Thread by @busanga

One of the most poorly understood concept in budgeting is this broad division into capital and recurrent budgets. While it is true that this separation is nearly always never black and white, it will also be wrong to assume more capital budget means a better budget than recurrent

Capital budgets for a growing and developing country is inevitable. You must build infrastructure, spend on military and critical social investments (hospitals and schools). However, when you build - you must maintain & staff. That is recurring. #budget2021

So for every high capital budget year, there will inevitably be subsequent year spendings to maintain, to staff and control and to sweat the asset to realize the value for which it was invested.Hence, capital budgets rise in investment cycles but recurrent spending always goes up

Hence the budget paradox is such that when you go on a building binge, with high capital budget, you would have inevitably set yourself up for future high recurrent spendings to maintain that infrastructure or you lose your investments.

Unless of course you’re Nigeria, where we always thing recurrent spending is a waste and capital projects (read contracts) are always lucrative patronage. Remember Nigeria in the 80s & 90s? We failed to do this. We lost our rail, pipelines, refineries, roads, power & universities

On the back of the massive capital investments of the 70s financed by Oil boom and Paris/London club debts, we went into SAP that cut recurrent expenditure, decimated the civil service and failed to budget for maintenance & watched as our National Assets went to rot. Sad.

Of course, the lack of sustained investments in these sectors as the population expanded and our inability to offload those assets that were commercial such that they could be run by the private sector sustainably for profit like NEPA, NNPC, NITEL or NRC were equally disastrous.

Now back to the capital/recurrent expenditure dichotomy, we are now back in a building cycle which we have no choice but to undertake. We‘re pumping money in infrastructure & rebuilding what was lost. Let us not delude ourselves that recurrent won’t need to go up in coming years

It is the nature of competitive democracies that governments respond to popular understanding of economics in structuring budgets. We, the people as such must understand that as we grow and develop, we will need less capital (push more to PPP) and more recurrent spending.

Advanced democracies world over, have overwhelming portion of their government expenditure in recurrent programs - often social programs; as well as to feed the beast of government workers or to service the infrastructure base built up in years past. USA example here.

Discretionary spending (a relative small portion of which is capital) is 29% of US budget. The balance are entitlement programs - or pure RECURRENT expenditure. Even the discretionary, less than a third of 600bn is capital even after adding military hardware. 15% is their number

As we finish building physical infrastructure in years to come and move to build social infrastructure with the tax base to match, my expectation is that our social investment program spendings will rise and recurrent will rise in tandem; it is the nature of the beast.

Indeed, we should be more concerned about the low level of revenue and spending in General for Common Public Good that is required to grow the economy, as well as the value for money currently spent rather than this recurrent/capital dichotomy. google.com/amp/s/business…

Speaking about value for money, Nigeria should be spending heavily on human capital development in 2020 to grow over the long term, in which case recurrent will grow exponentially. Social investment programs and education will be recurrent laden. That is a value for money FOCUS.