Government’s Expenditure and Borrowings causes Unemployment in Nigeria/By Chiwuike Uba, CPA, FCMA




Since independence, Nigeria’s fiscal policy objectives have included among other things, making fund available for financing economic development, the maximum flow of materials resources consistent with minimum consumption requirements, minimizing inequalities in wealth, income and consumption standards, generation of employment and encouraging domestic production.

John Maynard Keynes who was probably the most influential economist of the 20th Century developed a theory that provided both an explanation for the prolonged unemployment of the 1930s and a recipe for how to generate a recovery. His analysis indicated that fiscal policy could be used to maintain a high level of output and employment. According to the Keynesian theory of employment all fiscal measures that accelerate the pace of economic growth promote employment also. In line with the Keynesian theory, most economists, especially macroeconomists would agree that expansionary fiscal policy stimulates employment and lowers unemployment.

The above theory is not true in Nigeria. According to the findings of a recent study we carried out to determine the effectiveness of fiscal policy on Nigerian economy, individually, government expenditure and government borrowing increase unemployment in Nigeria. The result shows that any 1% increase in government expenditure increases unemployment by 0.0029%. On the other hand, a 1% increase in government borrowing increases unemployment by 0.0019%. The findings nonetheless showed that while fiscal policies have been very effective in general economic growth as evidenced in the steady growth of the GDP, it is however, very ineffective in some other areas like employment generation.

The big question begging for an answer is – why is unemployment increasing despite increase in government expenditure and public borrowing (debt)? Priding itself as a people’s government, the current administration of President Goodluck Ebele Jonathan in line with his transformation agenda is seriously working to increase the share of the capital expenditure as seen in the steady increase (negligible) in capital budget. It is indeed a very good step in the right direction. However, this laudable vision and direction will add to our prevailing woes (unemployment and insecurity) if there is no change in the attitude of policy makers and the governed alike. The governed, the citizens must always be at alert, demanding for accountability from the government at all times. Nigeria is the only country where budget details and budget performance is hidden and classified. Is it not laughable that despite the existence of “fiscal responsibility act” most government agencies still do not send their reports to the fiscal responsibility commission as provided by law? Flagrant abuse and disobedience of our laws is the order. In fact, sometimes, I begin to conclude that laws are made in Nigeria for the purposes of being counted amongst the countries adhering to “international standards”, not for implementation purposes.

Amongst the reasons why our expenditures, instead of creating employment, widen unemployment rate is because most of our expenditures are not productive based. In addition, our expenses are not targeted, they are provided, approved and spent based on interests; which most times, is political and not economical. I will leave the padding and mark-ups on our expenses as a discourse for another day. One of the indicators that confirm the findings of the study is the current saga on the N16bn expenditure on the construction of new residential building for the vice-president.  More worrisome is the reasons advanced by the Vice-President’s office and the FCDA. It is therefore very evident that part of the major problems of this country is lack of planning. We are used to adhoc and fire-brigade approach to doing things that we have completely forgotten the use and benefits of planning. What is the impact of the N16bn expenditure on new residential building on employment creation and domestic production? Some may argue that the construction may ultimately create jobs for some. That’s fallacy! We must ask ourselves where the workers are coming from. Were they unemployed before they are hired to working on the construction. If their leaving created job openings at their old firms, did that create an opening for an unemployed worker?

Government introduced many measures to cushion the negative impact(s) of the removal of the fuel subsidy in January 2012 and also to create jobs, hence, reduce the unemployment rate in Nigeria. Surprisingly, as at date, according to the report by Thisday newspapers of 11 December 2012, the Chairman of SURE-P, Chief Kolade, is unable to account for billions of naira that has been spent to date on the project. There are no empirically measurable indicators by government to determine what has been achieved in line with the objectives of the programme. Dr. Christopher Kolade accused both state and Local governments for inability to give account of funds received thereby frustrating the aim of the programme. Funny enough, the unaccountable expenditures (?) as reported by Chief Kolade forms part of government expenditure. Nigeria we hail thee…!

It is encouraging that most Nigerian’s are beginning to cry over alarming and uncontrollable growth in our debt portfolio. Our external debt is $6.2bn as of September 30, while the domestic debt profile was N6.3tn.The managers of the economy kept assuring us that our debt is still at a very comfortable rate. My mindset is always tuned into that of the “Pauper” as captured in Richard Ntaru’s poem each time I look at the debt sustainability ratio displayed in official website of Debt Management Office. I cry for my lovely country Nigeria. No wonder Prof. Soludo asked “does the number add-up” in one of his articles. The World Bank and other multilateral agencies have continuously questioned the integrity and reliability of the statistics we toss out every day in Nigeria. Which GDP are we using to determine the debt sustainability ratio?  We need to tell ourselves the home truth!

Most of the government borrowings end up in individual pockets of those in governments and/ close to the government. This is evident in the quantum of amount involved in most of the corruption cases EFCC is prosecuting. Most times, even corporations that received guarantees from government for loans multilateral agencies end-up diverting the funds for personal uses outside the purpose(s) for which the loan was granted. Government does not have an adequate monitoring and evaluation plan on ground to checkmate such abuses. Even when such monitoring and evaluation mechanism is in place, most times, the responsible personnel are compromised. Therefore, instead of creating employment, such debt, on the hand, increases unemployment.


As measures to reversing the above trend, hence, reduce unemployment using government expenditure and borrowing as instruments, there should be re-allocation of capital expenditure so as to enhance employment opportunities for unemployed people.  Increase in our capital expenditure should be channeled towards productive sectors not to “luxuries” as depicted in the construction of houses and banquet halls.

A well planned, articulated and structured policy should be put in-place and financial grant provided to the unemployed. As a means to tracking progress and achievements, an empirically measurable indicators and benchmarks must be developed and made an integral part of the policy. With this approach, the current uncertainties and unaccountability associated with the SURE-P programme will be eliminated.

In addition, further efforts should be made by the government to encourage foreign and domestic investors to invest in the key sectors of Agriculture and manufacturing industries of the economy (outside petroleum), so as to help diversify the economy and increase investment and employment opportunities. There should be conscientious and deliberate move towards setting our priorities right and reducing misappropriation of fund. In other words, fiscal indiscipline on the part of the government should be curbed while a good, transparent and accountable expenditure system should be put in place. While I commend President Goodluck Jonathan for putting in place the Performance Monitoring System, there is need to provide a more transparent approach. This will embolden the civil societies to ask more questions, hence, deepen accountability.

Furthermore, efforts should be intensified in making accurate assessment of the magnitude of economic problems and accurately forecasting expected results of policy changes. This is because in the absence of such accurate estimates, wrong decisions are likely to be made at all times. No country has made it without proper planning based on accurate and realistic data. Nigeria is no exception, we cannot continue deceiving ourselves. Now is the time to work and we must all work to build Nigerian nation of our dreams. It is not yet late!

Chiwuike Uba, CPA, FCMA

Public policy analyst




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