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Government Finance

A major cause of political conflict in Nigeria since independence has been the changing formula for allocating revenue by region or state. Before 1959 all revenues from mineral and agricultural products were retained by the producing region. But after 1959, the region retained only a fraction of the revenue from mineral production. This policy was a major source of dissatisfaction in the Eastern Region, which seceded in May 1967 as the would-be state of Biafra. By contrast, the revenue from agricultural exports was retained by regional marketing boards after 1959, but the agricultural exports of eastern Nigeria were smaller than those of the other major regions.

The rapid growth of petroleum revenue in the 1970s removed most of the severe constraints placed on federal and regional or state budgets in the 1960s. Total federal revenue grew from N306.4 million in 1966 to N7,791.0 million in 1977, a twentyfivefold increase in current income in eleven years. Petroleum revenue as a percentage of the total went from 26.3 percent in 1970 to more than 70 percent by 1974-77.

During the civil war, most of the twelve new states created in 1967 faced a revenue crisis. But a 1970 decree brought the states closer to fiscal parity by decreasing the producing state's share of export, import, and excise duties, and of mining rents and royalties, and by increasing the share allocated to all states and the federal government. Also, in 1973 the commodity export marketing boards, which had been a source of political power for the states, were brought under federal control. Other changes later in the 1970s further reduced claims to revenue based on place of origin. In the 1970s, the federal government was freed to distribute more to the states, thus strengthening federal power as well as the states' fiscal positions. Statutory appropriations from the federal government to the states, only about N128 million in FY1966, increased to N1,040 million in 1975 with the oil boom, but dropped to N502.2 million in 1976, as oil revenues declined.

The burgeoning revenues of the oil boom had encouraged profligacy among the federal ministries. Government deficits were a major factor in accelerated inflation in the late 1970s and the early 1980s. In 1978 the federal government, compelled to cut spending for the third plan, returned much of the financial responsibility for housing and primary education to state and local governments. Federal government finances especially drifted into acute disequilibrium between 1981 and 1983, at the end of President Shagari's civilian administration, with the 1983 federal government deficit rising to N5.3 billion (9.5 percent of GDP) at the same time that external debt was increasing rapidly. The state governments' deficit compounded the problem, with the states collectively budgeting for a deficit of N6.8 billion in 1983.

Falling export prices caused the military governments between 1983 and 1988 to continue cutting real spending, especially for capital, imports, civil service and armed forces salaries and consumer subsidies. Many parastatals also had their subsidies cut, while others were sold off entirely. The result of these actions was a substantial reduction in the federal deficit. The announcement of the spending reductions that would be part of the fifth plan coincided with the military coup of August 1985. Unlike earlier plans, the fifth plan (put back to 1988-92 party because of the coup) allocated the largest amounts of capital to agriculture and stressed the importance of private investment.

In 1988 the federal budget was still highly dependent on oil revenues (taxes on petroleum profits, mining rents and royalties, and Nigerian National Petroleum Corporation earnings). Altogether, oil receipts accounted for 77 percent of total federal current revenue in 1988 (see table 7, Appendix). The federal government retained 62 percent of the revenue it collected in 1988, while the rest of the funds were distributed to the state and local governments by a formula based on population, need, and, to a very limited extent, derivation.

International aid designated for domestic Nigerian development constituted a minor source of government revenue. In 1988 such official assistance amounted to US$408 million, or US$1.1 per capita, which placed Nigeria lowest among low-income and lower-middle-income aid recipients. This aid represented 0.4 percent of Nigeria's GNP, far less than the average of 2.4 percent received by all low-income countries, a group that included much states as China, India, and Zambia.

Data as of June 1991

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