Overall Insight of Public Finance in Nigeria 2025: Best Guide

Are you looking to know about public finance in Nigeria? If yes then read down to get every information you need on public finance in Nigeria.

Public Finance, a conventional subfield of economics, highlights the Government’s role and functions within the economy. One aspect of public Finance that garners substantial attention is the economic impact of public expenditures. 

While it is commonly assumed that governments optimize revenues and expenditures to maximize societal welfare, it is crucial to recognize the significant economic consequences of public spending.

The Table Below shows the Nigerian Government’s Revenue, Expenditure, and Debt for 2023.

The Government Revenue section comprises two key indicators: general government revenue expressed as a percentage of the G.D.P. and general government revenue measured in current U.S. dollars.

 Similarly, the Government Expenditure section provides an overview of general government spending, typically represented as a percentage of G.D.P. and general government expenditure in current U.S. dollars. 

The Government Debt section encompasses the ratio of government gross debt to G.D.P. and government gross debt measured in current U.S. dollars.

Source: Statista

A community establishes a formal or informal entity known as the Government to execute diverse tasks, including addressing social needs like education, shelter, food, and healthcare and safeguarding private property from external threats. 

Public Finance is essential for the progress and advancement of a nation. Efficient Management of this Financial aspect can result in multiple benefits to a country, both domestically and internationally. Generally, this article is a comprehensive guide to public Finance in Nigeria and it’s essential insights.

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WHAT IS PUBLIC FINANCE?

Public Finance can be defined as the Management of a country’s public funds, impacting all economic stakeholders. At its core, public Finance encompasses the Management of a nation’s revenue, debt, and expenditures through various governmental and other government parastatals.

 The term “public finance” underscores citizens’ integral role in contributing to a country’s growth. The revenue, derived from diverse sources such as investments and taxes, fuels government expenditures, including healthcare, employee salaries, and technological advancements.

Public Finance is operational at both state and central levels, and it is instrumental in shaping a country’s economic landscape by ensuring the effective utilization of finances. 

The focus areas of public finance span government revenue, expenditure, and debt, illustrating how governments at different levels raise funds, allocate resources, and manage finances to meet public needs and achieve policy objectives.

 COMPONENTS OF PUBLIC FINANCE

1. Revenue Collection:

 Revenue is a technique the Government uses to raise funds from the general public. This is done through the collection of Tax (income tax, sales tax, property tax and estate tax), import duties and other public revenue services.

  It is essential to know that tax is the primary source of income for the Government, and revenue is the primary component of public financing.

2. Expenditures: 

Expenditure refers to spending by the Government to benefit the society at large. The Government spends money on Infrastructure, Education, Health, Salaries, and other expenses necessary to run the economy. 

Due to unforeseen contingencies, the money spent may be higher or less than the budget.

3. Budget:

 The budget is what the Government plans to spend in a financial year. In Nigeria, for example, the President presents the budget to a combined session of the National Assembly as an appropriation bill.

 The lawmakers then put the bill through the legislative process of debating, screening, and ultimately approving it, after which the President signs the approved version of the bill into law. Therefore, the budget is a law promulgated as an appropriation act.

4. Deficit/Surplus:

A deficit occurs when the Government spends more than it receives as revenue in a financial year. At the same time, Surplus occurs when Government spending is less than the revenue in a financial year.

5. National Debt:

 National debt is a debt incurred by the Government as a result of a deficit. When the Government has a deficit, it funds the difference by borrowing and issuing national debt, which is done by the Debt Management Office (D.M.O.).  

LIST OF REVENUE AND EXPENDITURE IN PUBLIC FINANCE

Below is the list of revenue and Expenditures within the realm of public Finance.

REVENUE

• Import duties
• Income tax (personal, corporate)
• Property tax
• Sales tax
• Value-added tax (V.A.T.)
• Estate tax

EXPENDITURES

• Education
• Employment insurance
• Pensions
• Defence
• Infrastructure
• Health care
• Salaries

Objectives of Public Finance in Nigeria

Public Finance is a highly esteemed discipline that is a prominent method for evaluating a government’s performance and tenure within an economy. The Following are the objectives of Public Finance in Nigeria.

1. Economic Growth and Development: 

A proper and efficient management of public funds results in an increase in economic growth and development. 

This helps maintain stability and set the economy through ups and downs. Also, the distribution function of public Finance helps through a corrective distribution mechanism, which involves levying higher taxes on the affluent and providing subsidies to the less wealthy, employing progressive taxation techniques, or imposing elevated taxes on luxury goods; this approach contributes to the economy’s overall growth. 

Additionally, it fosters development in regions that may have been overlooked.

2. Addressing Public Needs: 

The fundamental goal of public Finance is to oversee the essential needs of the public, encompassing necessities such as shelter, food, infrastructure, health, and education. Meeting these public needs by the Government contributes to economic growth and development.

3. Secure Price Stability: 

Public Finance plays a role in maintaining price stability, addressing inflation, and alleviating unemployment. It enables governments to formulate policies and decisions encouraging innovation and supporting comprehensive economic development.

4. Mitigate Inequality:

 Public Finance tends to achieve this through the proper allocation of economic resources. This is done through corrective distribution by imposing higher taxes on the wealthy, offering subsidies to those with lower incomes, utilizing progressive taxation methods, or levying elevated taxes on luxury goods.

Other objectives other than the ones mentioned include:

•  Creating job opportunities.
•  Meeting the fundamental requirements of the country.
•  Preserving the value of the currency in the global market.

Types of Public Finance

In explaining public Finance in Nigeria, we must consider the various types comprising a series of inflows and outflows constituting the public finance framework. Below are the types of public Finance:

1. Public Revenue: 

This type of public Finance involves the collection of funds from the public through various means such as taxes, fines, import duties, tariffs, fees, maintenance, and indirect taxes.

2. Public Debt:

 When the Government has a deficit, the need for this type of Finance arises, and the government resorts to borrowing and issuing national debt to run the economy and meet the country’s needs.

3. Public Expenditure:

 This type of public Finance deals with spending part of the Government. Public expenditure focuses on Infrastructure, Education, Health, Salaries, and other expenses necessary to run the economy.

4. Financial Management: 

The Government plans, distributes, and supervises public resources for this financing. In the context of Nigeria’s economic transformation, adopting robust financial management practices is essential for implementing the new administration’s policies.

Functions of Public Finance in Nigeria

 Certain functions bind Public Finance in Nigeria to ensure efficiency and effectiveness. Below are the tasks of public Finance.

• To manage and redistribute financial, goods, and service flows between corporations and households and for societal goals like social justice or efficiency.
•  To produce goods and services for individual and collective needs, such as state healthcare, defence, and public safety.
•  Supplying essential needs and infrastructure to the public. Initiating development programs to contribute to national progress.
•  It is ensuring transparency in policies and financial records.
•  They are adapting policies based on budget comparisons to actual positions.
•  We are monitoring the effectiveness of financial policies.
•  We are formulating economic policies for national development.

Public Financial Management

What is Public Financial Management?

Public Financial Management is the administration and efficient utilization of public funds. This ranges from revenue collection and allocation to monitoring public expenditures. The primary aim of public financial Management is to enhance the well-being of citizens through the effective Management of public money.

 An efficient management of public funds plays a vital role in maintaining transparency and creating room for trust between the Government and its citizens. Effective public financial Management commonly encompasses six phases: policy design, budget formulation, budget approval, budget execution, accounting, and external audit.

Importance of Public Financial Management

Strong and effective financial Management is crucial for the Government to attain optimal value for money in all public expenditures, curtail the government budget deficit, and enhance budget structure and reporting. Below is the importance of financial Management:

• It judiciously allocates both natural and human resources.
• Sound Management of Public Finance fosters national growth.
•  It maintains price stability, mitigates inflation and reduces unemployment.
•   It ensures accountability across all ministries, departments, and agencies in the public sector by meticulously tracking financial records for receipts and payments.
•  It promotes investment through diverse policies and packages, adapting to technological advancements and evolving government strategies for overall economic development.

Challenges of Public Financial Management

Listed below are the challenges facing public Financial Management:

 1. Declining Allocation for Fixed Assets’ Expenses and Maintenance.

2. Budget Absorption and Quality of Expenditure Not Optimal.

3. Inconsistencies in Audit Reports and Performance Assessments.

4. Enhancement Needed in Financial Statements, Accounting Processes, and Expenditure Allocation Policies.

5. Complex Composition Due to Mandatory Spending.

6. Surplus Policies Leading to S.I.L.P. (Surplus, income, loss of productivity, and accumulated arrears).

7. Focus on Indirect Spending, Especially Personnel Expenditure, and Decline in the Education Spending Ratio Despite Increased Sectoral Budgets.

8. Complications in Monitoring and Evaluation Due to Program Spending Variations.

9. Lack of Performance Improvements Despite Budget Increases for Strategic Functions.

10. Complications in Monitoring and Evaluation Due to Program Spending Variations.

11. Influence of Non-Financial and Nontechnical Factors on Subnational Government Performance.

Conclusion

In summary, public Finance in Nigeria plays a pivotal role in economic growth and societal development. The intricate balance of revenue, expenditure, and debt management is critical for stability. While challenges persist, effective financial Management remains vital to transparency, trust, and sustained national progress.