Assessment of The Impact of Global Financial Crisis On The Nigerian Budget

Conference Theme: Managing the Challenges of Global Financial Crisis in Developing Economies
ASSESSMENT OF THE IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIAN BUDGET

SULEIMAN, Dahiru 1 Sdahiru97@yahoo.com Abstract There is no doubt that Nigerian budget have come under the pressure due to the on going global financial crisis. The fiscal policy is the only solution to the Global Economic Crisis as advocated by Keynes. The paper explores the impact of the Global Financial Crisis on the Nigerian Budget, as well as the policy initiatives that can be employed to minimize the impact from the external shocks. The paper adopts a simple descriptive method of analysis based on secondary data. The analysis is based on both the oil revenue and public expenditure. The conclusion is that the Global Economic Crisis does impact negatively on the Nigerian budget, through the response of the Nigerian oil revenue from the external shocks, and the recommendation is made on how the impact could be minimized.
Introduction Since 2007, there had been speculations of a possible United States recession. The current global economic crisis is unprecedented, in the history of the modern world, and its having a catastrophic effect on the financial well being of millions of people around the world. Alan Greenspan the former head of the US reserve system called it an an event that occurs once in 100 years. The U.S represent about 21% of the global economy and impact of U.S recession includes sub-prime mortgages crisis which pushed up credit costs world wide and forced European and Asian banks to write down billions of dollars in holdings. The current crisis is rooted to the mortgages loan crisis (sub-prime loans) which became heightened in the U.S in early 2004 until the mid 2007 when the bubble burst .During the early 2004, the mortgage industry in the U.S enjoyed an unprecedented boom where by mortgage brokers enticed prospective buyers with inadequate income or poor credit history in to taking mortgage loans with little or no down payments. The first causalities were Fannie May and Freddie Mac who were forcefully taken over by the Federal Reserve Bank (FRB) in September 2008, due to huge debt burden caused by the collapse of the mortgage industry. The
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Suleiman is a Lecturer at the Department of Economics, Ahmadu Bello University, Zaria-Nigeria.

Faculty of Administration, Nasarawa State University, Keffi, Nigeria Conference Proceeding, Volume 1, 9-11 March, 2010
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stock wave also came from the U.S when the financial authorities announced the bankruptcy of LEHMAN BROTHERS. Amid the shock over the collapse of Lehman Brothers, another organization American International Group (AIG), THE LARGEST Insurance Company in the U.S was at the blink of collapse. Subsequently, another investment banking giant MERILL LYNCH filled for bankruptcy and was bought out by bank of America for $50 billion, from September 2008-2009, the global economy has witnessed what some experts describes as the worst global financial crisis in decades, because it led to the massive unemployment, lower industrial output, falling demand for commodities, worsening poverty etc. The Global Economic Crisis has serious consequences, for both the developed and developing countries, including Nigeria. Now the U.S is in recession and this is affecting the whole world economy because U.S has the largest single market in the world. There is a saying that when U.S sneezes the whole world catches pneumonia. The developing economies too are in recession are even the worst hit, because the global economic crisis has affected the developing economies through labor market and remittances, Reducing capital outflows, Reducing foreign direct investment, reducing growth rate, falling reserves, worsening poverty, reduction in the demand for commodities e.tc. Although the impact on a particular country will depend on the degree of exposure of its economy to U.S and the other developed economies connected with the crisis as well as its capacity to absorb the shocks. Nigeria is not left out, because Nigerians economy is crude oil export oriented, we are affected through international trade. Nigeria is a one commodity based economy which makes our situation more precarious. Fall in the price of crude oil will result to decline in government revenue, the fall in government revenue from oil will have a serious impact on government spending provision of infrastructural facilities, jobs etc. This in a way explains the rapidly falling price of oil in the world market from $140 per barrel nine months ago to around $45! This development has forced government to review the 2009 budget benchmark down words from $65 to $45. This reduces the government revenue and in turn affects the previsions of goods and services that is the performance of the economy in the year. The oil price collapse is by far the biggest component of the external shocks that has hit Nigeria! Since the beginning of the 1970s especially when Nigerians public revenue increased through the discovery and sales of crude oil, greater attentions has been paid to the consequences of government revenue to increased government expenditure. The Nigerian economy experienced an oil boom in 1970s. The worst impact of global economic crisis on Nigeria is dwindling petroleum earnings means less budgetary resources. Nigeria, the eight largest producer of crude oil and a strong member of the organization of petroleum producing countries (OPEC), Nigeria Generates 85% of its
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revenue from crude oil the Federal Government Finances the annual budget largely through the sales of crude oil. The external shocks here are by lowering the demands for Nigerias exports particularly crude oil, whose price has been on the decline since the crisis. The drop in the price of crude oil has affected the federal and state governments spending because the federal government uses the price of crude oil to bench mark its budget. Before now the price of crude oil was between $140 and $145 per barrel, but now the price of crude oil per barrel lies around $45 Available data shows that the international market price for crude oil which was at an all time high of $157 per barrel come down to an all time low of $36 per barrel (All Africa .Com 2008). Assuming the oil production of 2.292 mbpd and bench mark oil price would lower exports by about $7.76 and fiscal revenues by approximately $6.26b. Now consider that oil prices average $97 per barrel in 2008 and are forecast to average $50 per barrel in 2009, a stunning drop of $47 per barrel, this drop would have serious consequences in the economy (Ngozi, 2009). Persistent drop in crude oil means that government would have less to spend for capital projects in year, ahead. The problem and implication here is that Nigerias economy is based on one commodity crude oil (Mono cultural economy) the country largely depends on oil for substance and negative development in the global market oil have similar impact on government funding which would lead to spending less, adjusting some capital projects, running a budget deficit, and looking for ways to finance the deficit, which is either by printing money ,which is least desirable, because of its inflationary impact ,by barrowing from outside the economy ,which would also increase the countrys debt to other countries or by borrowing from the public which will put strain on liquidity in the system and will crowd out credit for the private sector (Duru, 2009). Conceptual Definitions Financial Crisis is a term commonly used when individuals find them selves in an unsustainable financial life style, where by there debt for out weights their income, and therefore they stand to lose asset, such as homes. This can occur through poor personal management of money, unforeseen circumstance or on a more global basis through economic crisis when the whole economy is in a slump. (Frederic, 1991). Financial crisis can be defined as a situation in which supply of money is outpaced by the demand for money Crocket (1997). The term financial crisis is applied broadly to a variety of situations in which some financial institutions of assets suddenly lose a large part of their value. In the 19th and early 20th century many recessions coincided with these panics. Other situations that are often called financial crisis include stock market crashes and the bursting of other financial bubbles, currency crisis and sovereign defaults (Wikipedia, 2009). Golden Smith defined financial crisis as a
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sharp, brief, ultra cyclical deterioration of all or most of a group of financial indicators short term interest rates, (stock, real estate, land) prices, commercial insolvencies and failures of financial institutions. A recession is a period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer. Marked by high unemployment, stagnant wages and fall in retail sales, a recession generally does not longer than one year and is much milder than a depression ( Mukshin, 1991). Burkhead (1981) define budget as a financial statement of the proposed expenditure and expected revenue of the government during a particular period of time. According to Musgave (1986) budget is the programme of action that indicates how financial and other economic resources are allocated and utilized by Government. According to Encarta (1997), a budget is Forecast of expenditures and revenues for a specific period of time. Its a planning documents that enables for a specific period of time, its a planning documents that enables the government, house hold etc. to set priorities and monitor progress toward selected goals. Goode (1954), defined budget as the outcome of a process that includes preparation of the financial plan, review of the plan by the legislative where there is one execution of the plan and (ideally) evaluation and public reporting of the result. Due and fried laend (1977) defined budget as the basis for expenditure decision making and subsequent control of expenditures. According to Jhingan (1997), Fiscal policy is a powerful instrument of stabilization, By fiscal policy we refer to government actions affecting its receipts and expenditures which we ordinarily taken as measured by the governments receipts, its surplus or deficit .Powell (1993), stated similar with Jhingan in his definition. According to him, fiscal policy is the part of government is overall economic policy which aims to achieve the governments economic objectives through the use of the fiscal instrument of taxation, public spending and budget deficit or surplus. Eckestein (1979), defines fiscal policy as changes in taxes and expenditures which aim at short-run goals of full employment and price level stability. Ndu (2000) defines public expenditure as a way of utilizing national output, so as to meet the wants of the people in the country. Also Adubi (1998) explains that, public expenditure is expenses which the public sector incurs for its maintenance, for the benefit of the economy, external bodies and for other countries. In general terms, public expenditure donates the dispensation by the state, non market criteria of economic resources ,that it has acquired from firms and house holds. Public expenditure is important in the economic development of the country therefore, its seen as a means of executing government policies and
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programes, through public spending most government objectives are achieved. Keynes (1936), stressed that national income is determined by the total expenditure on consumption and investment by both the private sector and government sector of an economy (Onojo, 1996). Government Budget Since the introduction of structural adjustment programme (SAP) deliberate efforts have been made by the Nigerian government to improve the budgetary process so as to make the budget an effective tool for national economic management. A number of institutions and policy reforms have been introduced, particularly since mid 1986 when SAP was adopted, to improve public expenditure management in Nigeria. Government has for instance, adopted a multi-year budgeting framework (the rolling plan) so as to reduce the impact of uncertain ties on the performances of the nations development plans and budgets, the creation of departments of planning research and statistics (DPRS) in ministries and extra ministerial departments and parastatals. The establishment of the national planning commission and the inaguration of vision 2010 committee. In 1977, the financial year had recorded a deficit, probably because of the organization of festival of art and culture (FESTAC). The money expanded for the organization and hosting of the festival, sapped a lot of money from the economy leading to expenditure exceeding revenue. 1985 similarly, sudden change of government led also to a deficit budget situation,1986 and 1988 had records of deficits ,partly as a result of the introduction and change of the structural Adjustment program (SAP) policy respectively, and lastly, in 1998 as preparation for election and a change from military to democratic system of governments was in progress, the money spent on the funding of the campaign and election process, exceed revenue generated resulting into another deficit situation. In 1999-2006, Nigeria has generated an increasing, and highest levels of average annual revenue. For instance, total revenue generated in 2001 amounted to N2,231.6b which represented a 282.9 percent increase over the N5,82.8b generated in 1997. Also total federally collected revenue in 2005 of N5,547.5b represents a 41.5% increase over the level in 2004 of N3,920.5b (CBN, annual report and statement of accounts, 1997-2005). On the other hand, 1991 financial year had a surplus record where the revenue was N100, 991 .6m while the expenditure was N66.268.2m. Also, 2003, 2004, 2007, had record a surplus. In which part of those surpluses were put into the excess crude account (ECA). The reason for setting up the ECA was precisely for a rainy day like this, when prices of oil fall bellow, the average level one might expect will prevail over time (Ngozi, 2009). In 2009, Gross federally collectable revenue for 2009 is put at N5.13
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trillion. The average budget prices per barrel of crude oil is put at $45 ($59 for 2008) and a daily forecast production of 2.929 mbpd (2.45mbpd for 2008). The aggregate expenditure represents a 4.45% increase over the N2.748trillion initially appropriated in 2008 and an 8.42% increases over the 2008 amended budgets level of expenditure N2.647trilion. More crutially, the capital vote of N796.7b is significantly higher than the actual capital expenditure of N491b in 2007. The expenditure planned of 2.87trilion, relative to revenues derivable after allocation or distribution of the federally collectible revenue of N1.78trillion, implies a budget deficit of N1.09trillion. The ratio of the deficit to the GDP(N27.672trillion) is an estimated 3.95%, the budget deficit will be driven by the correctness of the assumption made, if the revenue collection improves due to a positive change in variables, the deficit reduces and vise-versa (yaradua budget speech, 2009). The 2009 budget capital spending is planned in five key priority sectors of the economy. Due to the decline in international oil prices has compelled government to make some exceptional adjustment in the spending plans and priorities. Theoretical Framework Two theories would be adopted for both the financial crisis and the public expenditure i.e the Keynesian theory of financial crisis and the Wagner's theory of public expenditure. Keynesian theory of financial crisis The theory of global economic crisis that will best explain the current global economic crisis is that of Keynes. This is because Keynes seen financial crisis as a situation whereby economies experience decline in fix investment, higher inflation, deficit balance of payment, deficits budget, fall in price of oil, fall in the values of equities e.t.c. The Keynesian economist do not believe in the policy of the classical which says the economy is self regulating around fall employment level of income that the economy is self regulating around full employment level of income that the economy has build its mechanism or automatic stabilizer for laissez-faire free market system which has led to market failure in the world of capitalism. Keynes rather advocated for government interventions in the economy to bring about desired result. Wagners theory of public expenditure The theory states that theres a functional relationship between the growth of an economy and the growth of the government activities; so that the government sector grows faster than the economy (Musgrave, 1969). In order words Wagners law states that, as per capita income of an economy grows, the relative size of public expenditure grows along with it. As the economy grows, there will be increase in the number of urban centers, with the associated social vices such as crime, which require intervention of the
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government, to reduce such activities to the best minimum. Several empirical works have been done with regards the impact of financial crisis on public expenditure. Few of these works are reviewed here to give on insight in to the basis of the study. According to Sufyan (2009), pointed out that the pressurized global financial /economic crisis which lead to following in the price of crude oil slims the revenue generation from the oil. As the countrys revenue largely depends on oil by 80%, the falling in the revenue is the falling in expenditure and low revenue, low budget plans. The global economic crisis that frizzingly shift the revenue downward also bring the reduction in budget and for federal government to efficiently, manage the available revenues these takes a drastic decision of writing the RM afc to review the salaries of the political, public office holders by cutting down their salaries and allowances and in order to reduce excessive spending over the little available government revenue. Also, in another study carried out by Roland, et al (2009), titled fiscal stimulus and the duration of financial crisis stating financial system around the world with the on-going financial meltdown that have engrossed in to every nations sectors (Budget and Budgetary process which is under ministry of finance inclusive) in their work they estimated a model of the duration of financial crisis in an attempts to identify whether fiscal policy can reduce the time to recovery. Because the most often asked question during the collapse is how long and how deep the decline will be as well as what policy initiatives can be employed to shorten the recession. In their work they identified, that imbalances stand as the causes of financial crisis that countries of the world are facing. Eichengreen et al. (1995), who were among the first researchers to examine the causes of financial crisis, found (using a sample of 20 industrial countries) that factors such as capital controls, past government deficits, past and future inflation, future GDP and employment or growth and past current account balances were important determinants of currency crisis (such as failed speculative attacks, devaluation, revaluation). It was also identified that the quality of governance has also been associated with financial crisis in emerging market countries. Several studies have argued that the 1992-1993 European exchange rate crisis, the 1994 Mexican crisis and the 1997 Brazilian crisis were transmitted predominantly through trade (Glick and Rose 1999; Forbes, 2001,2004). Still, other researchers contend that the financial channel was the main mode of transmission across countries during the 1990s (Kaminsky and Reinhart, 2000: van Rijeckeghem and weder, 2001, Caramazza et al. 2004). Gupta et al. (2003) found that countries that traded less with the rest of the world, which had a relatively open capital account and where crisis
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were proceeded by large capital inflows, were more likely to be associated with contraction during crisis. The contraction was more pronounced if trade competitors devalued, oil prices rose during the crisis and post crisis period was marked by tight monetary policy and expansionary fiscal policy. Honig (2008) shows that the quality of governance has an (non-linear) effects on the incidence of sudden slop, which in turn have been linked to financial crisis. In deed, budget and finance are related, so the crisis has in one way or the other transent in to budgetary process and its implementation. They also spelt, its out that, government of countries always cut down expenditure, but this is not right in the face of recession. Government ought to spend especially the excess crude account in making sure that government maintained its quality. On a broader note, distortion in the financial sector coupled with macro economics instability from another set of factors that lead to financial crisis. These distortion frequently occur during periods when countries are undergoing rapid financial liberation and innovation. According to (IMF, 1998), other types of factors that have played a role in financial crisis are external conditions, particularly, large abrupt changes in world interest rates or the terms of trade (IMF, 1998). Using annual series from 1971-1992 on a panel of 100 developing countries. Frankel and Rose (1996) test whether variables like interest rates and output, monetary and fiscal shocks, external variables such as over valuation, the current account and the level of indebtedness, and the composition of the debt, can explain currency crashes. Their results suggest that currency crashes tend to occur when foreign direct investment (FDI) inflows dry up, when foreign reserves are low, domestic credit growth is high, interest rate rise, and when the real exchange rate is over valued, they also tend to be associated with sharp recession. Gande et al. (2008) model the vulnerability of an economy to a financial crisis as rising from the interaction of the degree of economic specialization and the mode of financial opportunities. Bordo et al (2000) compares the recovery time from contractionary crisis during the Gold standard era with the post Bretton woods period. Deb (2005), however, offers a more comprehensive assessment of the importance of economic fundamentals, international trade and liberalized capital account policies in determining the speed of recovery from such crises in both developed and developing countries. The study found that poor macro economic fundamentals and capital account liberalization have no significant impact on the duration of recovery, but all trade related variables were significant. To summarize the result of Roland et al (2009) their study used OLS to show the fiscal stimulus by the government. Their result suggests that in countries with higher levels of international integration unanticipated shocks can potentially lengthen the duration of financial crisis. They
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suggest that the overall measure of government consumption has a statistically insignificant impact on financial crises. This means that the anticipated component of government consumption was inversely related to the duration of financial crisis, indicating that public spending tends to reduce the duration of financial crisis. In contrast, the unanticipated component of government spending has the opposite effect on the duration of these episodes. Hindu (2009), carried out a study that public expenditure is one of the way that government all over the world has resorted to solve the problem of global economic crisis. Fiscal stimulus is another strategy adopts by many governments including India to over-come the repercussion of economic crisis. Any instruments which lead to productive output or unproductive output as part of public expenditure is desired as it increases the demand for goods and services. Methodology Descriptive data analysis would be employed in analyzing the data collected. The study will used trend analysis, to show the variation of oil prices in Nigeria. Nigeria is among the less developed countries, which rely heavily depends on revenues from sales of oil and royalties from oil companies; in fact 80% of Nigerias earning is from oil sources. To show the oil price at the period of 2006 when there was no crisis and 2007, 2008 and 2009 the period during the crisis while pie chart in the study will be use to depict the amount been collected to various sectors of the economy as government expenditure. The data used are mainly from secondary sources. These data are derived mainly from budget speeches, appropriation bills, central bank of Nigeria, budget office of the federation (BOF), Federal ministry of finance and economic journals/literature and internet. Results and Discussions Table 1 and Figure 1 show the variation in oil revenue from the year 20062009. As seen from the Trend, the revenue has been increasing but not at regular interval. The year 2008 especially the 3rd quarter recoded the highest increase in the level of government revenue from sales of crude oil. That was the period when the Global economic crisis started affecting the global economies. According to the trend the 2007 forth quarter was an increase of $ 462.95, the revenue from oil keeps on increasing until in the 4th quarter 2008, where oil revenue experienced a significant fall in the level of government revenue as a result of global financial crisis. This is indicating that Nigerian revenue from crude oil has responded negatively to the external shocks from global financial crisis. Since 80% of revenues come from oil, the Nigerian economy is highly sensitive to such a negative external shocks in oil revenue.
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To the extent that if care is not taken, in the future the oil revenue projected for the federal government budget would fall significantly thereby distorting planned government spending. Because if all funds disbursed are not be spent or to spend high, in the long run, a hypothetical negative shock in oil revenue would force government to abandon projects and incur deficit to meet the minimum requirements of spending such as salaries and running administrative coast. The fall in revenue would not be enough to sustain government spending at current level. The trend gives us a clear movement of Nigeria oil revenue. Table 1: Nigeria Quarterly Oil Revenue (2006-2009) YEAR 1st Quarter 2nd Quarter 3rdQuarter 2006 344.6617 381.2732 379.6737 2007 295.68 361.88 396.37 2008 473.4 524.52 531.2 2009 187.343 193.363 Source: CBN Statistical Bulletin, 2009 Figure 1: Nigeria Quarterly Oil Revenue (2006-2009) 4th Quarter 343.9664 462.95 251.82
600 500 400 300 200 100

1 s t 2 n d 3 r d 4 th Q u a r te r s 2006 1 s t 2 n d 3 r d 4 th q u a r te r s 2007 1 s t 2 n d 3 r d 4 th q u a r te r s 2008 1s t 2nd q u a r te r s 2009
The table above shows the federal government revenue and expenditure 2000-2009. The level of government expenditure has been on the increase, though, there is a reduction in the level of government revenue. There has been increasing government expenditure; this is because the government is running a deficit in other to meet its macro economic target. It could be seen from the table above that the expenditure for 2007 was N 2447.49, trillion and that of 2009 forecasted at N2895.54 trillion. The percentage increase in government expenditure stands at 9.4%. Indeed as far back as March, Mukhtar and Babalola minister of finance had hinted of the hardship that awaits both the budget and the nation in the face of
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dwindling production due to the Niger-Delta crisis and the declining crude oil prices. The situation was made worse as revenue kept falling because income from other sources expected to support revenue from crude oil sales, did not come in as planned. Between January and march only N9,79.23 billion was generated by revenue generating agencies of government, FIRS, NNDC, customs as against the budget target of N1,228 trillion. Table 2: Government Revenue and Expenditure (2000-2009) YEAR TOTAL REVENUE(N) TOTAL EXPENDITURE (N) 2000 1,906,159.70 2001 2,231,6000.00 2002 1,731,837.50 2003 2,575,095.90 2004 3,920,500.00 2005 5,547,500.00 2006 5,965,101.90 2007 5,715,600.00 2008 7,866,590.10 2009 2,241,650.00 Source: CBN Statistical Bulletin andBOF, 2008 701.059.40 1,018,025.60 1,018,155.80 1,225,965.90 1,426,200.00 1,822,100.00 1,938,002.00 2,450,896.70 3,240,820.00 2,895,54.00
The diagram below shows the Chart and the movement in the revenue and expenditure of the federal government of Nigeria from 2000-2009. Figure 2: Government Revenue and Expenditure(2000-2009)
As seen from the chart, the revenue of the federal government has been fluctuating; it shows a little increase in 2000 and 2001 but a little decrease in 2002. But in 2005, 2006 and 2007 the revenue has been doing well until when it reaches its peak in the 2008 of about N7, 866,590.10 trillion. But 2009 has recorded so far a very low level of government revenue of about
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2,241,650.00 trillion Naira, as a result of global economic crisis. On the expenditure side, the chart shows the increasing level of government expenditure. It can be seen from the chart above that government expenditure has been increasing but not on equal amount with the revenue generated. This shows that there has been an excess which part of it is been saved in the excess crude account (ECA). 2008 has recorded the highest expenditure due to the high revenue generated especially in the first half of the year. For 2009 the data gotten is the first half of the year, but it indicates the increase of government expenditure over government revenue from January to march 2009 A deficit of N249.10 billion or 10% of the budget has already occurred. As at May the IMF estimated that Nigerias budget deficit would like to widen to around 8.5% compares to the 3.95% envisaged by the budget. The likely effect that mitigate against smooth implementation of the Nigerian budget includes the inherent disadvantage of the budget from conception. Many observers believe the 2009 budget has failed to power the economy. And the experts point to the budget inbuilt deficit of N1.09 trillion which represent 37% of the entire budget as a problem that market the budget out for failure. The Minister of state for finance predicted that if the unimpressive scenario persist till the end of 2009, it will open up a gap of $6 billion (about N696 billion) gap in the budget which projected total revenue at N2.26 trillion. His calculation become reality given the fact that for only the first quarter of the year, the level of budget deficit was N249.10 billion, well over 30% of his prediction for the entire year. Despite the fact that the government expenditure proposed exceeds the proposed government revenue which led to the running of about N1.09 trillion. Still the Global economic crisis has affected the Nigerian government spending, in the sense that some capital projects have been adjusted and some are suspended. In MDAs allocations for 2009, about 90% of the capital expenditure went to governments priority sectors of power, education, energy, security, agriculture and water resources, human capital development and transportation. Ministries, departments and agencies like commerce and industries, auditor general of the federation, women affairs, independent corrupt practices and related offices commission, environment e.t.c, received zero allocation in 2009 budget. This means the government expenditure is affected by the Global financial crisis as a result of decreases in government oil revenue. This in turn will affect the standard of living of the people that are under such MDAs and affects the Nigerian economic growth. In this case global economic crisis has effected the government expenditure to the extent that some project have been deferred for instance, international travels and transport:- The provision under the international
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travel and transport item of expenditure has been reduced by 50% across the board. The insurance premium-provisions for insurance for group life, buildings and vehicles in the chart of accounts MDAs is to be centralized for monitoring and cost efficiency. However, local management, training and capacity building, notwithstanding the restrictions on non-technical international management training, MDAs may continue to meet their manpower training and capacity building requirements by patronizing local management training programmes, or bringing in foreign experts to conduct the training, where necessary. For agencies and parastatals not funded by the budget the above mention measures will apply with equal force to all parastatals and agencies of government that are not funded by the treasury. As a result of global economic crisis, there are serious challenges facing the Nigerian budget. As seen from the chart the 2009 budget provides 90% of the capital vote to five key priority sectors of the economy. N36.5 billion for critical infrastructure including capital allocation of N 88.5b for power, 15.4b for aviation, 26.5b for petroleum resources, 129.3b for works, 35.2b for transport and 48.7b(out of capital vote of 64.45b) for critical infrastructure within the federal capital territory. N131.9b for human capital development including 3.96b for the health, 33.6b for education, 32.6b for MDGs conditional grants, and 19.7b for MDGs quick wins project and 6.3b for MDGs capital building. N91.8 billion for land reform and food security focusing on agriculture and water resources. N67b for security and N77,12b on the Niger-Delta, comprising of 27,12b on the NNDC and 50b on the newly created ministry of Niger-Delta, including provisions for enhancing critical infrastructure, environmental protection, youth development and grassroots empowerment. Conclusion and Recommendations It can be seen that the Nigerian economy has been seriously affected both in terms of the revenue the country and the expenditure (recurrent and capital) due to the fact that the economy is a mono-cultural economy that heavily dependent on crude oil. This is noticed when some ministries got zero allocation as a result of the crisis. It is highly recommended that Nigerian government should take in to consideration some key measures to bail Nigerians economy particularly budget from this ongoing financial crisis and to put in place such framework that is going to sustain the bailout plan for the future. Some of the key measures are listed below:
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Diversification of the Nigerian economy: Nigerian being an economy that depends solely on the production and sales of crude oil must takes steps to diversity the economy as part of its response to the global economic crisis. Let us move away from mono-cultural status of the economy. We are presented with the opportunity to now look at the non oil sector, its advisable to give priority to agriculture and know where our comparative advantage lies. Also productive sectors like manufacturing, power, and transport should be funded with enough funds that serves as an incentive to encourage them to do well. This would reduce over dependence on oil sales. This is the time to use money from the excess crude account (ECA): The reason for setting up the ECA was precisely for a rainy day like this, when the oil prices fall below the average level which is expected to prevail over time. ECA funds should be used to finance part of the deficit and to create assets, such as infrastructural investments, which support long-run non oil growth as well as economic diversification. This would minimize the impact. The crisis situation presents an opportunity and a challenge: - It gives us an opportunity in Nigeria to restore macroeconomic stability. Increase in tax collection, by taxing the private sectors, corporate organizations, public agencies, non-governmental organization e.t.c. Through customs and excise duties, value added taxes (VAT) this will substitute the revenue from oil to the independent revenue and reduce countrys over dependence on oil revenue. providing appropriate protection of domestic industries against unfair competition from imports and dumping, reducing operating costs and inflationary measures, providing appropriate incentives for investors and encouraging diversification of foreign exchange earnings enough increased activities in the non-oil sector, thus creating a conducive environment for the manufacture of exports products. Devaluation of the naira:- This will make the Nigerian agricultural and industrial products relatively cheaper in foreign market. Facilitating full capacity utilization in agriculture, manufacturing and mining, industries by improving physical and social infrastructure, as well as creating an enabling environment for these sub-sectors to fully express themselves in line with economic growth. Its assumed if naira is devalued, the demand for Nigerian product will increase and quantity exported will increase. This also has a
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chain reaction because if more is demanded in international markets. Employment will also increase back at home to meet world demand. Income would be generated both at home and abroad. This would also lead to inflow of revenue gotten from the exportation of agricultural and industrial products. Public orientation and confidence:- The Nigerian public should be oriented towards the importance of investment in private sectors. Orientation on how to minimize corruption, embezzlement, mismanagement of public finds so that the little available resources we have could be utilized efficiently. Improving ICPC, EFCC, e.t.c. This would boost public confidence and also attract foreign investors to invest in the Nigerian private sectors. This would increase revenue and provide smooth implementation of Nigerian budget.
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Assessment of The Impact of Global Financial Crisis On The Nigerian Budget

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Conference Theme: Managing the Challenges of Global Financial Crisis in Developing Economies

ASSESSMENT OF THE IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIAN BUDGET

Suleiman is a Lecturer at the Department of Economics, Ahmadu Bello University, Zaria-Nigeria.

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