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Maximizing Government Investments for Economic Growth


According to a recent UNCTAD assessment, achieving the Sustainable Development Goals (SDGs) by 2030 is a significant challenge, particularly for developing nations like Nigeria. The paper emphasizes the significant yearly investment required, which ranges from $6.9 to $7.6 trillion, or around $1,179 to $1,383 per person. In Nigeria, various economic concerns further complicate matters, including rising inflation, increasing debt, currency instability, and significant unemployment rates. Additionally, there's a considerable shortfall of $337 billion in tackling climate and environmental challenges. As Nigeria navigates its road toward sustainable development, the efficacy of government expenditure becomes crucial. This article aims to examine the nuanced relationship between government expenditure and economic growth within the specific context of Nigeria's development.


Essential for National Development: Education, Healthcare, Infrastructure & Research

Infrastructure development is not restricted to transportation. It comprises various categories: energy grids (power plants), water treatment facilities, and communication networks (broadband internet). Each of these infrastructure categories is essential for boosting the nation's economy and improving the lives of its people. Long-term planning is crucial to guarantee that infrastructure projects fulfill future requirements and remain relevant to changing technologies. Governments can establish a long-term infrastructure that maintains economic growth and human well-being by carefully anticipating future requirements. Regular maintenance and improvements are crucial for infrastructure investments to be successful and continue functioning. Sustaining long-term social development and economic progress requires a holistic approach, including strategic planning, many categories, and continuous maintenance.

Enhancing human capital, necessary for sustainable economic development, requires spending on healthcare and education. Government investment in education increases the availability of high-quality education, career training, and postsecondary education, leading to a competent and effective workforce. Early childhood education programs are becoming more critical due to their beneficial effects on long-term cognitive development and future earning potential. A healthy population lowers absenteeism, increases labor force participation, and reduces healthcare expenses for employers. Similarly, medical research, preventative care, and healthcare infrastructure expenditures support these factors. Government investment in education may also lessen economic inequality by enhancing social mobility and ensuring all students have equitable access to high-quality education. Moreover, debates about the possible advantages and factors to be considered in universal healthcare systems, in which government expenditure is a significant component, are essential for ensuring the populace's health and promoting long-term economic growth.

Government support for scientific research and development (R&D) stimulates innovation, technical advancement, and economic viability. Investments in research uncover new technologies, procedures, and goods that enhance productivity to open up new markets in various industries. Government-funded research frequently has a cascading effect that encourages entrepreneurship and innovation in the private sector. Investments in research on renewable energy could contribute to innovations in clean energy technology, opening up new markets and job prospects while tackling environmental issues. The differences between applied research, aimed at developing practical applications, and empirical study, which concentrates on basic information, are essential factors to be considered. Fundamental investigations, which have no obvious biological commercial benefits but could ultimately contribute to important discoveries, are frequently funded by the government. International cooperation in scientific research is also essential for advancing the field and helping all participating nations. Government programs encouraging international cooperation can make it easier for people to share resources and expertise, resulting in more significant technological advances globally.

The declining public expenditure percentage of GDP suggests a shrinking government role in essential services and infrastructure, potentially impacting economic development and social welfare. Re-evaluating spending priorities, enhancing transparency, and adopting effective strategies are crucial.


Challenges of Nigerian Government Spending

Nigeria faced significant financial challenges in 2023, with a record budget spending of N20.51 trillion, partially supported by estimated records of N9.73 trillion. This resulted in a substantial deficit of N10.78 trillion, accounting for 4.78% of the GDP. Non-debt recurrent expenditure (NDRE) rose to N8.27 trillion, with staff expenses up 16%. Debt service spending surged to N6.31 trillion, up 71% from 2022. Capital spending fell by 8.88%. The revenue prediction for 2023 was N9.73 trillion, less than the amended budget of N9.9 trillion. Nigeria's federal debt rose to N97.34 trillion (US$108, 23 billion) in Q4 2023, with external and domestic loans totalling N38.22 and N59.12 trillion, respectively. Source: NBS. The government's shrinking size and decreased engagement in economic activity raise concerns about the effectiveness of public spending in encouraging economic growth and development. Despite considerable investments in infrastructure, overhead, and operational costs, the economy has yet to attain the expected boost in output growth. Increasing expenditures may only result in financial advantages if underlying issues such as corruption, inefficiency, and bad management are addressed.

Along with these economic challenges, institutional corruption undermines Nigeria's stability and growth. Since independence, corruption has taken almost $550 billion from the economy, with the Economic and Financial Crimes Commission collecting $750 million in 2021 alone. Nigeria's low rankings of 120 out of 140 on the Rule of Law Index and a score of 25 on the 2023 Corruption Perception Index highlight the country's widespread corruption. Source: CPI. These issues are inextricably related to inefficient governmental expenditure methods. Despite significant allocations, the decline in public expenditure as a proportion of GDP, from 21.07% in the 1970s to 7.67% in the 2000s, indicates a shrinking government influence in economic activity. Inefficient resource allocation, widespread corruption, and bad fiscal management have weakened the potential advantages of increasing spending. This highlights the critical need for Nigeria to improve fiscal accountability and transparency to encourage economic growth and development. Source: CBN Journal of Applied Statistics Vol. 12 No. 1.


Combating Inefficiency and Promoting Accountability

Monitoring systems, such as audit offices or budget monitoring committees, can prevent money laundering and promote good governance by conducting regular audits and reviews. Promoting participatory budgeting also allows citizens to be involved in decision-making, ensuring public funds are distributed to initiatives. Developing techniques to reduce inefficiencies and wasteful government expenditure is a continuous endeavor for all countries, not just Nigeria. South Korea has efficiently decreased inefficiencies and encouraged transparency in government expenditure, resulting in a reasonably good budgetary situation. In 2021, South Korea's budget deficit was -0.8% of GDP, much lower than the OECD average of -7.5%. This conservative fiscal management is partly due to the government's deployment of initiatives to increase budget transparency and efficiency. Source: OECD. South Korea received a transparency score 74 in the Open Budget Survey (OBS) 2021, representing a significant increase over prior years. The government uses systems such as audit offices and participatory budgeting to ensure public money is appropriately allocated.

Furthermore, the Electronic Government Procurement (e-GP) System and Open Data Contracting System produce real-time data and performance analysis on capital budget spending, increasing efficiency and exposing unethical behavior. These measures promote openness and competition, reducing costs and more possibilities for small enterprises. As South Korea has demonstrated, intense monitoring and participatory budgeting may eliminate inefficiencies and promote good governance, providing vital lessons for nations like Nigeria.


Achieving Fiscal Balance

Establishing balanced government spending is critical to Nigeria's economic growth. Fiscal balance, which measures the gap between government revenues and expenditures, is essential to stability. Nigeria's public debt increased by 10.73% in Q4 2023 to N97.34 trillion (US$108.23 billion), underscoring the importance of fiscal stability. Taxes, oil, and foreign aid play a significant role in fiscal balance. Efficient resource allocation in infrastructure, education, healthcare, and innovation is critical. Effective government spending necessitates strict budget control and financial management. Debt servicing takes up a significant portion of overall governmental debt, accounting for 39.26% of external debt and 60.74% of domestic debt. For example, Lagos State's N1.05 trillion internal debt demonstrates the importance of focused fiscal solutions.  High governmental debt increases borrowing costs, highlighted by Lagos State's N1.05 trillion foreign debt, rising interest rates, and hindering growth. High interest rates discourage investment and consumption, reducing job growth and living standards. Inflation, interest rates, and external shocks impact government spending effectiveness and fiscal strategies, necessitating the adoption of flexible economic policies. A well-designed tax system may boost public expenditure and economic growth. Effective fiscal management, resource allocation, and transparency are vital to Nigeria's long-term progress. Enhancing transparency and limiting unnecessary expenditure through anti-corruption measures and simplified systems are essential for responsible spending. Source: NBS


Government expenditure may be an effective instrument for promoting economic growth and meeting societal requirements. However, it is critical to be aware of the possible downsides and prioritize appropriate budgetary measures. Policymakers can unleash the full potential of government expenditure for sustainable and equitable economic growth by reducing inefficiencies, properly managing debt, and ensuring that public investments complement rather than compete with private sector efforts.


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