BALANCING BETWEEN RECURRENT EXPENDITURE AND CAPITAL EXPENDITURE IN THE PUBLIC SECTOR BUDGETS, A CASE STUDY OF AFIKPO NORTH L.G.A

BALANCING BETWEEN RECURRENT EXPENDITURE AND CAPITAL EXPENDITURE IN THE PUBLIC SECTOR BUDGETS, A CASE STUDY OF AFIKPO NORTH L.G.A

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                              CHAPTER ONE

1.0       INTRODUCTION

1.1    BACKGROUND OF STUDY

In Nigeria for instance, despite the huge amount of public expenditures, there is still an insignificant level of development witnessed. Public expenditure on all sectors of the Nigerian economy is expected to lead to economic growth in the sense that capital and recurrent expenditure will boost the productive base of the economy which in turn will lead to growth. The interest by economists in Nigeria and other jurisdictions on the role of government expenditure is still inconclusive. Barro (2000) endogenize government spending in a growth model and analyze the relationship between size of government and rates of growth and saving. He concluded that an increase in resources devoted to non-productive government services is associated with lower per capita growth. Therefore, government expenditure which enhances economic growth should be tailored towards productive services.

According to Barro and Grilli (2004), Government spending (or government expenditure) includes all government consumption and investment but excludes transfer payments made by a state. Government expenditure can be for the acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community or it can be for acquisition of goods and services intended to create future benefits such as infrastructure investment and the expenditures can represent transfers of money, such as social salaries and cost of administration.

Therefore, Government expenditure (like expenditure by private sector firms) can be categorised into either current expenditure or capital expenditure. Current expenditure is recurring spending or, in other words, spending on items that are consumed and only last a limited period of time. They are items that are used up in the process of providing a good or service. In the case of the government, current expenditure would include wages and salaries and expenditure on consumables - stationery, drugs for health service, bandages and so on.

By contrast, capital expenditure is spending on assets. It is the purchase of items that will last and will be used time and time again in the provision of a good or service. In the case of the government, examples would be the building of a new hospital, the purchase of new computer equipment or networks, building new roads and so on. The breakdown between these two types of spending is very important. While capital expenditure has a lasting impact on the economy and helps provide a more efficient, productive economy.

Current expenditure, however, doesn't have such a lasting impact. Once the money is spent, it is gone and the effect on the economy is simply a short-term one.

1.2    STATEMENT OF THE PROBLEM

          Capital expenditure is what brings in most of the income to the government to settle their recurrent expenditure in the public sector. The challenge here could be as a result of much allocation of funds in the recurrent expenditure than the capital expenditure which might make the government to be at a loss in a particular accounting year and so making it difficult to balance the two expenditure for that year. The government could be on the safe side if capital expenditure is higher than the recurrent, but anything short of that, the government tends to be losing for that year. Finally, several researches has been carried out on the impact of recurrent expenditure and capital expenditure but not even a single research has been carried out on the balancing between recurrent expenditure and capital expenditure in the public sector budgets using Afikpo north local government as the case study.

1.3    AIMS AND OBJECTIVES OF STUDY

The main of the study is to examine the balancing between recurrent expenditure and capital expenditure in the public sector budgets. Other specific objectives of the study include:

1.           to determine the factors affecting recurrent expenditure and capital expenditure in the public sector budgets.

2.           to determine the extent to which recurrent expenditure and capital expenditure affects public sector budgets.

3.           to determine the influence of recurrent expenditure and capital expenditure on public sector budgets.

4.           to proffer possible solutions to the problems.

1.4    RESEARCH QUESTIONS       

1.           What are the factors affecting recurrent expenditure and capital expenditure in the public sector budgets?

2.           What is the extent to which recurrent expenditure and capital expenditure affects public sector budgets?

3.           What is the influence of recurrent expenditure and capital expenditure on public sector budgets?

4.           What are the possible solutions to the problems?

1.5    STATEMENT OF RESEARCH HYPOTHESIS

H0:     Recurrent and capital expenditure has no significant effect on public sector budget.

H1:      Recurrent and capital expenditure has a significant effect on public sector budget.

1.6    SIGNIFICANCE OF STUDY

The study on the balancing between recurrent expenditure and capital expenditure in the public sector will be of immense benefit to the entire Afikpo local government in the sense that it will enable the government curtail most of the expenses in that, the government sector can revert to a lower level of spending and personnel can be re-directed to the business sector. The study will also enable the government to do more of capital expenditure so as to have what to take care of the recurrent expenditure. Finally, the study will contribute to the body of existing literature and knowledge to this field of study and basis for further research.

1.7    SCOPE OF STUDY

The study on the balancing between recurrent expenditure and capital expenditure in the public sector budgets in Afikpo north local government area will cover from 2000-2017.

1.8    LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9    DEFINITION OF TERMS

BalancingOffset or compare the value of (one thing) with another.

RecurrentOccurring often or repeatedly.

Expenditurethe action of spending funds.

CapitalIs a term for financial assets or their financial value (such as funds held in deposit accounts), as well as the tangible factors of production including equipment used in environments such as factories and other manufacturing facilities.

Public SectorThe part of an economy that is controlled by the state.

BudgetsIs a financial plan for a defined period of a year.





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