FG capital spending declines by 25% – CBN report

The Central Bank of Nigeria (CBN) has revealed that the Federal Government’s capital expenditure dropped by 25% in the third quarter of 2024. This significant decline has raised concerns about the impact on the country’s infrastructure development and economic growth, given that capital spending plays a crucial role in stimulating growth, creating jobs, and improving public services.

The CBN’s report, which outlines the government’s financial activities over the past quarter, indicates that the reduction in capital expenditure is largely due to fiscal constraints and the government’s struggle to manage rising debt obligations, inflationary pressures, and reduced revenue from oil exports. This decrease in capital spending marks a departure from the previous trend where the government consistently prioritized infrastructure projects aimed at enhancing national development.

### Factors Behind the Spending Decline

According to the CBN, the Federal Government’s capital expenditure, which funds infrastructure projects such as roads, bridges, schools, hospitals, and power generation facilities, was slashed to accommodate urgent recurrent spending demands. Recurrent expenditures, such as salaries, pensions, and debt servicing, took precedence due to the country’s ongoing fiscal challenges, limiting the amount of funds available for capital projects.

Several factors contributed to this shift in government spending. The continuous depreciation of the naira and rising inflation have eroded the purchasing power of government funds, increasing the cost of materials and services required for capital projects. Additionally, reduced oil revenues, which historically account for a large portion of the government’s income, further exacerbated the situation. Oil production has faced challenges, including pipeline vandalism, theft, and lower global oil prices, which have led to a shortfall in expected revenue.

The growing burden of debt servicing has also contributed to the decline in capital spending. Nigeria’s rising debt profile, which surpassed N87 trillion in 2024, has made debt repayment one of the government’s largest expenses. This has left little room in the budget for capital projects, as more funds are directed toward meeting debt obligations.

### Impact on Key Infrastructure Projects

The 25% reduction in capital expenditure could delay or stall critical infrastructure projects across the country. Several large-scale projects that were in various stages of planning or execution may now face funding challenges, putting their completion timelines in jeopardy. For instance, ongoing efforts to rehabilitate the nation’s aging road network, expand electricity infrastructure, and build affordable housing units may be hindered by the funding shortfall.

Inadequate capital investment could also slow down key sectors of the economy that rely on improved infrastructure to thrive. Manufacturing, agriculture, and services sectors, which depend on good road networks, stable electricity, and efficient transport systems, could see slower growth due to a lack of infrastructure development. These sectors are vital for job creation and economic diversification, both of which are critical for reducing the country’s dependence on oil.

One area where the decline in capital spending may have the most immediate impact is in power generation. The government has been working to increase electricity generation capacity and improve distribution infrastructure to meet growing demand. However, with reduced funding, these efforts may be delayed, prolonging the country’s struggle with electricity shortages and frequent blackouts.

### Economic Implications

The drop in capital spending could have wide-ranging economic implications, particularly at a time when the country is striving to recover from the economic disruptions caused by inflation and the lingering effects of global economic challenges. Infrastructure investment is a key driver of economic growth, as it creates jobs, stimulates demand for materials and services, and improves overall productivity.

By reducing capital expenditure, the Federal Government risks slowing down economic recovery and growth. In the long term, inadequate infrastructure could increase the cost of doing business in Nigeria, making it harder for local industries to compete on the global stage. Poor infrastructure is already a major challenge for businesses, and further delays in infrastructure development could deter foreign investment.

Additionally, the decrease in capital spending may affect public services. Schools, hospitals, and other social services that rely on government-funded infrastructure projects could see slower improvements or even deterioration in quality due to the lack of investment. This could have a negative impact on human capital development, with potential long-term consequences for Nigeria’s socioeconomic development.

### Government’s Response

In response to the CBN’s report, the Federal Government has acknowledged the reduction in capital spending but emphasized that it remains committed to completing ongoing projects and launching new ones as fiscal conditions permit. The Ministry of Finance noted that the government is exploring alternative financing mechanisms, including public-private partnerships (PPPs), to ensure that critical infrastructure projects are not abandoned.

The government has also indicated that it is working on measures to improve revenue generation, including the expansion of the tax base and efforts to diversify the economy away from oil dependence. According to officials, increasing non-oil revenue will be essential to funding capital projects and reducing the fiscal pressures that have led to the current spending cuts.

The Minister of Finance, Wale Edun, highlighted the importance of fiscal discipline and efficient spending as key strategies for ensuring that limited resources are used effectively. Edun reassured stakeholders that despite the current challenges, the government is committed to infrastructure development as a priority for long-term economic growth.

### The Role of the Private Sector

To fill the gap created by reduced government spending, the private sector may play an increasingly important role in driving infrastructure development. The government has called on private investors to partner in critical sectors such as energy, transportation, and telecommunications through PPP arrangements.

The power sector, in particular, offers significant opportunities for private investment. With the government’s current push to increase electricity generation and distribution, private investors could step in to provide much-needed capital for power projects. The government’s willingness to offer incentives and guarantees for private sector participation is expected to boost investor confidence.

In addition, Nigeria’s burgeoning technology sector is another area where private investment can drive growth, particularly in expanding internet and mobile connectivity across the country. Improved digital infrastructure is crucial for modernizing the economy and fostering innovation in various industries.

### Outlook for the Future

While the 25% drop in capital expenditure is a significant setback, analysts believe that Nigeria’s long-term prospects for infrastructure development remain positive, especially if the government is able to successfully implement its economic diversification strategies and attract more private sector investment. The country’s large population and growing urbanization create strong demand for infrastructure, presenting opportunities for both domestic and international investors.

The CBN’s report serves as a wake-up call for the government to address the structural issues that have led to fiscal constraints and reduced spending. By focusing on revenue generation, reducing debt reliance, and fostering private sector partnerships, Nigeria may be able to overcome its current challenges and build a more resilient and sustainable infrastructure base for future growth.