Kaduna State Government

Transcription

1 Kaduna State Government Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement To Cover Period: April 2014 Page 1 of 49

2 Table of Contents Abbreviations... 5 Executive Summary A Introduction B Economic Performance Summary C Fiscal Performance Summary D Macro-Fiscal Strategy and Key Assumptions E Sector Allocations (3 year) F Major fiscal risks and other considerations Section 1: Introduction and Background G Introduction H Background Section 2 Economic and Fiscal Update A Economic Overview B Fiscal Update Section 3 Fiscal Strategy Paper A Macroeconomic framework B Fiscal Strategy and assumptions C Indicative three year fiscal framework D Fiscal Risks Section 4 Budget Policy Statement A Budget Policy Thrust B Sector Allocations (3 Year) Page 2 of 49

3 List of Tables Table 1: Nigeria Key Macroeconomic and Mineral Indicators... 8 Table 2: Draft 2015 Budget Calendar Table 3: Real GDP Growth- selected countries Table 4: Inflation (CPI) - Selected Countries Table 5: Nigeria Key Macroeconomic Indicators Table 6: Nigeria Mineral Statistics Table 7: Debt position as at 31 st December Table 8: Kaduna State macroeconomic framework Table 9: Medium term fiscal framework Table 10: Indicative sector expenditure ceilings Recurrent expenditure Table 11: Indicative sector expenditure ceilings Capital expenditure List of Figures Figure 1: Revenue and Expenditure Performance... 8 Figure 2: Macro-Fiscal Framework Figure 3: Capital expenditure by sector Figure 4: MTEF Process Figure 5: Statutory Allocation Figure 6: Excess crude Figure 7: VAT Figure 8: IGR Figure 9: Grants Figure 10: Other capital receipts Figure 11: Loans /financing Figure 12: Personnel Figure 13: Overheads Figure 14: Capital expenditure Figure 15: Recurrent expenditure by main sector Figure 16: Recurrent expenditure by Economic sub-sector Figure 17: Recurrent expenditure by Social sub-sector Figure 18: Recurrent expenditure by Regional sub-sector Figure 19: Recurrent expenditure by Administrative sub-sector Figure 20: Capital expenditure by main sector Figure 21: Capital Expenditure by sub-sector (Economic) Figure 22: Capital expenditure by Social sub-sector Figure 23: Capital Expenditure by Regional sub-sector Page 3 of 49

4 Figure 24: Capital Expenditure by Administrative sub-sector Figure 25: Kaduna State Revenue trend Figure 26: Kaduna State expenditure trend Figure 27: Expenditure by Sector (proposed ) Page 4 of 49

5 Abbreviations AEO Africa Development Bank s Africa Economic Outlook AfDB African Development Bank Bn Billlion BPD Barrels Per Day BRINCS Brazil, Russia, India, China and South Africa CBN Central Bank of Nigeria CONHESS Consolidated Health Salary Structure CONMESS Consolidated Medical salary Structure CPI Consumer Price Index CRF Consolidated Revenue Fund DFID Departments of International Development DMD Debt Management Department DMO Debt Management Office EFU Economic Fiscal Update ExCo Executive Council FAAC Federal Account Allocations Committee FDI Foreign Direct Investment Inflows FSP Fiscal Strategy Paper GDP Gross Domestic Product GTZ German Agency for Technical Cooperation HRM Human Resource Management IDA International Development Association IGR Internally Generated Revenue IMF International Monetary Fund IsDB Islamic Development Bank KDSG Kaduna State Government KSHA Kaduna State House of Assembly LG Local Government MDAs Ministries, Departments and Agencies MDGs Millennium Development Goals MINT Mexico, Indonesian, Nigeria and Turkey MoEP Ministry of Economic Planning MTBF Medium Term Budget Framework MTEF Medium Term Expenditure Framework MTFF Medium Term Fiscal Framework MTSS Medium Term Sector Strategy N-11 Next 11 Countries NBS National Bureau of Statistics NGOs Non-governmental Organisation NNNPC Nigerian National Petroleum Corporation ODA Official Development Assistance PFM Public Financial Management PITA Personal Income Tax Act PPP Public Private Partnership Page 5 of 49

6 SESP SURE-P TSS UNDP UNICEF VAT WEO Education master plan Subsidy Re-investment and Empowerment Programme Teachers Salary structure United Nations Development Programmes United Nations Children Education Fund Value Added Tax World Economic Outlook Page 6 of 49

7 Executive Summary 1.A Introduction 1. This executive summary provides a précis of the full Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement document. The full paper includes considerable analysis of prior fiscal and economic performance and a more substantive justification for the forward aggregate envelope and sector allocations. 1.B Economic Performance Summary 2. Global Economy - Global activity and world trade picked up in the second half of Final demand in advanced economies expanded with much of the upward movement in growth due to higher inventory demand. In emerging market economies, an export rebound was the main driver behind better activity, while domestic demand generally remained subdued, except in China. 3. Nigerian Economic and Mineral Sector - Over the last decade Nigeria grew by 7.5% and is next to the two of the world fastest growing economies of Asia, namely China and India which had grown at 10.4% and 7.6% respectively over the same period. Nigeria s Gross Domestic Product growth rate remains robust at an estimated 6.8% for 2013 and a projected rate of 7.2% for Inflation fell from 11.9% in 2012 to 8.85% in 2013 following monetary policy tightening and the easing of food prices. The government is expected to achieve an inflation rate target below 8.0% at the end of 2014 if the trend of single digit inflation figure as reported by the National Bureau of Statistics for January 2014 at 8% is sustained. 5. The exchange rate has been relatively stable at 157 to $1 while the fiscal deficit is 2% of Gross Domestic Product which is below threshold of 3% of Gross Domestic Product. The National debt is at a sustainable level of 19.4% of Gross Domestic Product which indicates that the economy is strong if compared to debt level over 60% of Gross Domestic Product in the Euro Zone. 6. Mineral sector performance has been robust oil production has hovered around 2.2 MBPD over the last 10 years, prices have recovered well since the 2008 crisis. It should be noted that the benchmarks for price have raised considerable over recent years (almost doubling since 2008) this trend and the associated increases in Statutory Allocation are unlikely to continue in the near future. Page 7 of 49

8 Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Table 1: Nigeria Key Macroeconomic and Mineral Indicators 1 Indicator Gross Domestic Product Growth Inflation (%) Exchange Rate (NGN:USD FX Rate) Unemployment 19.7% 21.1% 23.9% TBC Balance of Payments (% of Gross Domestic Product) -4.39% 0.13% 4.31% TBC Oil Price (Average) Oil Price Benchmark Oil Production (Average mbpd) Kaduna State is not yet in a position to provide state level Gross Domestic Product and inflations figures. 8. A more detailed analysis of prior economic performance at global, African, national and state level, as well as mineral sector performance is provided in section 2.A of the main Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement document. 1.C Fiscal Performance Summary Figure 1: Revenue and Expenditure Performance Fiscal Performance (Revenue and Expenditure): , , , , , ,000 80,000 60,000 40,000 20, ACT Revenue 118,234,776, ,440,140, ,221,236,194 91,745,295,729 BUD Revenue 116,444,789,665 90,628,346, ,347,937, ,053,904,185 ACT Rec Exp 36,683,017,879 47,689,734,106 51,794,746,243 52,412,804,616 BUD Rec Exp 43,472,102,815 48,835,324,303 50,432,168,844 52,037,772,626 ACT Cap Exp 45,443,145,021 32,094,939,342 35,208,513,004 27,471,979,479 BUD Cap Exp 119,934,601,725 78,550,913, ,303,298, ,500,681, Revenue Performance recurrent revenue performance has been largely strong over the period , in many cases actual receipts have exceeded budget. However, 2012 and 2013 Internally Generated Revenue budget jumped considerably whereas actual Internally Generated Revenue was stable at its 2011 Year 1 Source: (Economic Outlook) National Bureau of Statistics, World Economic Outlook, International Monetary Fund; Central Bank of Nigeria. Page 8 of 49

9 level causing a performance of less than 50%. Performance of grants and loans has been poor with the exception of the odd year here and there likely due to too high an expectation. 10. Expenditure Performance Personnel and overheads performance has been close to budget in most years on average around 90% of the original budget. The revenue short-falls as noted above have affected capital expenditure where performance has averaged around 30% of the original budget where this creates significant problems for sector expenditure planning. 11. Kaduna State s debt position is generally sustainability albeit it with a higher debt servicing cost to Internally Generated Revenue than would be desired. 12. More detailed analysis of prior fiscal performance by major revenue and expenditure head, as well as sector expenditure performance, can be found in section 2.B of the main Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement document. 1.D Macro-Fiscal Strategy and Key Assumptions 13. Macro-economic and Mineral Assumptions The Macroeconomic framework is based on the latest Nigerian national real Gross Domestic Product growth and inflation (Consumer Price Index) as estimated in the October 2013 International Monetary Fund World Economic Outlook document. The Oil benchmarks and NGN: USD exchange rates are based on the figures in the Federal Fiscal Framework document. 14. Revenue Assumptions Statutory Allocation is based on the macroeconomic and mineral assumptions in the above table using elasticity based forecasting. Value added Tax and Internally Generated Revenue are based on prudent moving averages growth rates. Excess crude, including SURE-P and augmentation, is based on 2013 actuals. Besides grants, capital receipts are forecast as being minimal. Grants are based on current levels of donor expenditure. 15. Expenditure Assumptions recurrent expenditure (personnel and overheads, including Consolidated Revenue Fund charges) are based on a 10% annual increment (based on 2013 actuals). Capital Expenditure, averaging around 45% of total expenditure, is based on the recurrent account surplus plus capital receipts. Page 9 of 49

10 Figure 2: Macro-Fiscal Framework Macro-Economic Framework Item National Inflation 7.90% 7.60% 7.30% National Real GDP Growth 7.20% 7.00% 6.80% Oil Production Benchmark Oil Price Benchmark NGN:USD Exchange Rate Fiscal Framework Recurrent Revenue Statutory Allocation 49,953,662,653 54,561,616,114 59,314,431,412 VAT 13,610,191,802 15,176,228,993 16,949,399,923 IGR 16,642,711,157 19,208,888,485 21,695,851,441 Excess Crude 15,000,000,000 15,000,000,000 15,000,000,000 Total Recurrent Revenue 95,206,565, ,946,733, ,959,682, % 9.18% 8.67% Recurrent Expenditure Personnel 36,766,278,415 40,442,906,257 44,487,196,882 Overheads 24,230,195,610 26,653,215,171 29,318,536,688 Total 60,996,474,025 67,096,121,427 73,805,733, % 10.00% 10.00% Transfer to Capital Accoun 34,210,091,587 36,850,612,165 39,153,949,207 Capital Receipts Grants 17,289,154,495 17,289,154,495 17,289,154,495 Net Financing Other Capital Receipts 2,000,000, Total 19,289,154,495 17,289,154,495 17,289,154,495 Capital Expenditure 53,499,246,082 54,139,766,660 56,443,103,702 Total Budget Size 114,495,720, ,235,888, ,248,837,272 Capital Expenditure Rate 46.73% 44.66% 43.33% Deficit to Total Expenditure 0.00% 0.00% 0.00% 16. More detailed justification for the macro-fiscal framework and underlying assumptions and targets can be found in sections 3.A-3.C of the main Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement document. 1.E Sector Allocations (3 year) 17. As an interim measure, prior year actual expenditure by sector and sub-sector ( for recurrent expenditure, for capital expenditure) has been used as the basis for the 3-year allocations for the period This is to be reviewed in high level discussions in Kaduna state and revised accordingly. See Figure 3 below. 18. (More detailed analysis of prior sector expenditure and forward envelopes can be found in sections 2.B and 4 respectively of the main Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement documents) Page 10 of 49

11 Figure 3: Capital expenditure by sector Recurrent Expenditure Capital Expenditure Sector 2015 Figures 2016 Percentage 2017 Figures 2015 Figures 2016 Figures 2017 Figures Economic 7,795,489,001 8,575,037,901 9,432,541,691 23,769,231,995 24,053,809,504 25,077,161,355 Agriculture 966,338,933 1,062,972,826 1,169,270,109 4,833,498,286 4,891,367,421 5,099,467,094 Livestock ,822,196 2,855,985 2,977,490 Forestry ,517,689 38,978,843 40,637,169 Fisheries Cooperatives & Supply 4,620,165 5,082,181 5,590,399 8,085,258 8,182,059 8,530,159 Commerce& Industry 133,389, ,728, ,401, ,658, ,711, ,861,359 Finance / Investment 5,916,070,861 6,507,677,947 7,158,445, ,136, ,608, ,669,351 Tourism 159,668, ,635, ,199, Manufacturing 6,530,036 7,183,040 7,901, ,412, ,536, ,174,583 Power ,212, ,033, ,966,378 Transport 608,870, ,757, ,733,045 16,591,889,923 16,790,536,590 17,504,877,771 Social 28,154,949,191 30,970,444,110 34,067,488,521 9,527,329,382 9,641,395,486 10,051,581,652 Education 18,421,402,407 20,263,542,648 22,289,896,913 6,465,594,627 6,543,004,062 6,821,371,417 Health 7,631,891,237 8,395,080,360 9,234,588,396 2,951,771,483 2,987,111,614 3,114,196,108 Social Development 1,181,889,989 1,300,078,988 1,430,086,887 20,822,150 21,071,444 21,967,913 Information 919,765,559 1,011,742,114 1,112,916,326 89,141,122 90,208,365 94,046,214 Regional 1,255,085,414 1,380,593,955 1,518,653,351 12,628,500,415 12,779,695,337 13,323,398,192 Urban Development 477,510, ,261, ,787,117 97,511,564 98,679, ,877,251 Environment 352,343, ,577, ,335,230 2,483,649,273 2,513,384,804 2,620,314,934 Community 102,516, ,768, ,045,443 3,335,934,238 3,375,873,763 3,519,497,860 Water Supply 322,715, ,986, ,485,561 6,711,405,340 6,791,757,747 7,080,708,146 Administration 23,790,950,419 26,170,045,460 28,787,050,006 7,574,184,291 7,664,866,333 7,990,962,503 General Admin/Executive 18,664,073,435 20,530,480,779 22,583,528,857 6,486,062,870 6,563,717,362 6,842,965,948 Legislature 3,397,226,631 3,736,949,295 4,110,644, ,246, ,581, ,747,648 Judiciary 1,729,650,352 1,902,615,387 2,092,876, ,874, ,567, ,248,906 Gov. & Institutional Reforms Grand Total 60,996,474,025 67,096,121,427 73,805,733,570 53,499,246,082 54,139,766,660 56,443,103,702 Page 11 of 49

12 1.F Major fiscal risks and other considerations 19. Fiscal risks are mainly due to high dependence on federal transfers on the revenue side and poor recent capital receipt performance, and the on-going environment and security risks facing Kaduna state that affect both internal revenue and the levels of expenditure on mitigation and recovery/repair of assets. 20. A more detailed analysis of the fiscal risk can be found in section 3.D of the main Economic Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement document. Page 11

13 Section 1: Introduction and Background 1.G Introduction 21. The Economic and Fiscal Update (EFU) provides economic and fiscal analyses which form the basis for budget planning process. It is aimed primarily at policy makers and decision takers in Kaduna State Government (KDSG). The EFU also provides an assessment of budget performance (both historical and current) and identifies significant factors affecting implementation. 22. On the other hand, Fiscal Strategy Paper (FSP) is a key element in Medium Term Budget Framework (MTBF) and annual budget process, and as such, it determines the resources available to fund Government projects and programmes from a fiscally sustainable perspective. 23. KDSG has previously prepared FSPs (on two occasions) the process has been broadened and reinvigorated in G.1 Budget Process 24. The budget process describes the budget cycle in a fiscal year. Its conception is informed by the Medium Term Expenditure Framework (MTEF) process which has three components namely: Medium Term Fiscal Framework (MTFF); MTBF; Medium Term Sector Strategies (MTSS). 25. It commences with the conception through preparation, execution, control, monitoring and evaluation and goes back again to conception for the ensuing year s budget. 26. The MTEF process is summarised in diagram below: Page 12

14 Figure 4: MTEF Process 1.G.2 Summary of document content 27. In accordance with international best practice in budgeting, the production of a combined EFU and FSP is the first step in the budget preparation cycle for KDSG for the period The purpose of this document is three-fold: To provide a backwards looking summary of key economic and fiscal trends that will affect the public expenditure in the future - EFU; 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 Provide indicative sector envelopes for the period 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 KDSG. 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. 30. The FSP is a key element in the KDSG Medium Term Expenditure Framework (MTEF) process and annual budget process. As such, it determines the resources Page 13

15 available to fund the government s growth and poverty reduction programme from a fiscally sustainable perspective. 1.G.3 Preparation and audience 31. The purpose of this document is to provide an informed basis for the budget preparation cycle for all of the key stakeholders, specifically: Kaduna State House of Assembly (KSHA); Executive Council (ExCo); Ministry of Economic Planning (MoEP); Ministry of Finance; All Government Ministries, Departments and Agencies (MDA's); and Civil Society 32. The document is prepared by KDSG within in the first two quarters of the year prior to the annual budget preparation period. It is prepared by KDSG (EFU-FSP) Working group using data collected from international, national and state organisations. 1.H Background 1.H.1 Legislative and Institutional arrangement for Public Financial Management (PFM) Legislative Framework for PFM in Kaduna State - The legal instruments and enactments governing PFM in Kaduna State include the 1999 constitution of the Federal Republic of Nigeria, the Personal Income Tax Act (PITA), 1993, the Finance (control & management) Act 1958 as amended and the Financial Instruction 2005 and occasional service circulars issued by the accountant General. As the grand norm of the country, the 1999 constitution as amended is the overriding law governing PFM in Kaduna State. Its provisions supersede and override the content of any other law or provision in the state and (country) to the extent that that other law is inconsistent with the constitution. The other PFM related laws and provisions elaborate and expand on the provision of the constitution; however, they cannot contradict its letters or intent. 34. Institutional Framework for PFM in Kaduna state - Within Kaduna State, subnational public finance is managed by KDSG and the 23 Local Governments. The Executive of KDSG, headed by the State Governor, is responsible for the KDSG Budget, and reports on its execution (total value approximately N176 billion in 2013) to the Kaduna State House of Assembly (KSHA). 35. State Governments usually have Public Service Rules that further define the roles of public officers in the PFM system. The rules detail HRM processes and tools including, job descriptions, roles and responsibilities, recruitment, career, discipline, and boarding procedures. 2 Based on 2012 PEFA Assessment for Kaduna State Page 14

16 36. The DMD operating under the office of the Accountant General deals with professional management of public debt, including recording and collating of debt figures and advising the Government on issues of debt related issues. 1.H.2 Overview of Budget Calendar 37. Indicative Budget Calendar for KDSG is presented below: Table 2: Draft 2015 Budget Calendar S/No. Date Activity and or Event Executor /05/14 Commencement/updating of MTSS (Health, Agric. & Education Sectors) and medium term strategic plans in other MDAs MOEP 2 11/06/14 Revenue call circular to MDAs MOEP 3 12/06/14 First draft call circular to MDAs with indicative MDA envelopes MOEP /06/14 Analysis of Revenue Proposals submitted by MDAs to be used by Estimates Committee Members at Revenue Defence MOEP /06/14 Estimates Committee meets with Revenue Generation Agencies to Estimates defend their Revenue Proposal Committee 6 30/06/14 Estimates Committee meets to draft Revenue Profile and MDAs Estimates Sectoral Expenditure Ceilings for year Budget Committee 7 30/06/14 First draft MTSSs and Strategic Plans Produced by MDAs MOEP /07/14 Workshop on Budget Preparation and IPSAS new codes MOEP 9 10/07/14 Revenue Profile and MDAs Sectoral Expenditure Ceilings drafted to be taken to ExCo for approval MOEP 10 14/07/14 Preparation of Fiscal Strategy Paper and Presentation to EXCO MOEP /07/14 Training or MTSS to all MDAs MOEP 12 24/07/14 Preparation of Fiscal Strategy Paper and Presentation to State House of Assembly for information MOEP 13 24/07/14 Call Circular to MDAs with Final Ceilings MOEP 14 24/07/14 Half Year Budget Review MOEP 15 24/07/14 Refinement and completion of MTSSs and other MDAs plans with compilation of budgets MOEP 16 28/07/14 Publishing and Dissemination of KSDP and vision 2020 MOEP 17 06/08/14 Final day for MDAs to submit detailed budget proposals MDAs 18 08/09/14 Final day for MOEP to finish analysing MDAs Budget Proposals MOEP /09/14 Defence of Budget Proposals MDAs 20 30/09/14 Collection and Preparation of 1st Draft Budget MOEP 21 30/09/14 Presentation of 2015 Draft Budget to his Excellency for perusal/comments HC MOEP 22 04/10/14 Effecting corrections/amendments by MOEP wide he s observations MOEP 23 13/10/14 Presentation of Draft Memo to Council HC MOEP 24 15/10/14 Council deliberation on draft budget Council 25 31/10/14 Presentation of Draft Budget to House of Assembly His Excellency 26 29/11/14 Review and Approval by the House of Assembly SHoA 27 27/12/14 Assent by the Governor His Excellency 28 31/12/14 Public presentation and analysis of Approved budget HC MOEP 29 Jan Guidelines for 2015 budget implementation MOEP Page 15

17 Section 2 Economic and Fiscal Update 2.A Economic Overview 2.A.1 Global Economy Global 38. Based on the IMF s January 2014 World Economic Outlook (WEO) Update, global growth is expected to be around 3.7%in 2014 rising to 3.9% in 2015 largely on account of recovery in the advanced economies. 39. Global activity and world trade picked up in the second half of Final demand in advanced economies expanded with much of the upward movement in growth due to higher inventory demand. In emerging market economies, an export rebound was the main driver behind better activity, while domestic demand generally remained subdued, except in China. 40. Financial conditions in advanced economies have eased somewhat with little change since the announcement by the U.S. Federal Reserve on December 18 that it will begin tapering its quantitative easing measures at the beginning of This includes further declines in risk premiums on government debt of crisis-hit euro area economies. In emerging market economies, however, financial conditions have remained tighter following the surprise U.S. tapering announcements in May 2013, notwithstanding fairly resilient capital flows. Equity prices have not fully recovered, many sovereign bond yields have edged up, and some currencies have been under pressure. 41. Growth in the United States is expected to be 2.8% in 2014, up from 1.9% the previous year. Following upward movement to inventories in the second half of 2013, the pickup in 2014 will be carried by final domestic demand, supported in part by a reduction in the fiscal drag as a result of the recent budget agreement. But the latter also implies a tighter projected fiscal stance in 2015, and growth is now projected at 3% for The Euro Zone is turning the corner from recession to recovery. Growth is projected to strengthen to 1% in 2014 and 1.4% in 2015, but the recovery will be uneven. The pickup will generally be more modest in economies under stress, despite some upward revisions including Spain. 43. Overall, growth in emerging market and developing economies is expected to increase to 5.1% in 2014 and to 5.4% in Growth in China rebounded strongly in the second half of 2013, due largely to acceleration in investment. This surge is expected to be temporary, in part because of policy measures aimed at slowing credit growth and raising the cost of capital. Growth is thus expected to moderate slightly to around 7.5% in Many other emerging market and developing economies have started to benefit from stronger external demand in advanced economies and China. In many, however, domestic demand has remained weaker than expected. This reflects to varying degrees, tighter financial conditions and policy stances since mid-2013, as well as policy or political uncertainty and bottlenecks, with the latter weighing on investment in particular. Page 16

18 Africa 44. Africa s economy continues to show a high degree of resilience against global economic shocks. However, the growth momentum has eased in countries with strong links to global markets and also in those where political and social tensions have increased. With a gradual recovery of the global economy, the continent s average growth of gross domestic product (GDP) is likely to amount to 4.8% in 2013 and 5.3% in 2014 (see Africa Development Bank s Africa Economic Outlook (AEO) 2013). In 2012 Africa s growth was higher at 6.6%. But this was due to the rebound of oil production in Libya. Excluding Libya, Africa s growth was 4.2% in 2012 and is projected to accelerate to 4.5% and 5.2% in 2013 and 2014 respectively. 45. According to the AEO, resource-rich countries continue to benefit from relatively high commodity prices although easing of global demand has reduced price levels. After the peak in mid-2011 prices have softened due to weaknesses in the global economy and the deepening of the debt crisis in the euro area. Nonetheless, at current levels, commodity prices remain high enough to support the growth of resource-rich countries. Good harvests have boosted agricultural production in many countries and helped mitigate the adverse effects of high international food prices on consumers. Africa s oil exports increased significantly as Libya resumed production. 46. Africa s economic prospects depend on global and domestic factors, which are highly uncertain. The main channels of transmission of weaker global growth would be lower commodity export earnings, shrinkages in export volumes of other goods, tourism receipts, official development assistance (ODA), foreign direct investment inflows (FDI) and workers remittances. According to AfDB estimates, a one-percentage point decline in the GDP of OECD member countries causes African GDP to decline by about 0.5% and Africa s export earnings by about 10%. Trade is the most important channel of transmission. African exports are already affected by the downturn of the global economy; a worsening of Europe s debt crisis could constrain Africa s exports even more. While ODA, FDI and remittances have so far remained supportive of growth in Africa, a prolonged and deeper crisis in Europe could rapidly curb these financial flows. 47. Despite the risks, the economic outlook for Africa remains cautiously optimistic. Impressive growth over the past 15 years, underpinned by resilience during the 2009 global recession and the recent global downturn, support such optimism. The main short-term challenge for the continent is to consolidate stable macroeconomic conditions in the face of a more volatile global economic environment. In addition, institutions and regulations for private sector activity must be further improved. Addressing infrastructure bottlenecks increasing access to key public services such as education, health and security would put countries on a durable high growth path and reduce poverty and inequality. 48. Countries selected are chosen to represent G20, BRINCS, MINT, N-11, Petroeconomies and other large African countries. Page 17

19 Table 3: Real GDP Growth- selected countries Country Actual 3 Forecast * Mexico Indonesia Turkey United States Germany United Kingdom China Ghana South Africa Brazil Angola Source: IMF s World Economic Outlook, October BRINCS and MINT countries show an average high growth than G20 and G7 countries over the period, with Ghana also being particularly well performing. Table 4: Inflation (CPI) - Selected Countries Country Actual Forecast * Mexico Indonesia Turkey United States Germany United Kingdom China Ghana South Africa Brazil Angola Source: IMF s World Economic Outlook, October 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 Nigerian Economy 4 Macroeconomic 51. Over the last decade Nigeria grew by 7.5% and is next to the two of the world fastest growing economies of Asia, namely China and India which had grown at 10.4% and 7.6% respectively over the same period. Nigeria s GDP growth rate remains robust at an estimated 6.8% for 2013 and a projected rate of 7.2% for * = estimate 4 Source: Central Bank of Nigeria; IMF WEO 2013 Page 18

20 52. Inflation fell from 11.9% in 2012 to 8.85% in 2013 following monetary policy tightening and the easing of food prices. The government is expected to achieve an inflation rate target below 8.0% at the end of 2014 if the trend of single digit inflation figure as reported by the National Bureau of Statistics (NBS) for January 2014 at 8% is sustained. 53. The exchange rate has been relatively stable at 157 to $1 while the fiscal deficit is 2% of GDP which is below threshold of 3% of GDP. The National debt is at a sustainable level of 19.4% of GDP which indicates that the economy is strong if compared to debt level of over 60% of GDP in the Euro Zone. 54. As Nigeria s economic development kicks off, increasing demand for power, housing and retail goods will continue to attract new investment and make Nigeria Africa s largest destination for Foreign Direct Investment (FDI). 55. Notwithstanding the positive developments, major challenges for the economy remain, namely the dilapidated state of infrastructure, the over-dependence on the oil and gas industry and security. Tackling these is high on the Government s agenda. The authorities are seeking to get the private sector involved in infrastructure development and to develop the non-oil sector. Table 5: Nigeria Key Macroeconomic Indicators Indicator * GDP Growth Inflation (%) Exchange Rate (NGN:USD FX Rate) Unemployment To Be 19.7% 21.1% 23.9% Confirmed (TBC) Balance of Payments (% of GDP) -4.39% 0.13% 4.31% TBC Source: (Economic Outlook) National Bureau of Statistics, (WEO) IMF; Central Bank of Nigeria (CBN) Petroleum Sector 56. Global oil prices have risen steadily since the global economy crisis in The 2013 International Energy Outlook s reference crude oil price 5 is forecast at $96 per barrel in 2015 rising to $106 by The high and low oil price scenarios are $134 and $79 in 2015 and $155 and $69 in Only the low oil price scenario for 2020 falls below Nigeria s current benchmark crude oil price. 57. Global demand for crude oil is robust regardless of the price scenario with anticipated consumption level at approximately 120mbpd by 2040 across reference, low and high oil price scenarios. This compares to demand of around 85mbpd in The growth is due to increased economic activity in Non-OECD countries. 5 Reference price is based on the current economic outlook Page 19

21 Table 6: Nigeria Mineral Statistics Year Average Actual Price USD (CBN) Federal Account Allocations Committee (FAAC)Benchmark Price USD Average Actual Production (CBN) The above table shows that over the last seven years the FAAC benchmark price for crude oil has almost double from $40 to $79 per barrel, whereas over the same period prices have only increased by around 50%. Production has fluctuated around the 2.2 million barrels per day (mbpd) mark over the period. It is unlikely that either benchmarks for price or production will increase significantly over the next five years. 2.A.3 Kaduna State Economy 59. Agriculture is the main stay of the economy of Kaduna state with the majority of the people actively engaged in farming. A significant number of families are involved in livestock production. The important livestock reared include poultry, cattle, sheep, goats and pigs. Small scale famers dominate agricultural production in the State. 60. The percentages of the national outputs of major crops that are produced in the state have increased over the past years, thus indicating the rising importance of the state in food production in Nigeria. The State Government has been providing support to farmers in terms of extension advisory services. 61. Kaduna State has over 80 commercial and manufacturing industries and the State has the potential to develop industries based on its mineral resources such as clay, serpentine, asbestos, amethyst, gold, and graphite. In addition, the State has natural and historic endowments that can serve as the basis for creating a virile tourism industry. 62. Kaduna State is indeed one of the most privileged States in Nigeria in terms of number and variety of primary, secondary and tertiary institutions. These institutions provide access to education to the people of Kaduna State. 63. The State Health Sector goal is to ensure all citizens of Kaduna State have quick and easy access to improved and affordable curative, preventive, rehabilitative and promotive health services. 64. The policy thrust for improving the lives of women and the youth is the economic empowerment of women and the vulnerable through skills acquisition and the reduction of youth unemployment. Substantial social development in Kaduna State is vested on the activities of women, youth and non- governmental organisations (NGOs). Page 20

22 Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) 2.B Fiscal Update 2. B.1 Historic Trends Revenue Side 65. On the revenue side, the document looks at Statutory Allocation, VAT, IGR, Excess Crude, and Capital Receipts budget versus actual for the period (six year historic) and 2014 budget. Figure 5: Statutory Allocation FAAC Statutory Allocation Budget vs Actual: ,000 70,000 60,000 50,000 40,000 30,000 20,000 10, Budget 35,666,681,675 35,000,000,000 36,000,000,000 39,580,438,676 48,000,000,000 68,372,000,000 71,790,600,000 Actual 42,413,595,323 37,028,612,405 42,935,663,911 60,069,858,871 60,568,515,377 62,132,791,195 Year 66. Statutory Allocation is a transfer from Federation Account that is distributed to all three tiers of government based on vertical (percentage to each of the three tiers) and horizontal (example equality, land mass, population) sharing formula. The revenues that flow into federation account come Mineral (largely Oil, also Gas) and Non-Mineral (Custom/Excise and Federal Inland Revenue Service). Actual performance has on the whole increased over the period, however there were two years in which decreases were experienced in 2009 (due to the global economic decline) and again in Performance against budget for the six years under review was consistently higher except for 2013 where it marginally fell against budget. The collection averaged N60 billion for the last three years and actually reached N62billion in Most of the growth in Statutory Allocation since 2008 has been driven by the increase in the benchmark crude oil price from $40 to $79 per barrel this rate of increase is unlikely to continue in the short-medium term as ten year moving average oil prices are only marginally above the current benchmark. KDSG should also be mindful of the slight under performance of Statutory Allocation against budget in Page 21

23 Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 6: Excess crude FAAC Excess Crude Budget vs Actual: ,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Budget 5,513,067, Actual 10,691,217,175 13,449,219,541 11,075,656,498 13,246,276,195 15,481,092,850 0 Year 69. Excess crude is distributed from the Federation Account based on Mineral Revenue receipts above the benchmark rates for price, production and exchange rate. It is shared between the three tiers using the same formulas as Statutory Allocation. The timing and level of Excess Crude distribution is very difficult to predict, although since mid-2012 there has been SURE-P distributions almost every month at the same level (Kaduna has received on the average, N1.20 billion NGN per month in 2012). 70. Kaduna typically has not budgeted for Excess Crude distribution, although in 2014 there is a provisional based on SURE-P. 71. Due to the volatility of the above receipts, budgeting for excess crude should be prudent and must also be mentioned in fiscal risks. Page 22

24 Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 7: VAT VAT Budget vs Actual: ,000 12,000 10,000 8,000 6,000 4,000 2, Budget 4,200,000,000 5,400,000,000 6,000,000,000 7,200,000,000 8,000,000,000 11,000,000,000 11,550,000,000 Actual 5,569,323,687 6,366,289,531 7,663,160,895 8,947,329,202 9,817,263,350 10,894,591,647 Year 72. VAT is an ad-valorem tax applied to sales of almost all goods and services within the Nigerian economy. It is applied at a rate of 5% VAT is collected by Federal Inland Revenue Service (FIRS) and distributed across the three tiers of government states shares 50% of the total VAT receipts. The distribution to each state is based on a set of criteria slightly different to those used for Statutory Allocation. 73. VAT receipts have increased every year since 2008 largely due to sustained annual increases in economic activity over the period. VAT has outperformed budget every year since 2008, although our 2013 performance was the closest to budget over the period. Page 23

25 Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 8: IGR Internally Generated Revenue (IGR) Budget vs Actual: ,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Budget 11,261,951,020 11,408,722,410 12,437,810,300 12,862,668,479 35,551,374,730 29,121,496,738 29,307,184,126 Actual 7,614,998,197 10,519,828,422 9,326,849,916 11,749,346,072 14,432,437,415 13,340,690,084 Year 74. Internally Generated Revenue (IGR) is revenue collected within Kaduna State related to income tax (PAYE represents the highest contributor to IGR), fines, levies, fees and other sources of revenue within the state. 75. IGR has continuously underperformed against budget since 2008; rising from N7.614bn to N10.519bn in 2009 but dipping to N9.326bn in 2010 before rising to N11.749bn and N14.432bn in 2011 and It dropped marginally to N13.34bn in These have been largely due to putting in place planned strategies for raising revenue collection although the potential exist. 76. The 2010 budget figure of N12bn was based on an expectation of revenues collecting agencies to achieve over N1bn collections per month as opposed to realistic revenue projections. Actual collections have however been less than the expectation. 77. The budget for 2014 is based expectation that current reforms and support to IGR will yield significant increases in collections. Half year performance for 2014 should be considered when finalising the budget for Page 24

26 Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 9: Grants Grants - Receipts Budget vs Actual: ,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Budget 14,797,074,865 15,348,892,225 15,542,227,725 11,822,331,750 13,334,575,915 9,097,714,170 11,938,800,332 Actual 0 1,272,019,431 15,106,695,552 2,383,586, ,831, ,252,936 Year 78. Capital receipts include grants and loans. Grants are receipts from federal government and development partners such as Federal Government millennium development goals (MDGs) Conditional Grants Scheme, Department for international Development (DFID) off budget, United Nations Development Programme (UNDP), United Nations Children Education Fund (UNICEF), GIZ, World Bank, etc. Loans include internal and external loans. Internal loans comprise capital markets receipts and commercial Bank loans. External loans are receipts from World Bank and AfDB. 79. Between 2008 and 2013 actual capital receipts has been variable reaching a peak in 2012 but falling back In terms of actual performance against budget there has been consistent over budgeting apart from 2009 where the actual was less than budgeted amount. The level of deviation between budgeted and actual particularly in 2010 and 2011 reflects significant difference between expectation of receipts and what was provided by Donors. 80. The high level of unpredictability needs to be considered when formulating the fiscal forecast. 81. Other Capital comprises of revenues from sales of capital assets dedicated for capital expenditure. These are sometimes difficult to realise as sales usually from divestment policies may not be consummated in the years they are planned. Page 25

27 Value (NGN Million) Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 10: Other capital receipts 40,000 Other Capital (Investment Income and Other) - Receipts Budget vs Actual: ,000 30,000 25,000 20,000 15,000 10,000 5, Budget 1,163,800,000 1,245,665,000 1,271,700,000 12,222,707,500 3,643,436,500 3,717,000,000 2,000,000,000 Actual 6,939,559,502 8,747,902,011 19,894,955,320 33,995,536,601 16,564,679,676 0 Year 82. Proceeds from sales of assets have overshot budgeted figures; however in 2013, no sales of assets were recorded. Government plans to either sell of concession a number of companies like the Kachia Ginger factory, Ikara Food Processing Company and the Zaria Pharmaceutical Company. Figure 11: Loans /financing Loans - Receipts Budget vs Actual: ,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, Budget 32,437,540,155 91,658,716,990 62,006,979,365 30,985,239,250 29,796,562,415 64,560,407,447 75,605,636,401 Actual 8,251,202,441 12,401,267,584 47,233,445,297 61,427,330,600 23,921,927,202 5,377,222,803 Year 83. Capital receipts include grants and loans. Grants are receipts from federal government, development partners such as Federal Government MDGs Conditional Grants Scheme, DFID (off budget), and institutional lenders (usually onlends from Federal Government of Nigerian) such as UNDP, UNICEF, GIZ, World Page 26

28 Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Bank, etc. Loans include internal and external loans. Internal loans comprise capital markets receipts and commercial bank loans. External loans are receipts from World Bank and AfDB. 84. Between 2008 and 2013 actual capital receipts has been variable reaching a peak in In terms of actual performance against budget there has been consistent over budgeting apart from 2009 where the actual was less than budgeted amount. The level of deviation between budgeted and actual particularly in 2010 and 2011 reflects significant difference between expectation of receipts and what was provided by Donors. 85. The high level of unpredictability needs to be considered when formulating the fiscal forecast. Expenditure side 86. On the expenditure side, the document looks at Personnel, Overheads and Capital Expenditure budget versus actual for the period budget versus actual for the period (six year historic) and 2014 budget. Figure 12: Personnel Total Personnel Costs Budget vs Actual: ,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Budget 18,702,077,955 18,670,165,620 22,426,537,810 26,454,299,033 34,327,793,499 32,727,322,650 31,621,464,747 Actual 14,411,443,786 13,280,607,717 18,672,505,553 24,509,060,617 29,296,173,360 30,385,354,062 Year 87. Personnel costs comprise of salaries and allowances of civil servants, political appointees and Consolidated Revenue Fund (CRF) charges (except debts) of KDSG. The actual personnel costs have been on the increase with a sharp rise in 2011 occasioned by review of salaries first by Government and implementation of the N18, 000 minimum wage and other cadres (i.e. health workers, judiciary and tertiary institution staff) While it is expected that with anticipated retirements in the coming years should see a drop in Personnel cost, there will be an increase in pensions and gratuity payments. In terms of performance of actual against budget there has been mixed picture. Page 27

29 Value (NGN Million) Value (NGN Million) Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 13: Overheads Total Overheads Budget vs Actual: ,000 30,000 25,000 20,000 15,000 10,000 5, Budget 21,423,656,555 14,088,187,105 21,045,565,005 22,381,025,270 26,071,108,796 28,522,572,412 29,205,543,881 Actual 19,722,916,187 18,681,199,572 18,010,512,326 23,180,673,489 22,498,572,883 22,027,450,554 Year 88. Overheads comprise mainly of operational and maintenance costs for running the government. The actual overheads experienced a slight drop between 2008 and 2010 before rising in 2011 and stabilizing in 2012 and 2013 at about N22bn due to costs of establishing and running new agencies as well as increased expenditure on security. 89. The performance of actual against budget has consisted been lower than budgeted except for 2009 and Figure 14: Capital expenditure Total Capital Expenditure Budget vs Actual: , , ,000 80,000 60,000 40,000 20, Budget 52,353,506, ,756,670, ,934,601,725 78,550,913, ,303,298, ,500,681, ,327,856,875 Actual 25,511,251,747 26,790,716,791 45,443,145,021 32,094,939,342 35,208,513,004 27,471,979,479 Year Page 28

30 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) 90. Capital expenditure includes the main investments and programmes of government. Over the period of 2008 to 2013 generally there has been an upward trend in actual capital expenditure moving from N25.5bn in 2008 to N45.44bn in 2010 before dropping to N27.47bn in There has been significant variance between budgeted capital expenditure and actual capital expenditure over the years. The variance over the period is due to unmet expectations on IGR and expected loan drawdowns making the capital receipts and projections unrealistic. By Sector This will require more accurate forecasting in the future. 92. Sector expenditure (actuals, ) is shown in the graphs below recurrent and capital expenditure first by main sectors then by sub-sectors. Figure 15: Recurrent expenditure by main sector Recurrent Expendiure by Main Sector 25,000 20,000 15,000 10,000 5, Economic 4,276,843,448 4,910,548,680 5,424,603,012 Social 13,572,490,469 18,421,587,227 20,780,030,596 Regional 858,362, ,384, ,806,540 Administration 12,138,356,030 17,101,316,306 15,354,483,570 Year 93. Recurrent Expenditures is largely made up of Personnel costs and overheads. 94. The Social subsector has received the highest allocation due to the State Government s emphasis and share number of staff in the education and health establishments. During this period, new salaries structures were approved being the Teachers Salary Structure (TSS) for Teachers and Consolidated Health Salary Structure (CONHESS) and Consolidated Medical salary Structure (CONMESS) for Health workers. 95. Administration sub-sector, largely due to increasing cost of running Government and the security challenges accounts for the second highest allocation. Page 29

31 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) 96. Economic and regional with stable level of personnel have maintained a steady level of allocation over the period. Figure 16: Recurrent expenditure by Economic sub-sector Recurrent Expendiure by Sub-Sector (Economic) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Agriculture 475,402, ,972, ,946,404 Finance / Investment 3,344,637,562 3,691,391,389 4,053,153,351 Transport 290,702, ,417, ,156,502 Other 166,100, ,767, ,346,755 Year 97. Within the Economic Sector, the Finance & Investment received more than the other sub-sectors who show a generally marginal but steady growth in the period under review. Again there is little or no variance in the staff position and the general trend is reflected in the recurrent expenditure patterned. Page 30

32 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 17: Recurrent expenditure by Social sub-sector Recurrent Expendiure by Sub-Sector (Social) Education Health 3,695,232,582 4,846,591,772 5,763,520,395 Social Development 679,186, ,698, ,469,455 Information 874,790, ,688, ,544,928 Year 98. The Social Sub-sector evidences the increased expenditure in education and health with Information and Social Development remaining at the same level. Page 31

33 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 18: Recurrent expenditure by Regional sub-sector Recurrent Expendiure by Sub-Sector (Regional) Urban Development 252,495, ,788, ,768,595 Environment 228,341, ,846, ,250,064 Community 54,463,341 63,812,880 73,883,164 Water Supply 323,061,566 86,936, ,904,718 Year 99. Recurrent spending in the Regional sub-sector shows a general rise in recurrent cost increase except for water supply which witnessed a sharp drop in 2011 before starting to rise again in 2012 with increased activity in the MDG water projects. Urban development and waste evacuation activities account for the pattern shown in the other Sub-sectors. Page 32

34 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 19: Recurrent expenditure by Administrative sub-sector Recurrent Expendiure by Sub-Sector (Administrative) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, General Admin/Executive 9,348,821,617 13,895,717,013 11,739,713,196 Legislature 2,002,002,111 2,202,900,413 2,162,915,969 Judiciary 787,532,302 1,002,698,880 1,451,854,405 Governance & Institutional Reforms Year 100. The Administration Sectors shows that the Admin sub-sector has the highest allocation for the period and reflects cost of meeting security challenges generally for the period and the Local Government elections in Most recurrent expenditure in Governance and Institutional Reforms is sponsored by Development Partners and is mostly off budget. Page 33

35 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 20: Capital expenditure by main sector Capital Expendiure by Main Sector 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Economic 8,929,911,404 11,537,645,466 17,970,356,079 12,599,867,257 Social 18,243,418,821 6,172,560,195 4,840,342,624 5,865,031,469 Regional 10,711,964,246 8,706,586,202 6,585,717,399 7,079,443,149 Administration 7,557,850,550 5,678,147,479 5,812,096,903 1,927,637,966 Year 101. Sectorial Allocations in the State for the period 2010 to 2013 shows that the economic sector received the highest allocation followed by Regional, Social with Administration, the lowest. Page 34

36 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 21: Capital Expenditure by sub-sector (Economic) Capital Expendiure by Sub-Sector (Economic) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Agriculture 5,326,952,670 3,600,366,358 1,520,523,490 3,441,789,489 Commerce& Industry 245,406, ,487,478,321 Finance / Investment ,401,520,173 Power 1,058,290, ,809, ,528,600 0 Transport 2,286,016,304 7,102,529,765 16,059,106,041 6,231,367,898 Other 13,245, ,939,588 66,197,948 37,711,376 Year 102. The Transport Sub-Sector of the Economic Sector has received more capital allocations because of government s desire to developed and expand the Roads in the State as a means of stimulating economic activities Agriculture Sub-Sector being the major preoccupation of the generality of the state s economy received the second highest allocation. There is the desire for boosting food security and providing employment for the teeming youth by way of modernizing agriculture in terms of improved seedlings and modern farming implements Power and Finance & Investments as Sub-sectors have received only modest allocations due to the non-completion of earlier investments in power expected to revive closed industries in Kaduna. Other sub-sectors combined, have received less allocations than Power Sub-sector. The Social sector - next in size of sectorial allocation is the Social Sector with Education, Health and Information as sub-sectors. Page 35

37 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 22: Capital expenditure by Social sub-sector Capital Expendiure by Sub-Sector (Social) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Education 14,783,351,590 3,568,966,182 2,938,674,877 4,946,343,250 Health 2,666,665,685 2,530,637,042 1,792,326, ,183,825 Social Development 789,679, ,798 24,183,838 12,504,394 Information 3,721,913 72,758,173 85,157,853 Year 105. Comparatively, education sub-sector has received more than the health sub-sector due to expansion of basic and secondary education institutions in the state to attain the targets set in the Education master plan (SESP), the two sub-sectors have witness declining allocations over the period under review Social development and Information s allocation were the least in the sector. It may not be far from inability to complete negotiations and drawdown on the China Exim bank loan for digitalization of media outfits in the State. Page 36

38 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 23: Capital Expenditure by Regional sub-sector Capital Expendiure by Sub-Sector (Regional) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Urban Development 67,360, ,744,503 Environment 1,587,385,502 2,296,769, ,987,997 1,325,097,370 Community 785,513, ,356,362-5,754,345,779 Water Supply 8,271,704,309 6,254,460,060 5,634,984,899 - Year 107. Regional Sector covers investment in Water, Housing and environmental infrastructure The highest allocation for the period under review has gone to the water subsector; with draw down in AfDB facility for the greater Zaria Water supply, the declining rate shown in the graph should improve in the coming years. Page 37

39 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 24: Capital Expenditure by Administrative sub-sector Capital Expendiure by Sub-Sector (Administrative) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, General Admin/Executive 7,557,850,550 5,678,147,479 5,812,096,903 - Legislature ,529,265,691 Judiciary 0-398,372,275 Governance & Institutional Reforms Year 109. The Administrative Sector covers investment in running of Government machinery, Government Reforms, investment in government Offices and government quarters; law and justice General Administration sub-sector in the period under review had received the highest allocation comparative to other subsectors but the rate has been dropping as government has placed more emphases in the economic sector Although there has been a lot of investment in governance reforms, this is not reflected as these reforms have been financed off budget by Development Partners such as DFID. Debt position 112. A summary of the consolidated debt position for KDSG is provided in the table below. Page 38

40 Table 7: Debt position as at 31 st December Source of Loans Debt Stock as at 31st December 2013 Debt Servicing Costs 2013 External Loans* 32,142,582,999 1,343,950,251 Internal Loans 10,788,405,351 19,379,582,037 * Converted from USD to NGN at rate of 155 Ratios Kaduna State Benchmarks Debt Stock : Budget Size 22.34% % Debt Stock : GDP 17.54% 40.00% Internal Debt Stock : IGR 80.87% % Internal Debt Servicing Cost : IGR % 63.00% External Debt Stock : Federal Transfers 44.01% % External Debt Servicing : Federal Transfers 1.84% 30.00% Total Debt Servicing : Recurrent Revenue 23.99% 30.00% Composition of Debt (Percentage Domestic 25.13% 60.00% State GDP 244,702,245, The external stock is related to Federal Ministry of Finance on-lend loans from IDA (International Development Association), AfDB and IsDB (Islamic Development Bank). Deductions for servicing external debt are taken directly from Statutory Allocation Internal debt stock is related to the N8.5bn infrastructure bonds one bond of 9 billion NGN taken out in 2010 at an interest rate of 12.5% and a term of five years. Other Commercial banks term loans of N7.4bn are due for repayment in Debt to GDP ratio is less than half of the 40% maximum guideline. However, when comparing our debt position to the other international benchmarks (largely the World Bank Group Country Policy and Institutional Assessment ratios), Kaduna State compares favourably. The only ratio that is exceeded is the Internal Debt Stock to IGR however, the servicing cost of internal debt stock to IGR is within the threshold, and the two bonds stated above will be repaid by the end of 2018, leaving Kaduna State with only a modest stock of external debt. 6 GDP is estimated using the 2010 figure of 211,383,430,000 inflated at 5% per annum Page 39

41 Section 3 Fiscal Strategy Paper 3.A Macroeconomic framework 116. The Macroeconomic framework is based on the latest Nigerian National real GDP growth and inflation (CPI) as estimated in the October 2013 IMF World Economic Outlook document. The Oil benchmarks and NGN: USD exchange rates are based on the figures in the Federal Fiscal Framework document. Table 8: Kaduna State macroeconomic framework Macro-Economic Framework Item National Inflation 8.20% 7.90% 7.60% 7.30% National Real GDP Growth 7.40% 7.20% 7.00% 6.80% Oil Production Benchmark Oil Price Benchmark NGN:USD Exchange Rate B Fiscal Strategy and assumptions Policy statement 117. The overall policy of government when considering its budget are the following key criteria: Growth in wealth and jobs; more equitable access to means of livelihood; Healthier and educated population; Functional infrastructure to support business and social activities; and More efficient, transparent and accountable government and better security for all. Objectives and targets 118. The key targets from a fiscal perspective are: Attain a ratio for Recurrent and Capital; Maintain a sustainable debt position in line with Federal debt management office (DMO) criteria. 3.C Indicative three year fiscal framework 119. The indicative three year fiscal framework for the period is presented in the table below. Page 40

42 Table 9: Medium term fiscal framework Fiscal Framework Recurrent Revenue Statutory Allocation 49,953,662,653 54,561,616,114 59,314,431,412 VAT 13,610,191,802 15,176,228,993 16,949,399,923 IGR 16,642,711,157 19,208,888,485 21,695,851,441 Excess Crude 15,000,000,000 15,000,000,000 15,000,000,000 Total Recurrent Revenue 95,206,565, ,946,733, ,959,682, % 9.18% 8.67% Recurrent Expenditure Personnel 36,766,278,415 40,442,906,257 44,487,196,882 Overheads 24,230,195,610 26,653,215,171 29,318,536,688 Total 60,996,474,025 67,096,121,427 73,805,733, % 10.00% 10.00% Transfer to Capital Accoun 34,210,091,587 36,850,612,165 39,153,949,207 Capital Receipts Grants 17,289,154,495 17,289,154,495 17,289,154,495 Net Financing Other Capital Receipts 2,000,000, Total 19,289,154,495 17,289,154,495 17,289,154,495 Capital Expenditure 53,499,246,082 54,139,766,660 56,443,103,702 Total Budget Size 114,495,720, ,235,888, ,248,837,272 Capital Expenditure Rate 46.73% 44.66% 43.33% Deficit to Total Expenditur 0.00% 0.00% 0.00% 3.C.1 Assumptions 120. Statutory Allocation is based on an elasticity based forecast consistent with the macroeconomic framework displayed above. It is observed that Excess Crude is captured separately from Statutory Allocation in the Fiscal Framework VAT - The estimate for VAT is based in the middle of all four estimates (three different moving averages and elasticity based forecasts) which is the three year moving average. All four forecasts we very close Excess Crude the previous year excess crude (2013), which includes SURE-P, Nigerian National Petroleum Corporation (NNNPC) refunds, exchange gains, augmentation and all other excess distributions, has been used as the basis (without growth) for the period Internally Generated Revenue a five year moving average growth rate (excluding outliers) with a base of 2013 actual collections been used as the basis for the IGR forecast Grants grants are very hard to predict and the recording of actual grant receipts is not accurately as a lot of expenditure is off budget. The forecasts are based on current commitments from federal government and the development partners (including UNICEF, DFID and the World Bank group). Since grant funding is nondiscretional, these funds are tied to the implementation of specific Page 41

43 programmes/projects. If the funds are not forthcoming, the programmes/projects will not be implemented. The estimates for are based on the current 2014 budget Miscellaneous Capital Receipts based on the sale of shares in state assets, some have marked for sale (Kachia Ginger factory, Ikara Food Processing Company, Zaria Pharmaceutical Company), income should be realised in Also digitalisation and a windmill on a public private partnership (PPP) basis are included Financing (Net Loans) no financing has been negotiated beyond Personnel Marginal employment is restricted to health and education sectors. The state considers a 10% annual increment to be sufficient to cover new entrants, salary increments. The 10% is also considered a cap Overheads pension costs are captured within overheads and with a large proportion (around 40%) due to retirement in the next three-five years. Based on this and the annual increments based on inflations and servicing of state assets, a 10% annual increment based on 2013 actuals is considered realistic Capital Expenditure is based on the recurrent account surplus plus capital receipts. The ratio of capital expenditure is around 45% over the three year period. 3.C.2 Fiscal trends 130. Based on the above envelope, plus actual figures for (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 42

44 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 25: Kaduna State Revenue trend Revenue Trend - Actual and Forecast 70,000 60,000 50,000 40,000 30,000 20,000 10, Actual 2009 Actual 2010 Actual 2011 Actual 2012 Actual 2013 Actual 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast Stat.Allocation 42,413,595,323 37,028,612,405 42,935,663,911 60,069,858,871 60,568,515,377 62,132,791,195 45,193,016,002 49,953,662,653 54,561,616,114 59,314,431,412 VAT 5,569,323,687 6,366,289,531 7,663,160,895 8,947,329,202 9,817,263,350 10,894,591,647 12,254,757,267 13,610,191,802 15,176,228,993 16,949,399,923 Total IGR 7,614,998,197 10,519,828,422 9,326,849,916 11,749,346,072 14,432,437,415 13,340,690,084 15,174,808,643 16,642,711,157 19,208,888,485 21,695,851,441 Excess Crude 10,691,217,175 13,449,219,541 11,075,656,498 13,246,276,195 15,481,092, ,000,000,000 15,000,000,000 15,000,000,000 15,000,000,000 Capital Receipts 8,251,202,441 12,401,267,584 47,233,445,297 61,427,330,600 23,921,927,202 5,377,222,803 42,289,154,495 19,289,154,495 17,289,154,495 17,289,154,495 Year Page 43

45 Million Naira Kaduna State Government - Economic and Fiscal Update, Fiscal Strategy Paper and Budget Policy Statement (EFU-FSP-BPS ) Figure 26: Kaduna State expenditure trend Expenditure Trend - Actual and Forecast 70,000 60,000 50,000 40,000 30,000 20,000 10, Actual 2009 Actual 2010 Actual 2011 Actual 2012 Actual 2013 Actual 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast Personnel Costs 11,990,603,551 12,118,695,765 15,171,577,620 18,949,299,615 29,296,173,360 30,385,354,062 33,423,889,468 36,766,278,415 40,442,906,257 44,487,196,882 Overheads 19,418,443,290 19,857,711,524 21,511,440,259 28,740,434,491 22,498,572,883 22,027,450,554 22,027,450,554 24,230,195,610 26,653,215,171 29,318,536,688 Cap. Ex. 25,511,251,747 26,790,716,791 45,443,145,021 32,094,939,342 35,208,513,004 27,471,979,479 66,460,396,385 53,499,246,082 54,139,766,660 56,443,103,702 Year Page 44

46 3.D Fiscal Risks 131. The analysis and forecasting basis as laid out above implies some fiscal risks, including but not limited to: Risk Likelihood Reaction Risks to Statutory Allocation and Excess Crude based on Oil Price or Production shock High In longer term, Kaduna state must become less dependent on Statutory Allocation and Excess Crude to funds its expenditure this would be achieved through higher IGR collection. In the short term, capital projects must be prioritises and overhead expenditure must be flexible for reduction if short-falls are experienced. Risks based on Political Transition in 2015 which could result to shifts in expenditure priorities Medium High levels of consultations with all stakeholders including political class, civil society, private sector and alike when preparing the 2015 budget. Sensitisation to new administration on the importance of adhering to the fiscal framework. Poor security in neighbouring states spills over into Kaduna state resulting in reduced IGR and increased overhead costs Floods and other natural disasters impact on economic activity and hence IGR tax base, and causing increased overhead expenditure Security situation nationwide deteriorates causing reductions in VAT and other federal transfers Security situations has social welfare, employment, policing impacts impacting expenditure in related sectors Medium Low Medium Medium Proactive engagement to reduce risk of security spill-over and enacting of legislation for commonwealth fund to stabilise revenue and expenditure Increased investment to increase climate resilience (flood control and irrigation) adaptation, and awareness In longer term, Kaduna state must become less dependent on Statutory Allocation, VAT and Excess Crude to funds its expenditure this would be achieved through higher IGR collection. In the short term, capital projects must be prioritises and Overhead expenditure must be flexible for reduction if short-falls are experienced. Expenditure is priorities in appropriate sectors, and focus on employment creation in partnership with private sector. Greater emphasis on community mobilisation It should be noted however that no budget is without risk. The on-going implementation of the 2014 budget should be closely monitored, as should the security situation and impact of the fiscal and economic outlook. Page 45

47 Section 4 Budget Policy Statement 4.A Budget Policy Thrust 133. As an interim measure, prior year actual expenditure by sector and sub-sector ( for recurrent expenditure, for capital expenditure) has been used as the basis for the 3-Year allocations for the period This is to be reviewed in high level discussions in Kaduna state and revised accordingly. 4.B Sector Allocations (3 Year) 134. Based on the above policy, below are the high level sector envelopes for Recurrent and Capital expenditure. Figure 27: Expenditure by Sector (proposed ) Capital Expenditure Allocation by Main Sector Administration, 14.16% Economic, 44.43% Regional, 23.61% Social, 17.81% 135. Presented in the table below are the indicative three envelopes for sectors and sub-sectors. Page 46