailing situation of
the state's IGR.
Page 9
2.B
Fiscal Update
2.B.1
Historic Trends
Revenue Side
45.
On the revenue side, the document looks at Statutory Allocation, Value Added Tax (VAT),
IGR, Excess Crude, and Capital Receipts – budget versus actual for the period 2009-2014
(six year historic) and 2015 budget.
Figure 2: Statutory Allocation
Value (NGN Million)
FAAC Statutory Allocation Budget vs Actual: 2009 - 2015
70,000
140.0%
60,000
120.0%
50,000
100.0%
40,000
80.0%
30,000
60.0%
20,000
40.0%
10,000
20.0%
0
2009
2010
2011
2012
2013
2014
2015
Budget
25,600,000,000
28,000,000,000
36,000,000,000
42,000,000,000
48,000,000,000
54,000,000,000
58,000,000,000
Actual
23,295,568,653
31,510,185,941
41,371,531,769
42,664,867,991
48,865,575,890
50,424,435,633
91.0%
112.5%
114.9%
101.6%
101.8%
93.4%
35.26%
31.30%
3.13%
14.53%
3.19%
Performance
Growth
0.0%
Year
46.
Statutory Allocation is a transfer from the Federal Allocation Accounts Committee (FAAC)
and is based on the collection of mineral (largely Oil) and non-mineral revenues
(companies income tax, customs and excise) at the national level, which is then shared
between the three tiers of government using sharing ratios.
47.
Actual receipts have risen year on year since 2009, largely based on the increase in the
crude oil benchmark from $40 to $77 per barrel over the period and underlying strong
nominal economic growth.
48.
Budgeting has been relatively accurate with the exceptions of 2011 (under budgeting) and
2014 (over budgeting) which was hit by reducing oil prices.
49.
When looking forwards it is important to take into consideration the crude oil benchmarks,
particularly in light of the recent decline in prices from more than $110 to less than $50 in
a four-month period at the end of 2014.
Page 10
Figure 3: Excess Crude
Excess Crude Budget vs Actual: 2009 - 2015
16,000
200.0%
14,000
150.0%
Value (NGN Million)
12,000
100.0%
10,000
8,000
50.0%
6,000
0.0%
4,000
-50.0%
2,000
0
-100.0%
2009
2010
2011
2012
2013
2014
2015
Budget
6,400,000,000
7,000,000,000
9,000,000,000
10,500,000,000
12,000,000,000
13,500,000,000
14,500,000,000
Actual
10,772,990,373
8,871,737,165
10,618,382,561
13,319,184,031
11,513,607,432
5,614,503,969
126.7%
118.0%
126.8%
95.9%
41.6%
-17.65%
19.69%
25.44%
-13.56%
-51.24%
Performance
168.3%
Growth
Year
50.
Excess crude includes SURE-P, exchange gains, refunds from NNPC and FIRS, and
augmentation. It is generated when actual crude oil price, production and NGN:USD
exchange rates exceed the benchmarks and hence excess revenue is generated.
51.
2009-2014 saw significant excess crude distributions including the introduction of SURE-P
(the fuel subsidy re-investment programme) in mid-2013.
This led to increased
expectations (budget) year-on-year. However, in 2014 excess crude distributions dropped
significantly and there are little funds left in the excess crude accounts for distribution
going forward.
Figure 4: VAT
VAT Budget vs Actual: 2009 - 2015
14,000
120.0%
12,000
100.0%
Value (NGN Million)
10,000
80.0%
8,000
60.0%
6,000
40.0%
4,000
20.0%
2,000
0
2009
2010
2011
2012
2013
2014
2015
Budget
5,000,000,000
6,000,000,000
8,000,000,000
8,500,000,000
9,500,000,000
10,500,000,000
11,500,000,000
Actual
5,437,062,061
6,514,443,141
7,543,554,749
8,177,286,387
9,302,960,585
10,326,598,521
108.7%
108.6%
94.3%
96.2%
97.9%
98.3%
19.82%
15.80%
8.40%
13.77%
11.00%
Performance
Growth
0.0%
Year
52.
VAT, is an ad valorem tax on most goods and services at a rate of 5%. It is collected by
the Federal Inland Revenue Service (FIRS) and distributed between the three tiers of
government on a monthly basis – partially based on set ratios, and partially based on the
amount of VAT a particular state generated. States receive 50% of the total VAT collections
Page 11
nationally, from which Wazobia gets around 4% of the state allocation. Wazobia benefited
from a re-basing of the VAT allocations in late 2014.
53.
VAT receipts have increased year-on-year since 2009 largely due to the growth in nominal
economic activity in Nigeria. Total national receipts in 2014 were static compared to 2013
but Wazobia experienced some growth as it received a higher share based on the rebasing.
54.
Performance relative to budget (i.e. budget accuracy) has been good – no more than 10%
above or below over the period.
55.
Forecasts should take into consideration the possible implications of the oil prices on
economic activity in Nigeria – elasticity forecasting will enable this.
Figure 5: IGR
Value (NGN Million)
IGR Budget vs Actual: 2009 - 2015
14,000
140.0%
12,000
120.0%
10,000
100.0%
8,000
80.0%
6,000
60.0%
4,000
40.0%
2,000
20.0%
0
0.0%
2009
2010
2011
2012
2013
2014
2015
Budget
2,160,804,376
3,698,227,505
12,100,000,000
11,141,677,739
9,390,132,069
6,607,887,481
6,315,890,060
Actual
2,679,866,754
2,966,507,945
3,215,698,404
3,620,563,724
3,936,312,975
4,036,675,165
124.0%
80.2%
26.6%
32.5%
41.9%
61.1%
10.70%
8.40%
12.59%
8.72%
2.55%
Performance
Growth
Year
56.
Internally Generated Revenue is revenue collected within Wazobia state related to income
tax (PAYE represents the highest contributor to IGR), fines, levies, fees and other sources
of revenue within the state.
57.
IGR has grown at a steady pace year on year since 2009 – averaging around 10% although
2014 saw little increase. The growth has largely been due to consistent increase in
economic activity and the price level in the state.
58.
The new administration in 2011 anticipated a huge increase in IGR based on some minor
interventions, which were never realised. Expectation has gradually move back towards
reality but there is still some way to go.
59.
The budgets for 2016-2018 must be based on actuals, not prior year budgets.
Page 12
Figure 6: Grants
Grants Budget vs Actual: 2009 - 2015
2,500
120.0%
100.0%
2,000
Value (NGN Million)
80.0%
60.0%
1,500
40.0%
20.0%
1,000
0.0%
-20.0%
500
-40.0%
0
2009
2010
2011
2012
2013
2014
2015
Budget
2,000,000,000
2,000,000,000
2,000,000,000
2,000,000,000
2,000,000,000
2,000,000,000
2,000,000,000
Actual
1,156,000,000
650,000,000
1,350,000,000
1,659,871,000
1,907,542,763
1,100,675,000
Performance
Growth
57.8%
32.5%
67.5%
83.0%
95.4%
55.0%
-43.77%
107.69%
22.95%
14.92%
-42.30%
-60.0%
Year
60.
Grants are receipts from federal government and local governments such as Federal
Government MDGs Conditional Grants Scheme, as well as grants from the international
development partners (including UK - Department for International Development (DFID),
European Union (EU) and United Nations Children’s Fund (UNICEF). Wazobia has
proactively included as much grant expenditure “on-budget” as it possible, even if the
funds don’t travel through the state treasury.
61.
Actuals receipts have been volatile – after growth in 2011-2013, receipts dropped in 2014 –
this is due to the phasing of funding cycles (unpredictability of receipts) and also, to some
extent, some issues with reporting all expenditures from off-budget projects.
62.
For this reason, performance against budget has also been poor as budgets have tended to
pick up all anticipated grants whereas accounts may not reflect all activities.
63.
Grant estimates going forward should be consistent with signed agreements, any “bluesky” should be specifically linked to the implementation of specific projects.
Page 13
Figure 7: Other Capital Receipts
Value (NGN Million)
Other Capital Receipts Budget vs Actual: 2009 - 2015
20,000
9000.0%
18,000
8000.0%
16,000
7000.0%
14,000
6000.0%
12,000
5000.0%
10,000
4000.0%
8,000
3000.0%
6,000
2000.0%
4,000
1000.0%
2,000
0.0%
0
Budget
Actual
Performance
2009
2010
2011
2012
2013
2014
2015
18,350,000,000
2,472,000,000
0
600,000,000
5,146,000,000
4,791,082,312
7,529,340,000
0
789,899,115
49,859,500
3,971,387,109
6,856,662,484
5,351,170,191
0.0%
32.0%
0.0%
661.9%
133.2%
111.7%
0.00%
-93.69%
7865.16%
72.65%
-21.96%
Growth
-1000.0%
Year
64.
Historically, other capital receipts have related to sale of state assets (mostly housing) and
also income from state assets. In 2009, there was anticipation for a rebate from Federal
Government for roads and other maintenance costs incurred by the state however these
claims did not have legal backing and the rebate was not forthcoming. Actual receipts in
2012-2014 have been based on the sales of the above state housing (yielding more than
anticipated due to a current housing shortage which has driven up prices), a programme
which should continue for another 3-4 years.
Figure 8: Loans / Financing
Loans Budget vs Actual: 2009 - 2015
6,000
3000.0%
2500.0%
5,000
Value (NGN Million)
2000.0%
4,000
1500.0%
3,000
1000.0%
2,000
500.0%
1,000
0.0%
0
Budget
Actual
Performance
Growth
-500.0%
2009
2010
2011
2012
2013
2014
2015
100,000,000
4,000,000,000
250,000,000
2,500,000,000
4,000,000,000
3,500,000,000
5,000,000,000
0
2,500,000,000
100,000,000
2,500,000,000
3,000,000,000
3,000,000,000
0.0%
62.5%
40.0%
100.0%
75.0%
85.7%
0.00%
-96.00%
2400.00%
20.00%
0.00%
Year
65.
Besides some short-term borrowing from banking facilities, financing has come in the form
of various World Bank programmes (FADAMA, Health and Education sector support) plus a
drawn down of almost NGN 15 billion from an internal bond floating between 2012 and
2014.
Page 14
66.
The poor performance in 2009 and 2010 was based on anticipated internal loans that we
never eventually floated. The ability of the state to draw down more loans is discussed
later in this chapter.
Expenditure Side
67.
On the expenditure side, the document looks at Consolidated Revenue Fund (CRF) charges,
Personnel, Overheads and Capital Expenditure – budget versus actual for the period 20092014 (six years) and 2015 budget.
Figure 9: CRF Charges
CRF Charges Budget vs Actual: 2009 - 2015
2,000
120.00%
1,800
100.00%
1,600
Value (NGN Million)
1,400
80.00%
1,200
1,000
60.00%
800
40.00%
600
400
20.00%
200
0
2009
2010
2011
2012
2013
2014
2015
Budget
1,000,000,000
1,100,000,000
1,210,000,000
1,331,000,000
1,464,100,000
1,610,510,000
1,771,561,000
Actual
856,787,789
950,000,000
1,245,000,005
1,456,753,000
1,506,753,000
1,578,675,290
85.68%
86.36%
102.89%
109.45%
102.91%
98.02%
10.88%
31.05%
17.01%
3.43%
4.77%
Performance
Growth
0.00%
Year
68.
CRF (Consolidated Revenue Fund) charges relate to salaries for statutory positions (e.g.
the Auditor General, Judiciary and Sharia Court) as well as public debt charges. Due to a
strong public debt system the debt servicing costs have been well estimated over the
period, and the salary increases for statutory positions have been relatively easy to
forecast, and have increases steadily year-on-year due to cost of living increases.
69.
The strong forecasting ability should provide for accurate estimates going forward
assuming the debt data is kept up-to-date and regularly reconciled with the federal Debt
Management Office (DMO).
Page 15
Figure 10: Personnel
Personnel Expenditure Budget vs Actual: 2009 - 2015
40,000
120.00%
35,000
100.00%
Value (NGN Million)
30,000
80.00%
25,000
20,000
60.00%
15,000
40.00%
10,000
20.00%
5,000
0
0.00%
2009
2010
2011
2012
2013
2014
2015
Budget
12,168,909,270
16,335,200,000
20,215,200,000
22,168,983,420
34,744,000,000
31,887,061,600
35,768,126,976
Actual
13,019,200,000
17,069,600,000
19,591,200,000
20,330,400,000
26,264,270,806
29,830,374,914
106.99%
104.50%
96.91%
91.71%
75.59%
93.55%
31.11%
14.77%
3.77%
29.19%
13.58%
Performance
Growth
Year
70.
Personnel expenditure includes salaries, allowances and pensions costs of the state, most
of which are disbursed directly by Head of Service. Personnel costs have risen year on year
since 2009 at an average rate of 20% per annum, with particularly large increases in 2010
and 2013. These were both as a result of recruitment drives in the civil service. There was
also an increase to the minimum wage in 2012, although the impact in that year was
minimal.
71.
Actual expenditure has been close to budget in all years except 2013 – this was as a result
of miss-estimation of the impact of the recruitment drive on total personnel costs.
72.
The budget for 2015 is somewhat higher than the actual costs in 2014, and with the state’s
desire to rationalise its recurrent expenditure, future growth should be tempered.
Page 16
Figure 11: Overheads
Overhead Expenditure Budget vs Actual: 2009 - 2015
25,000
160.00%
140.00%
20,000
120.00%
Value (NGN Million)
100.00%
15,000
80.00%
60.00%
10,000
40.00%
20.00%
5,000
0.00%
-20.00%
0
-40.00%
2009
2010
2011
2012
2013
2014
2015
Budget
7,722,034,939
11,192,386,029
12,733,464,979
10,477,864,048
12,739,581,158
15,046,475,627
12,048,690,920
Actual
10,707,731,622
11,054,421,063
9,306,432,307
13,228,015,264
10,930,565,939
21,128,207,444
138.66%
98.77%
73.09%
126.25%
85.80%
140.42%
3.24%
-15.81%
42.14%
-17.37%
93.29%
Performance
Growth
Year
73.
Overheads comprise mainly of operational and maintenance costs for running day-to-day
activities of the Government. Overhead allocations are transferred to MDAs on a monthly
basis subject to warrants.
74.
Overhead expenditure has been somewhat volatile over the period observed – increasing
and decreasing year on year culminating in a significant increase, almost doubling,
between 2013 and 2014. This was largely due to increased cost of running government,
especially with respect to maintenance of many government offices.
75.
Not surprisingly, performance against budget has been poor switching between
overspending and underspending year-on-year.
76.
Going forwards, overhead expenditure must be brought under control, either by decreasing
expenditure relative to 2014, or at least maintaining it for some period of years so that in
real terms it decreases.
Figure 12: Capital Expenditure
Capital Expenditure Budget vs Actual: 2009 - 2015
60,000
140.00%
120.00%
50,000
100.00%
Value (NGN Million)
80.00%
40,000
60.00%
30,000
40.00%
20.00%
20,000
0.00%
-20.00%
10,000
-40.00%
0
-60.00%
2009
2010
2011
2012
2013
2014
2015
Budget
38,719,860,167
24,542,641,476
33,191,335,021
43,263,830,271
41,088,450,910
46,354,922,565
55,256,851,164
Actual
18,757,768,430
24,728,752,244
34,106,394,672
40,897,991,979
46,681,072,384
27,316,800,831
48.44%
100.76%
102.76%
94.53%
113.61%
58.93%
31.83%
37.92%
19.91%
14.14%
-41.48%
Performance
Growth
Year
Page 17
77.
Capital expenditure refers to projects that generate state assets (e.g. roads, schools,
hospitals).
78.
Capital Expenditure has grown year-one-year since 2009 based on the increased revenues
available from the mineral sector via Statutory Allocation and Excess Crude. However, it fell
significantly in 2014 based on the checking of revenues after the substantial decrease in Oil
prices.
79.
As above, performance against budget was also strong between 2010 and 2013 as oil
prices and benchmarks grew, but the two years of major global economic uncertainty –
2009 and 2014, saw major negative variances against budget.
80.
Prudent forecasting of revenue, and hence the capital development fund, and tight control
on recurrent expenditure, will help both increase the level of capital expenditure and also
improve performance against budget going forwards. This is important as the state should
look to avoid wasted effort in preparing detailed capital expenditure submissions if they
cannot, ultimately, be resource-backed.
Figure 13: Recurrent : Capital Expenditure Ratio
Capital Expenditure Ratio Budget and Actual: 2009 - 2015
70%
60%
Capital Expenditure Ratio
50%
40%
30%
20%
10%
0%
2009
2010
2011
2012
2013
2014
Budget
65%
46%
49%
56%
46%
49%
Actual
43%
46%
53%
54%
55%
34%
Year
81.
The capital expenditure ratio was relatively stable between 40 and 60% between 2009 and
2013, and actually rose year on year during that period from a low of 43% to a high of
56%. However, 2014 saw a quite significant drop as revenues faltered and recurrent
expenditure continued to grow.
By Sector
82.
Performance by sector was varied over the period 2011-2014 – water, governance, rural
and community development and Culture and Value Reorientation all performed at more
than 75%, some more than 100%. Social sectors all performed in the range 25-50%. The
worst performing sectors were security, agriculture, commerce and industry and ICT.
83.
The emphasis of expenditure over the term of the current administration has been on
infrastructure which was, in 2011, in a state of dis-repair. The allocations of more than
50% of capital expenditure reflect this, and should ultimately boast economic activity in the
state. However, the investment is nearly complete and capital investment can now focus
more in the social sector.
84.
Large over expenditure by the governance sector is actually due to differences in the
allocation of loan and grant expenditure between budgets (where they have been
budgeted in the sectors) and accounts where the money has been recorded against MoF.
Page 18
85.
Water sector had large extra-ordinary expenditure in 2013 from the contingency reserve to
correct irrigation and sewers after significant and unexpected rainfall.
86.
As noted above, there was rationing of releases for capital expenditure in 2014 due to the
short-falls in revenue.
Page 19
Table 6: Sector Recurrent Expenditure – Budget Vs Actual
Sectoral Recurrent Expenditure
No. Sector
1 Water
2 Agriculture
3 Industry, Commerce
4 Environment
5 Infrastucture
6 ICT
7 Transport
8 Health
9 Education
10 Security
11 Governance
12 Culture and Value Re.
13 Women, Youth, SPC
14 Rural and Community
Total
2011 Budget
30,745,277,349
10,005,274,625
29,672,025
491,995,501
20,218,335,198
5,965,655,763
12,901,445,402
1,109,761,192
1,109,761,192
846,062,413
463,988,600
382,073,813
72,704,393
634,537,642
84,976,545,108
2011 Actual
18,007,796,783
13,895,717,013
420,688,381
3,691,391,389
4,846,591,772
12,398,608,225
755,698,850
682,205,788
394,417,483
287,788,306
63,812,880
394,417,483
287,788,306
63,812,880
56,190,735,538
2012 Budget
37,849,501,428
10,590,977,160
25,000,000
558,413,156
26,675,111,112
8,800,367,613
17,894,808,862
1,061,405,596
1,061,405,596
964,340,980
470,184,436
494,156,544
82,373,777
1,012,205,663
107,540,251,923
2012 Actual
20,477,702,042
19,785,019,481
692,682,560
0
5,788,144,323
13,731,481,041
550,314,715
926,088,610
654,536,627
271,551,982
360,763,619
654,536,627
271,551,982
360,763,619
64,525,137,230
2013 Budget
41,024,857,559
12,575,835,515
21,250,000
594,653,630
27,833,118,414
7,878,857,504
17,211,146,478
913,811,041
913,811,041
1,024,054,648
564,125,134
459,929,514
133,212,699
763,601,554
111,912,264,731
2013 Actual
20,912,354,936
20,193,576,763
718,778,173
0
5,939,532,179
15,266,064,592
553,519,460
751,630,920
494,134,305
257,496,614
244,483,286
494,134,305
257,496,614
244,483,286
66,327,685,434
2014 Budget
35,681,873,823
12,158,020,028
28,615,000
504,131,257
22,991,107,538
7,112,785,110
18,305,932,679
1,040,495,906
1,040,495,906
910,092,673
477,159,151
432,933,522
105,839,508
801,499,757
101,590,981,858
2014 Actual
27,012,403,736
26,374,312,856
638,090,880
0
5,764,228,316
17,130,546,948
200,966,485
981,161,824
786,477,176
194,684,648
347,473,066
786,477,176
194,684,648
347,473,066
80,758,980,824
Performance Average Budget Average Actual
59.47%
36.01%
31.76%
177.03%
10.90%
28.80%
2363.03%
0.02%
0.98%
171.76%
0.54%
1.97%
22.86%
24.55%
8.86%
196.68%
7.44%
22.13%
3.11%
15.77%
0.99%
80.99%
1.01%
1.26%
56.47%
1.01%
0.82%
27.01%
0.93%
0.44%
51.46%
0.49%
0.36%
131.68%
0.44%
0.82%
256.65%
0.09%
0.44%
31.65%
0.79%
0.36%
65.96%
100.00%
100.00%
2014 Actual
4,375,499,505
1,036,892,418
77,213,739
383,422,674
14,682,965,614
51,672,419
21,882,092
1,195,948,730
3,385,628,169
159,042,185
9,135,187,703
6,548,588
105,994,352
3,680,723,543
38,298,621,731
Performance Average Budget Average Actual
253.79%
3.96%
11.42%
36.24%
6.57%
2.71%
10.98%
1.61%
0.20%
54.55%
1.61%
1.00%
61.37%
54.91%
38.34%
11.34%
1.05%
0.13%
52.55%
0.10%
0.06%
68.03%
4.03%
3.12%
62.78%
12.38%
8.84%
36.30%
1.01%
0.42%
325.14%
6.45%
23.85%
0.00%
0.00%
0.02%
51.98%
0.47%
0.28%
144.24%
5.86%
9.61%
87.90%
100.00%
100.00%
Table 7: Sector Capital Expenditure – Budget Vs Actual
Sectoral Capital Expenditure
No. Sector
1 Water
2 Agriculture
3 Industry, Commerce
4 Environment
5 Infrastucture
6 ICT
7 Transport
8 Health
9 Education
10 Security
11 Governance
12 Culture and Value Re.
13 Women, Youth, SPC
14 Rural and Community
Total
2011 Budget
2,110,567,527
3,657,466,250
1,453,719,033
975,445,514
17,606,779,010
438,666,976
0
1,453,719,033
5,884,395,487
687,119,524
1,648,468,173
0
461,992,321
6,885,491,421
43,263,830,271
2011 Actual
4,250,467,355
1,124,032,520
38,652,271
932,601,937
3,484,510,778
62,489,782
0
285,750,940
3,541,007,578
189,035,597
17,248,280,158
0
42,509,289
9,698,653,775
40,897,991,979
2012 Budget
1,022,451,525
2,451,863,834
277,847,852
813,143,934
26,265,059,245
393,715,164
11,284,112
2,345,565,404
4,271,528,211
278,153,369
2,344,264,652
0
0
613,573,608
41,088,450,910
2012 Actual
7,081,602,883
1,152,874,892
43,317,330
78,872,684
27,480,832,178
64,678,274
0
2,334,146,654
4,475,951,875
187,579,703
2,276,820,342
0
260,684,650
1,243,710,919
46,681,072,384
2013 Budget
2,039,181,510
2,473,633,056
378,004,071
320,233,633
27,905,779,309
535,111,231
113,646,595
1,474,704,557
6,023,540,278
348,946,703
4,436,122,338
0
149,755,217
156,264,068
46,354,922,565
Page 20
2013 Actual
1,794,428,278
833,769,841
149,671,615
138,793,401
13,083,553,885
27,849,200
65,646,276
967,948,596
2,139,925,054
100,511,255
7,880,462,610
19,645,765
14,789,117
99,805,935
27,316,800,831
2014 Budget
1,724,066,854
2,860,987,713
703,190,318
702,941,027
23,925,872,522
455,831,124
41,643,569
1,757,996,331
5,393,154,659
438,073,199
2,809,618,388
0
203,915,846
2,551,776,366
43,569,067,915
2.B.2
87.
Debt Position
A summary of the consolidated debt position for Wazobia State Government is provided in
the table below.
Table 8: Debt Position as at 31st December 2014
Debt Sustainability Analysis
A DSA RATIO SCENARIOS:
Solvency Ratios
1 Total Domestic Debt/Total Recurrent Revenue
2 Total Domestic Debt/IGR
3 Total External Debt/Total Revenue
4 Total Public Debt/Total Revenue
5 Total Public Debt/State GDP Ratio
Liquidity Ratios
6 External Debt Service/Total Revenue
7 Total Debt Service/Total Revenue
8 Domestic Debt Service/IGR
B
1
2
3
Sustainability Thresholds
PUBLIC DEBT DATA AS AT 31st DECEMBER 2014
Total Domestic Debt
Total External Debt
Total Public Debt
4 Total Domestic Debt Service 2014
5 Total External Debt Service in 2014
6 Total Public Debt Service
50%
150%
50%
100%
40%
10%
15%
10%
As at 31st December 2014
Percentage
12.07%
210.57%
24.15%
36.22%
4.34%
6.76%
8.29%
26.74%
2014 Actual
Naira
8,500,000,000
17,000,000,000
25,500,000,000
1,079,500,000
4,760,000,000
5,839,500,000
C STATE GDP FOR 2014
1 State GDP
587,098,234,700
88.
The State is well within most ratios with the exception of those related to IGR – specifically
domestic debt to IGR solvency ratio and domestic debt service to IGR liquidity ratio.
However, this is largely due to a low IGR base which must be built in the short-medium
term. Once IGR is at a more appropriate level compared to the level of economic activity
in the state, more domestic borrowing will be possible.
89.
In the interim, although foreign exchange represents a risk, foreign loans represent a more
affordable solution to borrowing.
Page 21
Section 3
3.A
Fiscal Strategy Paper
Macroeconomic Framework
90.
The Macroeconomic framework is based on IMF national real GDP growth and inflation
forecasts from the October 2014 World Economic Outlook document, and mineral
benchmarks (oil price, production and NGN:USD exchange rate) from the 2015-2017
Federal Fiscal Framework. The state real GDP growth is based on 65% of the national
level, inflation is as per the national level.
91.
The state GDP actual is based on the 2014 GDP estimate and the real GDP and inflation
rates shown.
Figure 14: Wazobia State Macroeconomic Framework
Macro-Economic Framework
Item
National Inflation
National Real GDP Growth
State Inflation
State Real GDP Growth
State GDP Actual
Oil Production Benchmark
Oil Price Benchmark
NGN:USD Exchange Rate
3.B
2015
8.30%
7.20%
8.30%
4.68%
667,890,000,000
2.3271
59
165
2016
8.30%
7.20%
8.30%
4.68%
757,176,473,916
2.3271
59
165
2017
7.90%
7.10%
7.90%
4.62%
854,697,661,474
2.4067
65
165
2018
7.50%
7.00%
7.50%
4.55%
960,605,385,451
2.4067
65
165
Fiscal Strategy and Assumptions
Policy Statement
92.
The State’s fiscal policy is envisaged to control and enforce compliance with established
spending limits to achieve sound budgeting system, which include aggregate fiscal
discipline, allocative efficiency and effective spending.
Objectives and Targets
93.
The key targets for Wazobia State Government from a fiscal perspective are:

Achieve a recurrent to capital expenditure ratio of between 40:60 and 60:40;

Create efficiencies in personnel and overhead expenditure to allow greater resource
for capital development;

Grow IGR by a minimum of 10% per annum;

Allow 2.5% of revenue for a contingency reserve;

Loans will only be used for capital expenditure projects;

Long term target of funding all recurrent expenditure through revenue of a recurrent
nature (IGR, VAT and Non-mineral component of Statutory Allocation);

Target sources of capital receipts and financing outside of loans (e.g. Grants, PPP,
etc.); and

Priority given to completion of ongoing capital projects before new projects are
commenced.
Page 22
3.C
94.
Indicative Three Year Fiscal Framework
The indicative three year fiscal framework for the period 2016-2018 is presented in the
table below.
Table 9: Wazobia State Medium Term Fiscal Framework
Fiscal Framework
Recurrent Revenue
Statutory Allocation
VAT
IGR
Excess Crude / Other Revenue
Total Recurrent Revenue
2015
2016
2017
2018
43,824,638,196
46,657,912,416
54,058,092,882
58,581,966,006
11,619,913,362
13,041,868,436
14,541,710,234
16,200,222,197
4,410,972,147
4,799,042,603
5,227,617,085
5,688,505,718
5,614,503,969
5,614,503,969
5,614,503,969
5,614,503,969
65,470,027,673 70,113,327,423 79,441,924,170 86,085,197,890
Recurrent Expenditure
CRF Charges
Personnel
Overheads
Total
1,618,142,172
1,658,595,727
1,700,060,620
1,742,562,135
34,867,417,533
39,973,730,735
45,796,842,493
52,397,815,436
21,128,207,444
21,128,207,444
21,128,207,444
21,128,207,444
57,613,767,149 62,760,533,905 68,625,110,557 75,268,585,015
Transfer to Capital Account
Capital Receipts
Grants
Other Capital Receipts
Total
Reserves
Contingency Reserve
Planning Reserve
Total Reserves
Capital Expenditure
Discretional Funds
Non-Discretional Funds
Net Financing
Total Budget Size
Ratios
Growth in Recurrent Revenue
Grwoth in Recurrent Expenditure
Capital Expenditure Rate
Deficit to Total Expenditure
3.C.1
7,856,260,524
7,352,793,518 10,816,813,613 10,816,612,875
8,500,000,000
8,500,000,000
9,250,000,000
1,500,000,000
1,500,000,000
1,500,000,000
10,000,000,000 10,000,000,000 10,750,000,000
1,636,750,692
1,636,750,692
3,273,501,384
1,752,833,186
1,752,833,186
3,505,666,371
1,986,048,104
1,986,048,104
3,972,096,209
7,000,000,000
1,500,000,000
8,500,000,000
2,152,129,947
2,152,129,947
4,304,259,895
22,356,260,524 21,852,793,518 26,066,813,613 23,816,612,875
13,856,260,524
13,352,793,518
16,816,813,613
16,816,612,875
8,500,000,000
8,500,000,000
9,250,000,000
7,000,000,000
4,500,000,000
4,500,000,000
4,500,000,000
4,500,000,000
79,970,027,673 84,613,327,423 94,691,924,170 99,085,197,890
-7.01%
9.66%
27.96%
5.63%
7.09%
8.93%
25.83%
5.32%
13.31%
9.34%
27.53%
4.75%
8.36%
9.68%
24.04%
4.54%
Assumptions
95.
Statutory Allocation – the estimation for statutory allocation is based on an elasticity
forecast taking into consideration the macro-economic framework (National) and the
mineral assumptions in the 2015-2017 Federal Fiscal Strategy Paper. It is based on
historical mineral revenues flows and elasticity based forecast using national Real GFP and
Inflation data.
96.
VAT – is also based on elastic forecasting using national Real GFP and Inflation data as the
explanatory variables for VAT growth.
97.
Excess Crude – is based on the actual receipts for 2014 without growth.
98.
Internally Generated Revenue (IGR) – growth is around 10% per annum based on
the five year moving average growth rates excluding outliers.
Page 23
99.
Grants – local grants from Local Government for joint funded projects (at the same rate
as 2014) and MDG’s (reducing year-on-year). External grants are based on signed grant
agreements with the World Bank (SLOGOR) and UNICEF, plus some “blue-sky” estimates of
NGN 2b per year for 2016 and 2017, and NGN 4b for 2018.
100. Miscellaneous Capital Receipts – is based on the sale of State Assets (housing) scheme
that is ongoing until 2018 which is anticipated to net the state NGN 1.5b per year.
101. Financing (Net Loans) – Wazobia State is set to draw down three tranches of NGN 4.5b
in each of 2016, 2017 and 2018. The state is not planning to take any other financing
during the three year period.
102. Consolidated Revenue Fund Charges – are growing at 3% per annum based on 2014
actuals – this assumes some modest increases in salaries plus some increases in debt
servicing costs as the DPO’s come into effect, plus other foreign and domestic liabilities.
103. Personnel – are based on elasticity forecasts using state nominal economic activities and
the state inflation and GDP growth estimates for 2016-2018. This will bring in an average
growth rate of 15% per annum over the period 2016-2018.
104. Overheads – have been frozen at 2014 actual’s level.
105. Contingency Reserve – a deduction of 2.5% of recurrent revenue has allocated to the
Contingency Reserve which will not be allocated during the budget process but will be
used, in accordance with Finance Act, during budget implementation. The same for
Planning Reserve which will be allocated during MDA budget negotiations.
106. Capital Expenditure – is based on the balance from the recurrent account plus capital
receipts, less than contingency reserve as outlined above.
3.C.2
Fiscal Trends
107. Based on the above envelope, plus actual figures for 2009-2015 (using the same basis for
forecasting as noted in the sub-sections within section 3.B), the trend from historical actual
to forecast can be seen for revenue and then expenditure in the line graphs below.
Page 24
Figure 15: Wazobia State Revenue Trend
Revenue Trend: Actual 2009 - 2014 and Forecast 2015 - 2018
70,000
60,000
Million Naira
50,000
40,000
30,000
20,000
10,000
0
2009 Actual
2010 Actual
2011 Actual
2012 Actual
2013 Actual
2014 Actual
2015 Forecast
2016 Forecast
2017 Forecast
2018 Forecast
Stat.Allocation
23,295,568,65
31,510,185,94
41,371,531,76
42,664,867,99
48,865,575,89
50,424,435,63
43,824,638,19
46,657,912,41
54,058,092,88
58,581,966,00
VAT
5,437,062,061
6,514,443,141
7,543,554,749
8,177,286,387
9,302,960,585
10,326,598,52
11,619,913,36
13,041,868,43
14,541,710,23
16,200,222,19
Total IGR
2,679,866,754
2,966,507,945
3,215,698,404
3,620,563,724
3,936,312,975
4,036,675,165
4,410,972,147
4,799,042,603
5,227,617,085
5,688,505,718
Excess Crude
10,772,990,37
8,871,737,165
10,618,382,56
13,319,184,03
11,513,607,43
5,614,503,969
5,614,503,969
5,614,503,969
5,614,503,969
5,614,503,969
Capital Receipts 1,156,000,000
3,939,899,115
1,499,859,500
8,131,258,109
11,764,205,24
9,451,845,191
14,500,000,00
14,500,000,00
15,250,000,00
13,000,000,00
Year
Page 25
Figure 16: Wazobia State Expenditure Trend
Expenditure Trend: Actual 2009 - 2014 and Forecast 2015 - 2018
60,000
50,000
Million Naira
40,000
30,000
20,000
10,000
0
2010 Actual
2011 Actual
2012 Actual
2013 Actual
2014 Actual
2015 Forecast
2016 Forecast
2017 Forecast
2018 Forecast
Personnel Costs 13,019,200,00
17,069,600,00
19,591,200,00
20,330,400,00
26,264,270,80
29,830,374,91
34,867,417,53
39,973,730,73
45,796,842,49
52,397,815,43
Overheads
10,707,731,62
11,054,421,06
9,306,432,307
13,228,015,26
10,930,565,93
21,128,207,44
21,128,207,44
21,128,207,44
21,128,207,44
21,128,207,44
Cap. Ex.
18,757,768,43
24,728,752,24
34,106,394,67
40,897,991,97
46,681,072,38
27,316,800,83
22,356,260,52
21,852,793,51
26,066,813,61
23,816,612,87
856,787,789
950,000,000
1,245,000,005
1,456,753,000
1,506,753,000
1,578,675,290
1,618,142,172
1,658,595,727
1,700,060,620
1,742,562,135
CRF Charges
2009 Actual
Year
Page 26
3.D
Fiscal Risks
108. The analysis and forecasting basis as laid out above implies some fiscal risks, including but
not limited to.
Table 10: Fiscal Risks
Risk
Likelihood
Impact
Reaction
Reliance on continued
distribution of excess crude
Low
Medium
The budget for excess crude is prudent,
however, clear prioritisation of projects in
the capital budget is required. Increased
IGR effort to decrease reliance on federal
transfers and seeking alternative means
of funding (grants, PPP etc.)
Security situation country
wide could affect economic
activity and oil production,
resulting in risk to VAT and
Statutory Allocation
Medium
High
The estimates for VAT and Statutory are
not overly ambitious. In addition, clear
prioritisation of projects in the capital
budget is required. Increased IGR effort
to decrease reliance on federal transfers
and seeking alternative means of funding
(grants, PPP etc.)
Risks associated to the
unknown outcomes of the
2015 election process which
creates uncertainty in long
term policy priorities
Low
Medium
Completion of ongoing projects to allow
more “fiscal space” to commence new
projects based on new policy priorities
Mismanagement and
inefficient use of financial
resources
Medium
High
Adherence to existing and new
institutional and legal/regulatory
framework that will require more
transparent and efficient use of financial
resources.
Floods and other natural
disasters impact on economic
activity and hence IGR tax
base, and causing increased
overhead expenditure
Medium
Medium
Increased investment to increase climate
resilience (flood control and irrigation)
adaptation, and awareness
109. It should be noted however that no budget is without risk. The ongoing implementation of
the 2015 budget should be closely monitored, as should the security situation and impact of
the fiscal and economic outlook.
Page 27
Section 4
4.A
Budget Policy Statement
Budget Policy Thrust
110. The overall policy objectives are captured by the following points:

Continuous improvement in access to - and quality of - public services, these include
education and Health Care Delivery Systems at all levels. Inherent in this is the
resolve of government to promote gender equality and inclusive development;

Pursuit of initiatives that would continue to generate economic growth. This would
involve implementation of pro-poor projects and programmes that generate
employment and create wealth. Indeed, following the outcomes of the First Wazobia
Economic and Investment Summit held in May 2013, it is intended to accord priority
to areas that would ultimately help unlock the vast resource potentials of the state
and put in place a dynamic and competitive state economy; and

Another major priority area is to broaden ongoing governance reforms particularly in
the area of policy and strategy; public expenditure and financial management; and
public service management. As part of this process, Government intends to review
and update the Wazobia State Development Plan (WSDP).
4.B
Sector Allocations (3 Year)
111. The major adjustments to the sector allocation for capital expenditure have seen the
following:

Reduction in Infrastructure expenditure from more than 50% to 30% by 2018;

Relatively significant increases (by percentage) to health and education sectors;

Security sector allocations have reduced in anticipation of the solving of the current
issues within the 2015 year; and

Marginal increases to transport sector as the need for mass transit systems become
apparent.
112. It should be noted the allocations to the Ministry of Works for overhead expenditure should
enable proper maintenance of the newly created/refurbished highways infrastructure.
Page 28
Figure 17: Sector Allocations (proposed 2016-2018) for Capital Development
Women, Youth, SPC,
Culture and Value0.75%
Rural and Community ,
3.00%
Water, 3.00%
Industry, Commerce,
2.00% 2.00%
Environment,
Re., 0.50%
Security, 0.75%
Agriculture, 5.00%
Governance, 15.00%
Education, 15.00%
Infrastucture, 40.00%
Health, 10.00%
Transport, 2.25%
ICT, 0.75%
113. Presented in the table below are the indicative three envelopes for sectors and sub-sectors.
Page 29
Table 11: Indicative Sector Expenditure Ceilings 2016-2018 – Recurrent
Sectoral Recurrent Expenditure
No. Sector
1 Water
2 Agriculture
3 Industry, Commerce
4 Environment
5 Infrastucture
6 ICT
7 Transport
8 Health
9 Education
10 Security
11 Governance
12 Culture and Value Re.
13 Women, Youth, SPC
14 Rural and Community
Total
% 2016
31.76%
28.80%
0.98%
1.97%
8.86%
22.13%
0.99%
1.26%
0.82%
0.44%
0.36%
0.82%
0.44%
0.36%
100.00%
2016 Allocation
19,403,629,953
17,599,242,603
598,512,256
1,205,875,095
5,414,353,347
13,522,974,318
607,457,819
770,922,090
504,084,150
266,837,941
218,563,259
504,084,150
266,837,941
218,563,259
61,101,938,179
Page 30
% 2017
31.76%
28.80%
0.98%
1.97%
8.86%
22.13%
0.99%
1.26%
0.82%
0.44%
0.36%
0.82%
0.44%
0.36%
100.00%
2017 Allocation
23,349,042,312
21,177,762,160
720,209,982
1,451,070,170
6,515,273,983
16,272,651,060
730,974,480
927,676,551
606,581,458
321,095,093
263,004,541
606,581,458
321,095,093
263,004,541
73,526,022,880
% 2018
31.76%
28.80%
0.98%
1.97%
8.86%
22.13%
0.99%
1.26%
0.82%
0.44%
0.36%
0.82%
0.44%
0.36%
100.00%
2018 Allocation
6,709,507,604
6,085,575,346
206,957,283
416,974,975
1,872,208,707
4,676,057,997
210,050,535
266,574,226
174,305,346
92,268,879
75,576,160
174,305,346
92,268,879
75,576,160
21,128,207,444
Table 12: Indicative Sector Expenditure Ceilings 2016-2018 – Capital
Sectoral Capital Expenditure
No. Sector
1 Water
2 Agriculture
3 Industry, Commerce
4 Environment
5 Infrastucture
6 ICT
7 Transport
8 Health
9 Education
10 Security
11 Governance
12 Culture and Value Re.
13 Women, Youth, SPC
14 Rural and Community
Total
% 2016
3.00%
5.00%
2.00%
2.00%
50.00%
0.75%
2.00%
5.00%
10.00%
1.00%
15.00%
0.50%
0.75%
3.00%
100.00%
2016 Allocation
655,583,806
1,092,639,676
437,055,870
437,055,870
10,926,396,759
163,895,951
437,055,870
1,092,639,676
2,185,279,352
218,527,935
3,277,919,028
109,263,968
163,895,951
655,583,806
21,852,793,518
Page 31
% 2017
3.00%
5.00%
2.00%
2.00%
40.00%
0.75%
2.25%
10.00%
15.00%
0.75%
15.00%
0.50%
0.75%
3.00%
100.00%
2017 Allocation
782,004,408
1,303,340,681
521,336,272
521,336,272
10,426,725,445
195,501,102
586,503,306
2,606,681,361
3,910,022,042
195,501,102
3,910,022,042
130,334,068
195,501,102
782,004,408
26,066,813,613
% 2018
3.00%
5.00%
2.00%
2.00%
30.00%
0.75%
2.50%
15.00%
20.00%
0.50%
15.00%
0.50%
0.75%
3.00%
100.00%
2018 Allocation
714,498,386
1,190,830,644
476,332,257
476,332,257
7,144,983,862
178,624,597
595,415,322
3,572,491,931
4,763,322,575
119,083,064
3,572,491,931
119,083,064
178,624,597
714,498,386
23,816,612,875
4.C
Considerations for the Annual Budget Process
114. The budget call circular should include the following instructions to MDA's for the annual
budget submissions:

With a relatively small Capital Development Fund, priority must be given to
completing ongoing projects;

Budget submissions for capital projects must include full life-time capital investment
requirements (costs) and also sources of funding (particularly if grants and/or loans
are being used to partially / fully fund the project);

It is recommended that any savings in Overheads can be carried forward at the rate
of 50% to the following year;

There should be caps on MDA increments to individual personnel and overhead
items of 5% and any increases above this need written justification.
Page 32
Section 5
Summary of Key Points and
Recommendations
115. We summarise below a list of the key points arising in this document:

Risks centre around the political instability both nationally and in the state due to the
2015 elections, and also the still heavy dependence on fiscal transfers (Statutory
Allocation, VAT and Excess Crude) to fund the budget;

Recurrent expenditure is high and needs to be rationalised;

IGR needs to be grown to a level commensurate with the level of economic activity
in the state.
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