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CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The term budget refers to a plan. quantified in monetary terms, prepared and approved by appropriate authorities prior to a defined period of time, usually showing planned income to be generated and / or expenditure to be incurred during that period and the capital to be employed to attain a given objective. In Nigeria since independence. the specific objectives of the national• budget include; enhancement of increased production and productive capacity; encouragement of export promotion and growth; agriculture and solid minerals, as the nation's major foreign exchange earner; improvement of capacity utilization in the manufacturing sector and local sourcing of raw matctials through targeted incentives; alleviation of poverty, creation of jobs and promotion of industrial peace and reduction of inflation. Others include; enhancement of scientific and technological development to lay a firm industrial base; drastic reduction in fiscal deficit through the curtailment of wasteful spending; Stringent control of extra budgetary expenditure; encouragement of greater participation of the private sector in the economy with a view to the eventual emergence of that sector as the engine of growth; engagement in guided deregulation in the management of foreign market and interest rates; management of foreign exchange market so as to narrow the gap between the official and autonomous exchange rate; transfer of money from wasteful recurrent avenues to capital development through generous funding of the productive sectors. and ensuring stable and consistent macroeconomic environment.

According to Onyema (1999) there is hardly any aspect of human endeavor that does not have some economic implications because economics as .a science is essentially concerned with the study of scarce resources, their allocation, management and utilization. In preparing budget proposals therefore, there are competing demands for the resources at the disposal of Government to solve a limitless number of problems. Hence. the appreciation of this would be immensely useful for the overall development of the economy in a manner that will achieve balance among different types of expenditure and ensure that the marginal return to expenditure is the same for all of them.

Anyanwu (1998) opined that since the inception of SAP in Nigeria in 1980. the fiscal operations of the Federal Govemment have been resulting in overal deficit. notwithstanding budget surplus that were anticipated each year. The resultant effects of this are persistent decline in real output caused by lower foreign exchange earnings and reliance on credits from the banking sector, to finance the deficits", macro-economic  deterioration in foreign reserves and large scale unemployment of afl productive resources.

Within this context therefore, the fiscal operations of the Federal Government when budgets are inadequately controlled resulting in deficit are financed through the use of taxes as well as external and internal borrowing instrument. This influences the economic activities of the nation in desired ways and is also used in sustaining the allocation of resources between the public and the private sectors and their use for attainment of stability and growth, However. out of the three major instruments of fiscal policy. the concern herein is with the expenditure financing of the Government; since the quantity of money available for spending depends on the volume of taxes or revenue generated as well as the amount of borrowing the Government is prepared to accept or support.

There has been a persistent and substantiat increase in the total expenditure of the Federal Government since 1986 (Ekerendu 1997). The expenditure programme comprises debts services payment on both external and domestic nondebt recurrent and capital expenditures, payment for contractual obligations. etc. One implication of this uncontrolled budget expenditure is that Govemment expenditure exceeded the revenue estimates, hence budget and fiscal operation deficits. Thus. the crucial issues confronting the Government is how to adequately control budgetary expenditure in order to have a sustained balance or surplus budget that will enhance economic development. Sanusi (1993) noted that there is the wrong perception of the role of the private sector which ought to be the engine of growth as unpatriotic outriders" rather than what they are Upartners with Government in the task of development". White budgetary gap. Akinyete (1993) comments on the faulty implementation of the budget. adding that Nigerians have never been short of ideas but lack the ideals fo make ideas work. Brume (1993) listed corruptive system inefCciency arising from under utilization of trained manpower, tong term absence cf democratic structure in govemance as culprits.

Budget serves as the melting point at which most other policy instruments find operational expression, hence provides the framework for implementing the short. medium and long term components of the national development policies and programmes. Besides. the macro-economic and sectoral impact of the poficy framework of the budget, judicious implementation of capital programmes generates growth directly apart from stimulating activities in various sectors. Therefore, having established the rationale behind Federal Government fiscal deficits, instruments of financial and ineffective budgetary control processes, a thorough examination of budgets and budgetary control processes in Nigeria becomes justifiable.

1.2       Statement of the Problem

In spite of the fact that government at all levels prepares budget annually, key macroeconomic variables such as inflation and unemployment are seen to be growing on a regular basis. This study examines whether budgetary system can be directed toward the achievement of macroeconomic objectives. This study attempts to provide answers to two key research questions: (i) How can budget be used to regulate business operations? (ii) To what extent can budget be used as a tool for economy engineering? Economy engineering in this study means government decision on economy direction. Hence, this study will investigate the economy without a budget.

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