Tag Archives: Expenditure

ACCOUNTING SYSTEM IN THE PUBLIC SECTOR

APPRAISAL OF ACCOUNTING SYSTEM IN THE PUBLIC SECTOR

ABSTRACT

This research aims at providing an insight of the accounting system in the public sector, a study of Board of Internal Revenue of Enugu state. The purpose of this research is to examine the Board whether it is efficient and effective. The method employed for data collection in this study is survey method which include: questionnaires direct interview and the methodology used to determining the sample size is sample percentage. The statistics were employed to analyze method employed for data collection in which 34 questionnaires were distributed among the accounting personnel of the board of internal revenue of Enugu state. And all were returned the major finding were that out of the total population of 37, the sample related was 34 accounting staff, the researcher found out that accounting system in the public sector is not effective and dose not provide for proper financial control and accountability. The study recommend that the Board Of Internal Revenue of Enugu State should set up efficient financial control system and organize in-service training programmers for its staff in order to make them familiar with the accounting system or procedure of the Board. Based on this employment of staff who have prior knowledge of Government accounting will no doubt help to ascertain the adequacy and effectiveness of the accounting system in the public sector.

CHAPTER ONE

INTRODUCTION

1.1     Background of the study

The practice accountability for public funds dates back to the history of the ancient Greece. As old as theory is, it would not be erroneous to say that the idea has been equally lost to antiquity although not much is known about it, this makes the subject, government accounting to remain a myth.

However, there is general awareness all over the world of the need to pay greater attention to the development of government accounting and financial control. The reason is obvious, government, in most , if not all nations constitute the economy. Government in any society is basically for maintaining law and order. With changes and the complete nature of the society, government responsibility has automatically changed from the role of maintaining law and order to business like nature in the modern era. The enormous activities of government, equally call for enlarged government accounting in order to accommodate the innense task. As a result of this development, the traditional cash procedures of accounting can hardly meet the demands of reasonable accounting for modern government in providing necessary for information. Therefore there is need for government accounting to be dynamic in order to accommodate both the fundamental roles and the developments.

Government accounting is the process of recording, analyzing, classifying, summering, communicating and interpreting financial information about government in aggregate and in detail, reflecting all transactions involving the receipts, transfer and disposition of government funds and property. The purpose are to demonstrate the propriety of transactions and their conformity with established rules to give evidence of accountability for the stewardship of government resources and to provide useful information for the good control and efficient management of government operation.

Financial management in public services as can be observed has failed to encourage and promote the efficient utilization of public funds or serve as effective basis for planning and decision making as well as to ensure proper accountability. Besides, it does not mean that financial irregularities being detected in public sector at large is basically based on traditional cash procedure of accounting but it dose arouse a question whether the modern system of accounting will make both modern management and financial management viable. 

1.2     Statement of the Problem

 The problem of this research is to identify these weaknesses and limitations inherent in the cash accounting system of the public sector ( in relation to the accounting system of the sample ministry).

This is with a view to propose means of eliminating them completely or at least reducing them to the barest minimum. Put in question from, what are those weaknesses and limitation that militates against adequate and efficient accounting system and financial reporting in the public sector and how can they be eliminated?

Some of these problem witnessed in the public sector includes: the lack of accountability and abuse of delegated authority by the officers in authority, fraud and misappropriation of governmentfunds, as well as lack of expertise and business acumen on the part of those officers. Due to the fact that government operation have been termed “Non-profit oriented operations”, there is no pressure on the part of these government officers to preformup to optimum expectation, accounts are kept in messy shape while the officers get away with lack of proper accountability.

This research is carried out in order to examine the extent to which proper accounts are being kept in the public sector and to offer solution to the inherent problem discovered. The Enugu State Board Of Internal Revenue has been used as a sample ministry for this research for this work.

1.3     Objectives Of The Study

This cardinal objective of this study is to determine strength of the accounting system existing in the public sector.

The specific objective include the following.

  1. To determine the extent to which the sample ministry has installed an accounting system.
  2. To determine the factors that promotes or constrain the accounting system of the sample ministry.
  3. To determine the impact of the accounting procedures of the sample ministry upon its financial reporting.

1.4     Research Questions

Three dominant questions being reviewed by this research include;

  1.  Is the accounting system in the public sector effective and adequate?
  2. Does the accounting system in the public sector provide for proper financial control and accountability of stewardship?
  3. Does the accounting system in the public sector provide useful information for the effective control and management of government operations?

1.5     Research Hypothesis

H0 The accounting system in the public sector is not effective and adequate.

H1 The accounting system in the public is effective and adequate

Ho The accounting system in the public sector does not provide proper financial control and      accountability of stewardship.

H1 The accounting system in the public sector porvied proper financial control and stewardship

Ho The accounting system in the public sector does not provide useful information for the effective control and management of government operation.

H1 The accounting system in the public sector provide uesfu information for the effective control and management of government operation.

1.6     Significance of the Study

This research paper is intended to examine the accounting system common in public sector with a view to exposing and highlighting the inherent limitation in the system. Therefore the research paper will be of interest and useful to the general public the government as well as the governed.

Government entrust public funds in the hands of its officials hence government reporting has traditionally stressed stewardship. Original accounting emphasis has been directed towards measuring the public funds generated and expended by the government programmer or activities. The traditional reporting approach is filled with many weaknesses of what it is hope that this study will make useful recommendation on how to improve upon the accountability and financial reporting system of the government.

The duty to report all its financial activities to the general public is a debt that government must pay. Such report will enable the people know how public funds entrusted in the hands of the government have been utilized, this type of report is very sensitive and useful to the public but very few of them ( the public) can understand it. This study will serve as a useful medium to such member of the public who find government financial reporting very ambiguous and hard to understand.

In many institution of higher learning the accounting curriculum offered is tailored specifically to provide students with an understanding of financial reporting as it relates to profit oriented enterprises. For the purpose. Students are frequently surprised to discover that the basic framework of financial accounting is significantly altered when the profit motive is removed. Though the accounting terminology may initially appear to resemble foreign language to all students of accountancy, and related professions who always depraved of knowledge of accounting system of the public sector this study will be very useful.

Moreover, potential researcher in this aspect of accounting will fine this research paper a very reliable reference base.

1.7     Scope and Limitation of the Study

As the research topic would suggest at a glance, the scope of this is essentially focused on the accounting system of the sample department as a general overview sample study of the accounting in the public sector. Therefore, this study will look into the nature of the accounting system of the sample ministry; how the system operates, the relevance of the system to the environment problems and prospects of the system.

Limitations

This aspect of accountancy ( as pointed out above ) has received very little attention from scholars despite its long historical age. Consequently, there is few literary publication on the student; the researcher was therefore limited to reviewing few literature which are mostly in origin, through relevant to the study.

Government establishment are well known for maintaining utmost screening as regard their operations, more so, where its is a study that concerns their financial operation the researcher found it difficult to obtain material relating to the study (that is literature) and some officials who have been very elusive and uncooperative. More so the bureaucracy and protocol the research went through to obtain material and an appointment has been very discouraging.

Due to all this constrains, the researcher cannot say for certain whether the study has covered very rutty gritty of the sample ministry as regards its accounting systems and procedures, but one thing is certain, enough materials have been gathered to help express an opinion as to the operation of the sample ministry.

Apart from the above listed limitations witnessed by this researcher is time constraint. This is a major limiting factor as the time between approval of the study and the deadline for submission was very short. The researcher relied heavily on the good will of the research supervisor because he understand my plight. Again lack of sufficient funds to conduct an extensive study was another handicap.

This was part of the reason why I had to limit my work to fewer staffs then was earlier planned.

1.8     Definition Of Terms

Every field, discipline or profession has its terminology. Therefore, government accounting can never be an exception. In order to ensure easy understanding by the users of this work in relation to government accounting which are extensively applicable in public sector and or which have different meaning from private sector interpretation and usage are here by define below:

(1)     Accounting Entity: clearly defined economic unit which

  1. Engages in identifiable economic activities
  2. Control economic resources (for which accounting records are maintained and periodic financial statement is prepared.
  3. Is distinct from the personal dealings of its owners or employees. To ensure that the fundamental accounting equation always refers to the same distinct entity the boundaries of the unit, once established must not be managed arbitrarily also called reporting entity.

Accounting entity is in the accounting and auditing, banking commerce and finance and corporate, commercial and general law subjects.

Accounting entity appears in the definition of the following terms; accounting change, reporting    entity, combination fund and accounting policies.

(2) Accrual Accounts: The principles of “accruals” makes a distinction between the receipt of the cash and the right to receive it, and the payment of cash and the liability to pay it, stressing the importance of the right to the assets or the legal obligation in favors of the movement of the cash.

(3) Annual Appropriations: These are issues required to meet the expenditure of the state other than those covered by direct issues from the consolidated Revenue Fund

(4) Capital: is a plan of action quantified usually in monetary unit to serve as a guild for the achievement of government objectives.

(5) Cash Accounting the recording of the transaction in which revenue and expense are reported ( cash inflow and outflow ) in the period in which the related cash receipts and payment occur. The wide spread use of cash accounting in public sector result from the governments historically based requirement for financial information that shows fiscal compliance.

(6) Capital Budget: this is the budget that sets out the proposed acquisition of fixed (long term) assests or project and their finance.

(7) Depreciation: a non-cash expense that reduces the value of an asset as a result of wear and tear, age or obsolescence. Most asset lose their value over time (in other words, the depreciated), and must be replaced once the end of their useful life is reached. There are several accounting methods that are used in order to write off an assets depreciation cost over the period of its useful life. Because it is a non-cash expense depreciation lowers the company’s reported earning while increase free cash flow. Although, government accounting does not recognize depreciation and this is one of the criticisms of the system.

(8) Encumbrance: is an expanse, which is both contingent and estimated. Obligation in the from of purchase order contact or salary commitments which are chargeable to an appropriating and for which a part of the appropriation is reserved. These obligations ceases to be encumbrance when paid or when paid or when the actual liability is recorded. This term no equivalent in the private sector accounting since unperformed protions of executing contracts are not recognized in the accounts

(9) Estimated Revenue (Budget) if the accounts are kept on the accrual basis this term designates the amount of revenue estimated to accrue during a given period regardless of whether or not it is all to be collection during the period.

(10) Expenditure (Actual Expenses): this is expenditure chargeable to an appropriation.

(11) Fixed Assets: A long- term tangible assets held for business ues and not expected to be converted to cash in the current or upcoming fiscal year, such as manufacturing equipment real estate and furniture (also called plant)

(12) Functional Budget/Programme Budget: a budget that allocates costs (or inputs) to particular functions or activities.

(13) Fun Accounting: this is basically operated on cash basis it si an accounting arrangement whwereby self-balancing set of accounts are provided for specific purpose. This system accounting is usually used by non-profit organization and by the public sector.

(14) Fund Balance: the excess of assets of a fund over its liabilities are reserves, except in the case of funds subject to budgetary accounting where prior to the end of a fiscal period. It thus represents the excess of the funds assets and revenuesfor the period over its liabilities reserves, and appropriatios for the prriod.

(15) Historical Cost Accounting: the traditional system of accounting that is based on valuations made in terms of the price ruling when transactions take place. In practice this is modified by the concept of prudence and the possible revaluation of fixed assets.

(16) Revenue (Actual Revenue): is that revenue which are recorded on accrual basis, this term designates additions to assets which. Do not represent the recovery of the expenditure. Do not represent the cancejjaton of certain liabilities or without a corresponding increase in other liabilities or decrease in assets.

(17) Warrant: Authority for expenditure from the consolidated Revenue fund covered by the appropriation law in respect of recurrent budget or from the capital development fund is the case of a capital budget.

 

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REVENUE GENERATION AND DEVELOPMENT OF LOCAL GOVERNMENT AREAS

REVENUE GENERATION AND DEVELOPMENT OF LOCAL GOVERNMENT AREAS

ABSTRACT

The study examined Revenue Generation and the Development of Local Government Areas with reference to Umuahia North Local Government Area as a Case Study. Objectively, three research questions and hypotheses were formulated. The survey design was used in the study. The sample size was 133 out of 200 staffs of Umuahia North Local Government Area of Abia State. 133 questionnaires were administered to the respondents. The data gathered were analyzed using SPSS Package Version 17. The findings revealed that there is a significant relationship between statutory allocation to local government and the government developmental effort; Revenue from Value Added Tax has significant impact on government capital projects … . Based on the findings, conclusion was drawn and recommendations given that machinery should be set to draft bye – laws with expediency for possibly legislation; the local government chairman should ensure that machinery be in place to generate more revenue internally to enable them do more development projects; the local government authorities should not be over dependent on statutory allocation from the federal government; training and re-training programmes for the revenue officials should be organized to enable them meets the challenge of the new millennium … . 

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

Revenue generation in Nigeria local governments is principally derived from tax. Tax is a compulsory levy imposed by government on individuals and companies for the various legitimate function of the state (Olaoye, 2008).

Tax is a necessary ingredient for civilization. The history of man has shown that man has to pay tax in one form or the other that is either in cash or in kind, initially to his chieftain and later on a form of organized government (Ojo, 2003).

No system or rules can be effective whether foreign or nature unless it enjoys some measures of financial independence. Local governments in Nigeria have developed over a number of years. Historically, the development of direct taxation in local government in Nigeria can be traced to the British pre-colonial period under this period, community taxes were levied on communities (Rabiu, 2004).

Recently the revenue that accrues to local government is derived from two broad sources, via the external sources and the internal source.

An effective Local Government system rests majorly on the availability of human and material resources which the nation could mobilize and harness for local governments development. In 1976, the Federal Military Government then issued guidelines on local governments reforms. The reforms which gave recognition to local governments as the third tier of government whereby government activities at the local level were taken care of. In 1988, another reform of local government was established. This gave a substantial and unprecedented reform of autonomy to the local governments in the country. With this autonomy, greater responsibilities devolved on the local government therefore, became a common knowledge that most of the local government are finding it difficult to cope with the present level of responsibilities.

The principal aims of creating local governments were as follows:

  1. To serve as the third tier of government through which appropriate services and development are made in response to the wishes of local community through their representatives.
  2. To serve as an intermediary between government at the center and local communities.
  3. To mobilize and utilize both human and material resources by engaging the people at the local level in the government activities.
  4. To facilitate the exercise of democratic self – government closer to the grass root of the society and to exchange initiative and leadership potential.

Mostly, all local governments in Nigeria do no longer perform their responsibilities simply because of poor finances arising from adequate revenue generation drive. The bad financial situation is further aggravated by the prevailing inflationary situation in this country which erodes the value of funds available to render essential social services to the people. Development is highly associated with fund, much revenue is needed to plan, execute and maintain infrastructures and facilities at the local government level. The needed revenue generated for such developmental projects like construction of accessible roads, building of public schools, health care centers, construction of bridges among others are sources generated from taxes, royalties, haulages, fines and grants from states, national and international governments. Thus, the Local government cannot embark, execute and possibly carryout the maintenance of these projects and other responsibilities without adequate revenue generation.

This is the basic reason why development is skeletal at some Local Government councils in Nigeria. The revenue generation is not exceptional to Umuahia North Local Government area in Abia state

1.2     Statement of the Problem

The local government is faced with myriads of problems ranging from corruption and embezzlement, poor financing, mismanagement of funds to poor leadership. This has deterred the development of local government in Nigeria.

The major issues are; what has contributed to the non-performance; is it because of total dependence on federal and state statutory allocation? Is it as a result of poor internally generated revenue drive? Is it because of ineffective utilization of available scarce resources or mismanagement by public office holder? Among others, certain percentage of the statutory allocation has always been deducted by the state government thereby causing the local government to underperform which includes; Dilapidated infrastructural facilities, Unavailability of social services to rural populace and Underdevelopment of local communities.

Based on the above stated problems, it has become necessary to conduct an analysis on revenue generation in Umuahia North Local Government area of Abia state.

1.3     Objectives of the Study

The broad objective of this research is to evaluate revenue generation and development of Local Government Areas with particular reference in Umuahia North Local Government Area of Abia State.

The specific objectives are;

  1. To examine the relationship between statutory allocation to the local government and government developed effort.
  2. To ascertain the extent which value added tax has contributed to government developmental effort.
  3. To evaluate the extent to which internally generated revenue has contributed to Local government development and it various sources.

1.4     Research Questions

The following research questions were formulated for this study.

  1. What is the relationship between statutory allocation to Local Government and Government developed effort?
  2. How has value added tax (VAT) contributed to Government developmental effort?
  3. To what extent has internal generated revenue contributed to Local Government development and its sources?

1.5     Research Hypothesis

A hypothesis is a theoretical conceptualization or an idea or guest regarding how the researcher thinks the result of his study will look. It consists of a set of assumptions accepted previously as a basis of investigation. It is a proposition that is yet to be tested for its validity.

For the purpose of this research study, three null hypotheses were formulated.

H01:There is no relationship between statutory allocation to Local Government and Government developed effort.

H02: Value added tax has not contributed to Government developmental effort

H03: Internal Generated revenue has not contributed to Local Government development and its sources.

1.6     Significance of the Study

From the outlook, there is need for the local government to improve their performance. However, the research is significantly considering the closeness of local government to the grassroots’ people and the need to utilize substantial revenue for its various sources in addition to federal and state statutory allocation for developmental purpose.

The study will help to identify some means of generating revenue that has been neglected over years.

It will also be beneficial to the grassroots because improved revenue generation means improved standard of living in form of provision of social amenities such as road, hospital, park, drinkable water, rural electrification etc.

The study will be educative as it will be a reference point for researchers.

1.7     Scope and Limitation of the Study

The study would appraise the revenue generation for the period of five years (2006-2010) in Umuahia North Local Government Area.

This study has some limitations most especially in the area of data collection which is to be covered and has time duration of five years (i.e. 2006–2010).

Financial constraints as well as time available for the completion of the study are among other factors that would limit the scope of the study.

1.8     Definition of Terms

Local Government: is a form of public administration which in a majority of contexts, exists as the lowest tier of administration within a given state. The term is used to contrast with offices at state level, which are referred to as the central government, national government, or (where appropriate) federal government and also to supranational government which deals with governing institutions between states. Local governments generally act within powers delegated to them by legislation or directives of the higher level of government. In federal states, local government generally comprises the third (or sometimes fourth) tier of government, whereas in unitary states, local government usually occupies the second or third tier of government, often with greater powers than higher-level administrative divisions.

Revenue: The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the “top line” or “gross income” figure from which costs are subtracted to determine net income. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Revenue is the amount of money that is brought into a company by its business activities. In the case of government, revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral rights and resource rights, as well as any sales that are made.

Income Generation: Money that an individual or business receives in exchange for providing a good or service or through investing capital. Income is consumed to fuel day-to-day expenditures. Most people age 65 and under receive the majority of their income from a salary or wages earned from a job. Investments, pensions and Social Security are primary sources of income for retirees. In businesses, income can refer to a company’s remaining revenues after all expenses and taxes have been paid. In this case, it is also known as “earnings”. Most forms of income are subject to taxation.

Expenditure: Payment of cash or cash-equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or other such document. See also revenue expenditure, capital expenditure.

Tax: An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities. In the investing world, this is one of the most important types of taxes and, therefore, one of the most highly debated types of tax is capital gains tax. Capital gains tax represents the tax paid on the increase in value made on an investment.

Tax Evasion: An illegal practice where a person, organization or corporation intentionally avoids paying his/her/it’s true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties. There is a difference between tax minimization/avoidance and tax evasion. All citizens have the right to reduce the amount of taxes they pay as long as it is by legal means.

Tax Avoidance: The use of legal methods to modify an individual’s financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal. Most taxpayers use some forms of tax avoidance. For example, individuals who contribute to employer-sponsored retirement plans with pre-tax funds are engaging in tax avoidance because the amount of taxes paid on the funds when they are withdrawn is usually less than the amount that the individual would owe today. Furthermore, retirement plans allow taxpayers to defer paying taxes until a much later date, which allows their savings to grow at a faster rate.

Development: The process by which people create and recreate themselves and their life circumstances to realize higher level of civilization in accordance with their own choice and values.

 

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PUBLIC HEALTHCARE EXPENDITURE AND HEALTH SECTOR PERFORMANCE OUTCOME IN NIGERIA

PUBLIC HEALTHCARE EXPENDITURE AND HEALTH SECTOR PERFORMANCE OUTCOME IN NIGERIA

ABSTRACT

Health is one of the most important and crucial factors that determine the quality of human capital, which enables the government to take up the responsibility of providing good healthcare facilities for its citizens through the amount of its expenditure on health. Despite this improvement in healthcare spending, the country still lags behind compared to other countries in the continent. The broad objective of the study is to investigate the specific impact of government healthcare expenditure on health sector performance outcome in Nigeria. However, the specific objectives are not limited to the analysis of the trend and pattern of government healthcare expenditure and its dynamics over the years in Nigeria and also to examine the nature of relationship among health sector performance outcome and public healthcare expenditure variables. Because of the nature and accessibility of historical quantitative data, the study made use of secondary dataspanning from 1981 to 2015. Moreover, in achieving the objectives of the study, econometrics techniques of Autoregressive Distributed Lag (ARDL) approach to co-integration, Vector Auto-regressive (VAR) model using its impulse response functions (IRFs) and forecast error variance decomposition (FEVD), Granger-Causality tests, and as well as Post Estimation Analysis were adopted. Thereafter, we ascertained the stationarity of the time series properties of the research variables, using both the Augmented Dickey-Fuller (ADF), Phillips-Perron(PP) and Kwiatkowski- Phillips-Schmidt-Shin (KPSS) unit root tests. Besides, Johansen Co-integration test revealed that the variables for the models are co-integrated which confirms the existence of long-run equilibrium relationship between the variables. Thus, this suggests that all the variables tend to move together in the long run. The results further showed that there existed inverse long-run relationship between government healthcare expenditure (GEXP), literacy rate (LITR), per capita income (PCIN), number of physicians (NPHY), and health sector performance outcome (HSPO) proxied by infant mortality rate (INMR), while life expectancy rate (LEXR) had direct long-run relationship among the variables such as: LITR, urban population (UPOP), PCIN and NPHY in Nigeria, which are in conformity with the a-priori theoretical expectation. The result of Error Correction Model (ECM) accentuated the connection between public healthcare expenditure and the health sector performance in Nigeria through the establishment of a stable long-run relationship between the duo in the models. The impulse response functions (IRFs) analysis revealed that the results of feedback shocks from outcome performance confirmed that an increasing performance rate of health sector in the country predicted the long run improvement in government healthcare expenditure, number of physicians, per capita income, literacy rate as well as urban population. The forecast error variance decomposition (FEVD) analysis further lent credence to the symbiotic relationship (backward and forward integration) that subsisted between the explanatory variables and health sector performance outcomes. This further amplifies the need for policy reforms aimed at enhancing improvement in the health sector to be embraced. The study among other things encourages the government not only to increase budget allocation but also to guide against diversion of health system funds through a platform that will ensure probity and accountability in the Nigerian health sector, which in turn leads to the achievement of healthy human capital necessary for a sustainable economic development in Nigeria.

 

CHAPTER ONE

INTRODUCTION

1.1      Background to the study      

The word ‘’HEALTH’’ is a state or ability of an individual to live a socially and economically productive life (WHO, 2001). Moreover, health is also one of the most important and crucial factors that determines the quality of human capital, a necessary factor for economic growth and development which is the basis of any activity that man engages in (Olarinde & Bello, 2014). Yet for several decades, as observed by (World Health Organization, 2001) its relevance were not noticed. It was not until recently that the importance of health as a substantive predictor of human capital development and economic growth came to limelight in the international growth literature (Kalemi-Ozcan, 2000; Bent & Oved, 2000) and; (Bloom, Canning and Sevilla, 2005). In fact, when one considers the Arabian proverb, “he who has health has hope and he who has hope has everything” (Nwaobi, 2005) and the popular African saying “Health is wealth” because the first wealth of a nation is its health (Peretovsky, 2006). Thus, it has become imperative that the significance of health cannot be overemphasised. Premised on the foregoing, a consensus of opinion have been formed among empirical researchers recognizing health as a public good, in which the demand and supply of which cannot be left at the mercy of the invisible hands or profit maximizing individual as well as on considerations of utility maximizing conduct alone. Hence, the need for the government to play a major role in delivering good and qualitative healthcare services that is accessible and affordable for the teeming population of the country.

The recognition of the importance of health as a substantive predictor of human capital development led the World Health Organisation (WHO) to propose at the 2010 World Health Assembly, issues that will address financing of health, which will ensure qualitative and affordable healthcare services in the country (Ataguba & Akazili, 2010). The pattern of health financing is therefore closely and indivisibly linked to the quality of health outcomes, capable of achieving the long-term goal of enhancing nation’s economic development (Riman, 2012).

On the other hand, health has also been defined as a complete state of physical, mental and social well being and not merely the absence of illness or sickness (World Health Organization (WHO, 1996). It has remained the most important human asset which enables economic agents to achieve their goals as well as provide a more in-depth analysis of the importance of institutions in determining a sustainable positive health sector outcome with its multiplier effects on development. As Strauss and Thomas (2001) noted, a healthy population would contribute more to the growth of economy as well as to the productivity of a nation compared to an unhealthy one. In other words, the quality of human labour is a monotonic function of its health status through the performance of health sector; and when a population is unhealthy, several man-hours will be lost due to the inability of the sick one to be productively engaged. Also, the issue of health is a very sensitive one because it deals with not just humans but with human body. Without a good health condition it is almost impossible to carry out  any economic activity and if at all there is any, it will certainly not be efficient and so we really have to take the issue of healthcare seriously (Cremieux, Ouellete & Pilon, 1999).

Furthermore, it has been established in the literature that improvement in health care is an important prerequisite for enhancing Human Capital Development (HCD) in every economy. According to Siddiqui, Afridi and Haq (1995, 2002) improved health status of a nation creates outward shift in labour supply curve/increase productivity of labour with a resultant increase in productivity of investment in other forms of human capital. Thus, the level of government expenditure on health determines the ultimate level of human capital development which eventually leads to a better, more skilful, efficient and productive investment in other sectors of the economy (Muhammad & Khan, 2007).

In the light of the above, improving the health status of the people will not only increase their wellbeing, but will also contribute directly to poverty reduction and long-term economic development through the q uality of institutions which in turn lead to multiplier process. Health is therefore, considered a robust engine which accelerates economic growth and development (International Bank for Reconstruction and Development IBRD, 2005).

Lending further credence to the foregoing, the Commission for Macroeconomics and Health (2001) reports that:

“Improving the health and longevity of the poor is not an end in itself, but a fundamental goal of economic development and poverty reduction… the burden of diseases in some low-income countries, particularly in Sub-Sahara Africa stands as a stark impediment to economic growth and therefore must be addressed frontally and centrally in a comprehensive development strategy”.

Suffice to say that, healthcare impacts on economic development by reducing production loss due to workers’ illness, lowers the rate of absenteeism and raises productivity level as a result of better nutrition, sanitation, clean water, basic infrastructure and housing which according to Bleakley (2007) and Babazono (2006) have been shown to be more effective and efficient in health outcome.     

Like a typical production set-up, the provision of the above health-care and health-related facilities utilizes certain amount of capital and other important inputs which are not cost-less. Due to its capital-intensive nature, the health sector in Nigeria becomes discouraging as a result of inadequate healthcare facilities, even where it is available they are antiquated and are usually beyond the reach of the average poor (Gbadero, 2005). In some instances, the people are forced to seek solace in traditional remedy centres which further worsen their ill-health. This is where public investment in the sector is indispensable.

Consequently, international bodies like World Health Organization (WHO) and United Nations International Children’s Emergency Fund (UNICEF) held a conference in 1978 at Alma-Ata, USSR where the concept of Primary Health-Care was articulated as the major key that realising the vision of health as an engine of growth and social justice (Lucas, 2000). Since then, public investment in health has been recognized as a veritable instrument for accelerating economic growth. This further justifies why governments all over the world till today, devoted a significant fraction of their budgets to their health sectors. This is to ensure qualitative and affordable healthcare services for the people in the country, through the intervention of institutional quality.

1.2       Statement of the Problem

Alluding to the introductory facts of this research and as an evidence of its commitment towards the restructuring of the health sector in its fiscal operation, the Nigeria government has taken up the responsibility of providing good healthcare facility for its citizens by improving its expenditure on health. Available data indicated that on the average, about 2.1% to 5.8% of total government expenditure are expended on health within 2000 and 2007 (Mordi, 2010). The belief is that this would improve the health of the citizenry that can translate into healthy human capital base with its multiplier effects on economic growth and development.

Despite this improvement on healthcare spending, the country still lags behind  compared to other countries in the continent. Available statistics have shown that the country’s public expenditure on health as a percentage of GDP is 4.1 percent as against 4.6 percent African average, and over 6.3 percent in developed countries. With these efforts, Nigeria’s overall health status or sector performance outcome has not been so encouraging (Yaqub, Ojapinwa and Yussuff, 2010). Nigeria’s overall health performance was ranked 187th among the 191 Member States by the World Health Organisation (WHO) in 2000. Furthermore, Nigeria was also ranked 100th in health and survival out of 128 countries. This indicates that there is still much to be desired in the country’s healthcare system (Bird, 2010). Life expectancy which had increased up to 53.5 on the average till 1990 from 1981, fell to 43.7 for men and 44 years for women in 2005, before moving up to 54 in 2007. With a high fertility rate, low family planning usage (15 per cent) and relatively poor access to health care, Nigeria has a maternal mortality ratio of 800 deaths per 100,000 live births. The estimated annual maternal deaths figure of 37,000 means that Nigeria bears the second highest maternal burden in the world (Omeruan, Bamidele and Philips, 2009).

Evidently, Nigeria’s health expenditure is relatively low, when compared with other African countries. The Total Health Expenditure (THE) as a percentage of the Gross Domestic Product (GDP) from 1998 to 2000 was less than 5%, falling behind THE/GDP ratio in other developing countries such as Kenya (5.3%), Zambia (6.2%), Tanzania (6.8%) Malawi (7.2%), and South Africa (7.5%). Limited institutional capacity, corruption, unstable economic, and political context have been identified as factors, while some mechanisms of financing healthcare have not worked effectively in Nigeria (Yaqub et al. (2010). The level of government expenditure in Nigeria’s health sector over the years tells a story of neglect. With reference to the Health Reform Foundation of Nigeria (HERFON, 2006), before the civilian government came into power in 1999, the annual government expenditure on health was $533.6 million in 1980 after which it nose-dived, reaching a trough of $581.8 million in 1997. By 1999, significant increases in health expenditure was noticed.

However, the health system is still plagued with many problems such as lack of drugs, inadequate supply of water, personnel amongst others, all of which have contributed to a reduction in the quality of health services provided, and also the existing health facilities are consistently deteriorating without adequate maintenance. Even though the World Bank (1994) urged that countries must devote a minimum of 5% of their GDP to the maintenance of the health sector, many developing countries Nigeria inclusive, spend less than 3% of their GDP on the sector (Amaghionyeodiwe, 1999). The chronic underfunding of health facilities in Nigeria resulted in poor maintenance, low incentives for health personnel, lack of essential infrastructure and, in most cases, insufficient hospital drugs for patients. The low morale that is bound to result from this situation has led to massive brain drain in the health sector in Nigeria.

Furthermore, according to Omeruan et al. (2009) another major challenge of Nigeria healthcare system has been largely due to the un-planned consequences of social policy. Consequently, health services in Nigeria have suffered from decades of neglect, endangering Nigeria health status and national productivity. The healthcare system management is in three tiers; tertiary healthcare provided by the Federal Government of Nigeria (FGN), mostly coordinated through the university teaching hospitals and federal medical centres. The second healthcare service provider is the state governments which manage the General Hospitals. The third tier is the Local Government (774 LGAs) which focuses on primary healthcare services administered in the dispensaries. It is the primary healthcare that suffers the most neglect. Women, children and especially the core poor die from avoidable health problems such as infectious diseases, malnutrition, polio, guinea worm, measles, complications at pregnancy and childbirth. Government’s expenditure has not provided adequate health infrastructure, especially in the rural areas of primary health care.  The health sector suffers from the dearth of qualified healthcare personnel and regulations, as Nigeria’s promising doctors, pharmacists, nurses and other health professionals continue to leave Nigeria render their services more profitably in other countries. Nigerians are being denied quality healthcare services, especially those in the rural areas. However, health spending as a proportion of the federal government expenditures shrank from an average of 3.5% in 1970s to less than 2% in 1980s and 1990s (FMOH, 2004).

An improvement in health status of the citizenry is an important prerequisite for achieving human capital development in every economy with its multiplier effect in skilful, efficient and productive investment in human capital that will translate into economic development. A glance at the overall human development index (HDI) of the country portrays a disappointing picture of its quality of human capital. The country ranked 153rd position among 187 countries on the HDI ranking in 2012 with HDI value of 0.47. Although the country experienced an improvement on the HDI ranking compared to its rank of 155th in 2011, still the country cannot make the first ten countries with the highest HDI value in Africa falling behind Kenya, Cameroon and Ghana (UNDP, 2013). Increase in budgetary allocation  on the provision of social services is highly advantageous in a developing country like Nigeria. This by itself not sufficient to guarantee enhancement in service delivery.

Finally, there are also many empirical works on health expenditure and outcomes nexus, a handful of them used cross country data with assumption of homogeneity (Odusola, 1998; Gupta, Verhoeven and Tiongson, 1999;  Kaufman, Kraay and Mastruzzi, 2004; Anyawu, Oyelusi and Dimowo, 2007; Bakare and Olubokun (2011) & Yaqub et al. 2010). Those on Nigeria only concentrated on the effect of public expenditure on health outcome with the exceptions of Yaqub et al. (2010) which tried to provide a link between healthcare expenditure, health outcome and  corruption. This is not without its shortcoming by using variables that are based on perception as well as inability to determine the chain of causality. This notwithstanding, they all suffered from omitted explanatory variables bias such as number of physicians, gross capital formation, literacy rate, urban population rather than population in rural area as well as per capita income of an individual towards qualitative healthcare services, which had been considered and used in this study in the determination of health outcomes in Nigeria. In addition, many previous investigation on the subject matter, failed to completely account for the feedback effect or shock transmission among the variables used in their model. It is against this background that this study sought to fill the vacuum/gap(s) by investigating the specific impact and shock transmission between government healthcare expenditure and health sector performance outcome as well as determine the short run causality relationship among the variables and justification for investing public funds amongst others. Consequence upon this, the main questions to be answered by this study subject to the process of bridging the existing research gaps are embedded in the following research questions, objectives and hypothesis of the study as highlighted in sub-sections 1.3, 1.4 and 1.5 respectively, considering the aforementioned short comings.

1.3      Research Questions              

The following research questions are raised from the identified problem to ascertain the impact of government healthcare expenditure on health sector performance outcome in Nigeria:

  1. Is there any trend and pattern of government healthcare expenditure dynamics in Nigeria?
  2. What is the nature of relationship among health sector performance outcome and government healthcare expenditure variables in Nigeria?
  3. Do shock transmissions from government healthcare expenditure variables have effect on outcome performance of Nigerian health sector?
  4. What is the direction of causality between government healthcare expenditure and health sector performance outcome in Nigeria?

1.4     Objectives of the study

The overall aim of this study is to investigate the impact of government healthcare expenditure on health sector performance outcome in Nigeria. However, the specific objectives are to:

  1. analyse the trend and pattern of government healthcare expenditure and its dynamics over the years in Nigeria.
  2. examine the nature of relationship among health sector performance outcome (infant mortality and life expectancy rates), and government healthcare expenditure, number of physicians, literacy rate, urban population, and per capita income.
  3. assess the extent to which health sector performance outcome (infant mortality and life expectancy rates) responds to shocks or innovations from its dynamics in the system.
  4. examine the direction of causality among health sector performance outcome, and government healthcare expenditure, number of physicians, literacy rate, urban population, and per capita income.

1.5    Hypotheses of the study

  1. H0: There is no significant relationship between government healthcare expenditure, number of physicians, literacy rate, urban population, per capita income, and the performance outcome of Nigeria health sector.
  2. H0: Health sector performance outcome (infant mortality and life expectancy rates) does not respond to shocks / innovations from government healthcare expenditure, number of physicians, literacy rate, urban population, and per capita income.
  3. Ho: Causal relationship does not exist between government healthcare expenditure, number of physicians, literacy rate, urban population, and per capita income and health sector performance outcome in Nigeria.

 1.6       Significance of the study

In view of the various empirical works carried out by many researchers in Africa to examine the relationship between public healthcare expenditure and health sector performance outcomes, have been using indicators like fertility rate (FR), neonatal mortality rate (NMR), prevalence rate of human immunodeficiency virus (HIV) tuberculosis (TUB) amongst others, which are not robustness enough to produce an effective relationship to health outcome, credence to the work of Filmer and Pitchett (1999, 2001), and also support the work of Wagstaff and Cleason (2004) that FR, NMR, PRHIV, TUB among others showed an insignificant relationship to health sector performance outcome. Therefore, this research is unique in the sense that, it made use of two major indicators in the health related issues namely: life expectancy and infant mortality rates that have not been considered or used by any of the researchers, credence to the strand of empirical studies. In addition, two different estimation techniques the Auto-Regressive Distributed Lag (ARDL) model and Vector Auto-Regressive (VAR) techniques have also not been adopted to investigate the theme in the Nigerian context. Hence, this study will bridge the gap in empirical literature by considering the relationship between public healthcare expenditure and health sector performance outcome in Nigeria and as well as to have a robust representation for Nigerian health sector. 

Premised on the above, the findings of this study will be of great help to policy makers in formulating sets of health policy targeted at reducing infant mortality rate and increasing life expectancy rate in the country. In the same vein, the study will draw the attention of government and health sector stakeholders in the country to the effective use of health policy instruments for economic recovery from both national and global economic downturns.

Furthermore, the study will provide library services for readers. Every chapter of this study constitute an area of study for students and serve as resource materials for teachers, especially in higher institutions of learning /teaching or studying health economics. Without mincing words, the empirical results of previous works on the relationship between government healthcare expenditure and the performance of Nigerian health sector may needs to be updated so as to meet up with the recent challenges confronting the Nigerian health sector. To this end, the study will therefore update the data-set used by the previous researchers to produce a dependable result that is efficient to remove all the health related challenges confronting health sector in Nigeria.

1.7       Scope of the Study

This study covers the period between 1980 and 2015 which is a thirty-six year period. The period is chosen because it is long enough to be able to investigate and explain the impact of government healthcare expenditure on health sector performance outcome in Nigeria. The study also limited to health and economic related variables such as government healthcare expenditure, number of physicians, urban population, literacy rate, and per capita income as well as health sector performance outcomes proxied by infant mortality and life expectancy rates in Nigeria. The choice of this period is based on the fact that, the period marked the beginning of the era of pronounced institutional decay in health sector as well as health sector reforms in the country that have not to some extent, transformed into sustainable economic development and also alluding to the fact that the Nigerian economy despite its wide range of resources has not experienced the necessary managerial, structural and institutional changes that would guarantee rapid and sustainable growth  towards acceptable minimum standard of living in the country.

Furthermore, the length of the period allows the study to examine the long run relationships that exist between government healthcare expenditure and the performance of health sector in the country. Precisely, the chosen period is long enough to meet the minimum observation requirements necessary for the Auto-Regressive Distributed Lag (ARDL) model and Vector Auto-Regressive (VAR) techniques employed in this study.

1.8     The Structure of the Study

This study is divided into five chapters. Chapter one deals with the introductory aspect of the study which includes statement of the problem, objectives of the study, hypotheses formulated and tested, significance of the study, scope of the study and organisation of the study. Chapter two discusses the literature review covering the relevant conceptual, theoretical and empirical literatures. The chapter three treats theoretical framework and research methods. Chapter four considers the presentation of data analysis, interpretation of empirical and policy implication of results; while chapter five provides the summary, conclusion, policy recommendations, contribution to knowledge and suggestions for further research.

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