Role Of Budgeting In The Public Sector Of The Nigeria Economy



The word budget is derived from the old French word “Boygets” that is “Little Bag” Encyc lopaedlic volume 3 1985.  Balty 1970 even went to the extent of quoting the Bible to established the old history of budgeting in Egypt.  Joseph budgeted to cover expected supply and demand for corn.  Budgeting did not evolve at the same time in different part of the world.  For example, in England, Encyclopaedia Vol. 3 1985 budgeting evolved through the process of allocating money for the maintenance of the kings as was written in magana carta 1216. 

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This control of the expenditure came later with the revolution of 1688 when parliament extended its concern to the question of expenditure control.

Budgeting not only evolved in different times in different countries of the world, but also it evolved through different ways.  In France, budgeting came into existence from the struggle between the monarchy and the nobility over who should control the tax revenue which was one of the cause of the revolution of the 1789.  According to the New Standard Encyclopaedia vol. 3 1986, it evolved in the United State of America out of controversy in congress between 1789 and 1795 and advanced to the creation of the Bureau of the Budget in 1921.  The concept of Budgeting is even more recent to Nigeria.  it was introduced by the first foreign multi-nationals that operated in Nigeria and gradually it was adopted in the dying years of colonial rule.  Since then there have been several development plans spanning for to five years duration.

The current practices in National planing involving preparing two sets of plan, they are”-

  1. A long term – 20 year plan called perspective plans.
  2. A three year rolling plan up – dated every year.

Budget has been a feature of public sector management in Nigeria since independence in 1960.


There is an agreement among authors that in order to avert failure, an organization must have a vision of where it want to be in the future and accordingly draws up strategic plan.  These plans are broken down into shorter periods.  These shorter plans set out a detailed step by step procedures by which to attain organization’s objectives. The end result of planning is growth which also is a yard stick  to judge management performance.  Growth planning especially in the short term is generally carried out by the use of budget.  Willsmore 1973 is of the view that  budgeting a service function assisting management to fulfil the functions and completely intertwined with the processes of management.  He also observed that planning go from top down whereas budget formulation flows from bottom up.

I westorn and Btrigham 1978 are in agreement with wills mere but are quick to submit that the budget is not a means of limiting expenditure but a method to improved operations and a toll for obtaining the most productive and profitable use of an organization’s resource through careful planning and controlling.

Hongren and Foester 1988 are also of the view that the budget is not a penny – pinching device but rather an aid to co-ordinate and implement.

They observed that well managed organization usually have budget cycle which are as follows:-

  1. Planning the performance of the organization as a whole and its units. The management term agrees as to what is expected.
  2. Providing a reference set of specific expectations against which actual result can be compared.
  3. Investigating variances from plan followed by corrective action.
  4. Planning again, consider feed back and changed conditions. All the Authors so far examined agreed that budgeting have the following benefits:-
  5. The key to an organization’s success in the budget co-ordination of the activities in department of the organization so that each facet of the operation contributes to the overall plan.
  6. Budgets specify the responsibilities of each manager who has a budget, thus enabling management by objectives (MBO).
  7. It enables communication between the top and middle management as to the firms objectives and the practical problems of implementing them.
  8. budget set a control which helps expenditure and income to be kept within the budgeted limits and points out variances so that corrective action can be taken.
  9. Budget especially the participate budgeting in particular motivates of clear targets against which performance can be judged.

Lucey 1989 is still in agreement with earlier Author but has listed some of the typical problems of budgeting as the following:

  1. Budgets tend to hide inefficiencies by basing estimates on past performance which may not be appropriate for current conditions.
  2. Badly handled budgeting system with undue pressure or lack of regard to human factors may cause anatagonism and may lower marale.
  3. Budgeting goals may come to supersede enterprise goals.
  4. The existence of well documented plans may inertia and lack of flexibility to adopting to change – hence our budgeting can be unduly cumbersome and expensive.
  5. Variances are just as often due to changing circumstances and poor forecasting to the above, Osisioma 1990 is of the view that “Budgeting is an accounting process and also a managerial process and a systematic formalized approach for accomplishing the responsibilities of management. He specifically stated other roles of budgeting which includes feed forward and feed back.  He identified budgeting as a two way communication system.

Hand 1985, stated that —- “the advantages of budgeting are planning decision making, co-ordination, control and motivated.  These can be seen as potential benefits only, if the budget system is carefully designed and effectively managed, these benefits should be gained.

Also among what he discussed were the most important problems of budgeting which are those relating to responsibility, accounting, target selling and slack.  He stated that carefully designed and effectively managed budgets are very vital to attainment of the budget objectives but it should also be noted that the problem which he stated set in with the least negligence of these two factors.  The researcher has not seen any opposing view to the above assertions.  So based on these facts the roles of budgeting cannot be over emphasized as they are self evident truths.


Management and accounting literatures revel that there are numerous  varieties of budget.  Unamka 1986 stated that “some budget can be based on Resource Allocation, organizational structure and programmes, others depend on their focus on either expenses, revenues or profits”, The special focus depends on the types of responsibility as determined by the nature of work activities.

A Government or Local Government budget as we know it is an estimate of revenue and expenditure for a year ahead chargeable to the revenue and capital accounts. It is therefore an attempt to link proposal receipts and expenditure with desirable future events which involves the selection of ends and selection of means to achieve those ends.  It determines the allocation of scarce resource to various interest groups or competing programmmes and project for a specified period of time and used for policy formulation and implementation.  Budget is both a means of planning and control.

Local Government budget are prepared in line with the public budgetary systems.  pubic budgets are of two main types:-

  1. Recurrent Budgets: This deals with recurrent items which occur from year to year, month to month and even on weekly or daily basics.
  2. Capital Budgets: This deals with fixed assets and long term capital projects.  Each is subdivided into two estimates namely:-
  3. Expenditure and Receipts or Revenue

Thus we have:-

  1. Capital Receipts or Capital revenue
  2. Capital expenditure
  3. Recurrent Receipts or Recurrent Renenue.
  4. Recurrent Expenditure

They are made up of:-

  1. Sales of fixed assets e.g motor vehicles.
  2. Sales of investment e.g quoted and unquoted share development shock.
  3. Domestic and external borrowings
  4. Special grants for particular projects e.g state, federl or international Agencies.
  5. Transfer of fund from the capital development fund for capital project.

Capital receipts are utilized for capital only.  It is the

utilization of the fund accruing from capital receipts that

are classified as capital expenditure


  2. Purchase of fixed assets
  3. Purchase of quoted and unquoted investments
  4. Granting of long term loan to sleff.
  5. Research and development expenditure
  6. Constructions of Road, schools, markets, public building.
  8. Internally generated funds such as taxes, rates, licensees fine, tens, earnings as sales from commercial under taking interests and dividends.
  9. Share of the statutory allocation from federal and state Government which is 48% of federal generated revenue (Federal Appropriation) and 24% of total generated revenue generated by the state (State Appropriation) Grants from federal and state Government and Agerncie (Non statutory, Non project Receipts). In short, recurrent revenue is all earnings accruing from various sources, others, the capital receipts.
  10. Recurrent expenditure refers to expenses that continously reoccur such as personal costs and overhead cost (Administrative expenses, acttiliary and other charges.)
  12. Remuneration to the executive arm of the local government.
  13. Salaries and allowance to the legislative Arm of governmentt of the council.
  • Personnel management division
  1. Internal audit section
  2. Planning and budgeting section
  3. Adult education
  • Health and social welfare
  • Primary health care and preventives
  1. Community development
  2. Information, sports and culture
  3. Agriculture and Natural resources
  • Commerce and industries
  • Planning research and development
  1. Overhead cost Includes:
  2. Travel and Transport
  3. Utility services
  4. Telephone, Telegraph, Postal services
  5. Stationary and printing
  6. Maintenance of office furniture and equipments.
  7. Fueling and maintenance of official vehicles.
  8. Maintenance of capital assets.
  9. Consultancy services and special committees
  10. Grants, contribution and subventions
  11. Training of staff, development and welfare
  12. Entertainment and hospitality
  13. Miscellaneous
  14. Contribution/subventions to international organization
  15. Motor vehicle/cycle/bicycle advances
  16. Common services
  17. Provision to services and material
  18. Contribution to pension fund.


Several techniques of budgeting exist but the research will discuss only those related to her course of study.  Among those are:-


Under this, a fixed ceiling in amount, quantity or percentage is established in advance which the budget estimates cannot exceed public budgets (including local government) tend to follow this technique of budgeting.

In this case, the chairman of the local government may give each department specific instructions regarding the total ceiling figures of which department or project under construction must not exceed in making budget estimate recommendations.

The greatest problem encountered in this method is the problem of setting a  programme either too high or too low.  The targeted limits are usually subjective.  However, fixed ceiling budgeting acts as a guide for sub-ordinates in preparing their budget estimates.


This approach requires the budget estimator to indicate priorities of items included in the budget request.  This method assists the decision maker to determine possible areas where cut backs or items scrapping can be made.



This is an approach by which the budget estimates identify items by item increases or decreases are compared to the previous years budget.  Special explanations are required for the increase.  The basic weakness with this approach is the fact that it does not require the comparison of relative values for the old and new estimators.



This approach is too demanding for the management  capacity of local government at its present stage of development.  It requires effective administration, good communication and specialized training. It needs skillfulness in identifying appropriate decision units, developing adequate data to produce an effective analysis determining the minimum level of efforts and ranking similar or dissimilar programmes as well as handling large volume of data.

Zero base budgeting approach includes objective setting, programme evaluation and operational decision making and budget making.  The zero base budgeting procedures requires the local government authorities to evaluate and review all programmes systematically in terms of out and cost to emphasize management decision making, number-oriented budget and analysis.

Zero base budgeting approach involves  four steps.

  1. Analyse base decision package
  2. Evaluate and rank all decision package to develop appropriate requests and;
  • Prepare the detailed operating budget.

Decision package is the building stock of the zero base

approach.  The decision package identifies and describes each decision unit in such a manner that management can evaluate it and rank it against other decision unit completing for fund and make decision either to approve or disapprove it.

A pragmatic approach to zero base budgeting and

reducing programmes to ensure performance output and reduction.  This method can also be used to reduce or climate low priority programme.

Zero base budgeting was initially pioneered by P. Phyrr in the United State of America in early 1970s.

Zero based budgeting is defined as a method of budgeting hereby all activities are re-evaluated each time a budget is formulated.  Each functional budget starts with the assumption that the function does not exist and is at zero cost.


It is the duty of the Local Government Budget Committee ideas the guidelines for the preparation of their annual budget, once this is done, the budgeting process starts with the collection of data by the various heads of department in the Local Government through their respective sectorial heads.  The data collected will relate personal projects (New, Old and Abandoned), services equipment and finance.

Budget estimation requires relevant and considerable amount of information for decision taking.

These types of information are:-

  1. Programme Information : This refers to data of about what the local government does and the accomplishment of these activities.

Rescue information:    This refers to the inputs necessary to perform the activities which includes amount of money, facilities, equipment supplied and manpower.

The problem with most local government in the country is that they do not have readily available data to aid budget estimate.  Also they do not make deliberate efforts to gather information about themselves which aid them in planning and budgeting.  Part of the problem is ignorance and inability to determine what information they need for rational planning and budgeting.  Without proper and adequate data local government cannot adequately tackle their problems.

Every Local Government is expected to create a department of planning, research and statistics which will be responsible for planning, budgeting and project monitoring.  The subsection below takes a look at the several activities involved in a preparation of budgets.



The determination of the principal factor in the first step is budgeting.  It is that factor which influences and constraints the operations of the local government.  It should be identified at the initial stage of development

In order to ensure that the budgets are reasonably capable of fulfillment.  It may not be the same for each budget period as circumstances may have changed.  The factor determines priorities in budgets.  It is not a permanent factor. Example of the Limiting factors in local government


  1. Personnel: General shortage, shortage in certain key poritions.
  2. Management : Lack of know how, insufficient executives restrictive policies.
  3. Revenue : Low market demands, insufficient advertising or due to lack of money.
  4. Machinery and equipment : Insufficient capacity due to:-
  5. Lack of capital
  6. Lack of space
  • Lack of market  

The principal budget factor or limiting factors are noted

and actions needed to overcome these, one considered having due regard to the necessary actions and their likely estimated cost, the forecast which appear to represent most efficient overall plans is selected, optimum combination of five casts are co-ordinated and selected and finalized into the annual budget estimate.  Fore casting is a very important activity because the effectiveness of the budget depends on accurate forecast.



Often it is found necessary to codify the procedures for budgeting into a comprehensive instruction book such a book in called the budget manual.  It contains a set of instructions, codes and polices to be adopted from year to year.  It is means to inform and guide anybody who is budgeting.  The contents of the budget manual depends on the type of the organization but generally according to Nwoko 1993, it tells what

To do, how to do it, when and what, form to do it on.  It also states who shall do what in fact, it is the budget time table.  In particular the budget manual contains the following:-

  1. Statement of procedures and objectives of budgeting.
  2. Cost codes
  3. Budget time table
  4. Cost and budget centres, and their codes
  5. Report time table
  6. Expenditure authorization, etc.

The budget manual sets out into various action that must be taken to formulate to budget and careful works out a time table specifying the order in which the several parts of the budget are developed and the time when each budget are developed and the time when each must be completed.  The budget time table will usually set out matters including the following:-

  1. Setting budget guidelines and objectives
  2. Making key budget
  3. Initial preparation of other budget components
  4. Negotiations to evolve the final palns of each budget.
  5. Review and final approval.
  6. Distribution of the approval / budget

2.5.3           THE BUDGET COMMITTEE

The planning and budgeting function is with the chairman of the local government.  This he cannot do sole handely.  Because of this, immediately he calls circular arrives from the state government, the chairman of the local government will constitute a budget committee which  will consists of heads of departments.   This committee will prepare proposals and draft estimates to be headed by the chairman of the local government to ensure prompt action and co-operation as well as the inclusion of his promised political and economic programmes.  The treasurer who is a member of the budget committee will assist the committee as financial expert in the capacity of a budget officer.  The committee is charged with the responsibility to guide the work of budget preparation and administration.  The work of the committee is to provide technical assistance and data to co-ordinate the separate budget prepared by the various organizational units, resolve the differences among them on the one hand, and between them and corporate polices on the other, and submit a draft budget to the executive branch of the local government administration for deliberation and consultation.  The executive branch forwards or tables the budget draft/estimates to the local government before the legislature for debate and subsequent approval.  After the draft budgets have been passed by the legislature, the amended draft budgets returned to the executive branch which affects the amendment and produces the approved annual budget for the local government.



It is normal to look at a budget as a single complete unit.  Although it represents a single co-ordinated plan, it is really an assemblage of units with separate major budgets for revenue generation and its expenditure to the use of local governments. The single completed budget for an organization is called a master budgets and the assembling of the component budgets into this whole is the budget officers responsibility.

Budgeting process is made up of the planning and controlling sections.  The feed back marks the end of one budgeting process and the beginning of another budget aycle. The feed back is used to ++


Make decisions.  The decisions may amend, uphold or abandon project plans.  The decisions may also aid some control measures and in rare circumstances the strategic and corporate plans.

The research illustrated the budgeting process with a chart for easier understanding of the budget process.

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