BUDGET OF APPRAISE

BUDGET OF APPRAISE:

A Critical Analysis of  a Decade Budget in Oyo State.

By: SALAUDEEN AbdulQuadri I. - Data scientist

  A couple of days ago, the executive governor of Oyo state, Engr. Oluseyi Abiodun Makinde (GSM) presented the first budget of his four years administration to the members of the Oyo state house of assembly. The budget proposal has generated a lot of discussions in the private and public domain, mostly among the citizens of the state and the budget is almost tagged unconventional budget. The praise is apparently because of the allocation of over 20% of the budget to education and proposed increase in IGR to #3.0b monthly estimated at #36.0b annually.

   The praise is not a surprise though, because any government that looks into or prioritises items of social sector which have direct impact on peoples' life like education in this case, not sectors that have indirect impact like commerce, industry and investment, work and infrastructure etc. tends to gain popularity in the mind of the citizens. Allocation of the the huge percentage to education is awesome and surely call for appraise and celebration, but what I know about percentage is that sharing 100% among a numbered set of items, if one of the items get increment in its percentage and the items number remain constant then all or some of the remaining items' percentage will be reduce. It then now depent on priority, which and which item should get reduced. I think that is the reason the governor said he has reduced expenditure of the public establishments by 40%, a good foresight idea. But still, wouldn't the change affect some other important sectors?, Is this budget really different or have any difference from former budgets?, Is the budget likely to perform better than the previous budgets?. This are the questions that we need to ask before the commendation started. Answer to all the aforementioned questions is therefore presented in the analysis of a decade (10 years) budget in Oyo state.

Four important social items were use as criteria for comparison between 2011 and 2020. The items being Agriculture, Work and Transportation, Education and Health were compared according to the percentage allocated to them from 2011 to 2020.This comparison is depicted in the graph below.

Source: Ministry of Finance- OYSG.

It is clear that the government since 2011 has been giving Works and Transport the highest priority as it has the highest percentage of their allocation till date even the GSM '20 budget except in 2013 where Education got the highest as shown in the above chart.

It can also be seen from the chat that Education usually comes 2nd (6 time), 3rd (3 times), even in 2013 it got the highest percentage (17.62%) and it has never been the least. Despite all the  advocates for Agriculture, it usually compete with Health for the 3rd and 4th position, even in GSM '20 budget, Agriculture get the lowest (4.43%) and Health(5.18%) make it to the 3rd position. Health even came 2nd in 2011 perhaps due to 2011 flood. Giving rank to the budgets according to the percentage allocated to the four items, it is clear from the chart that GSM '20 budget got the 3rd position in Agriculture, 7th in Work & Transport, 6th in Health but 1st position in Education (22.37).

It is observed that there is no significant difference in the allocation to these items, it follows the same pattern across the year and it seem a fixed percentage of the whole budget is what the items share, so that when there is increase to one of them others automatically reduced as what they share is constant. This now bring up another chart that compare the addition of the percentage of these four items for each year and it is as shown in this coming chart.

Source: Ministry of Finance- OYSG.

From this chat it is clear that a percentage between 45% and 60% of the capital part of the budget comes to these four items except in 2017 and 2018 that the percentage is very low, it was 19.45% and 26.44% respectively. The GSM '20 budget has total percentage of 55.91 for the four items which put it at 3rd position in tie with 2011 that also had the same percentage. This shows that there is no real difference in those budgets. Education getting 22.37% from 55.91% means that the other three items have to share the remaining 33.54%.

Apart the issue of percentage allocation we should also look into what is the performance of the budget going to look like, 22.37% for Education, is education going to have this at the end pro to the budget performance. In looking at this we need to consider factors that affect the performance. The major factor being revenue and this comes majorly in two ways, the IGR and the Statutory allocation from the federal government. For the two ways of getting revenue there is always a proposed amount every year which usually differ with a very big range from what they will later get at the end. Relationship test is therefore performed on proposed amount and actual amount they later got using 2011 to 2019 data. There is a weak linear relationship between proposed and actual IGR, having correlation coefficient of r=0.27. The relationship is graphically expressed below.

Source: Ministry of Finance- OYSG., and Joint Tax Board JTB.

A regression analysis on this issue suggested that for every #1.0b increase in proposed IGR there would be #110.0m increase in actual IGR, b=0.11, p<0.05.

On the GSM having proposed #36.0b IGR is forecast to be likely get an actual amount of #16.24b for the fiscal year. In case of the statutory allocation, a relationship analysis reviled a moderate linear relationship between proposed federal allocation and actual federal allocation later got, a correlation coefficient of r=0.67. The relationship is also shown in this coming chat.

Likewise a regression analysis suggested #750.0m increase for every #1.0b increase in the federal allocation. b=0.75 p<0.05. It is therefore forecast GSM '20 budget is likely to get a total amount of #63.15b from the federal government having proposed #86.02b for the fiscal year. A total amount of #79.39b is therefore forecasted as the revenue Oyo state is likely to have from both her IGR and Statutory Allocation aside some other ways not considered in this report.

Source: Ministry of Finance- OYSG. and Joint Tax Board.

What is then likely the budget performance looks likes?. In analysis of joint effect of IGR and Statutory Allocation on Budget Performance using the budget performance of the state since 2011. Analysis of linear relationship showed a very weak negative relationship between revenue and performance, correlation coefficient at r=-0.15, suggesting that increase in revenue leads to low budget performance, although this is contrary to what we think should happen but other factors may account for the reason. A significant regression analysis therefore forecast a possible performance of GSM '20 Budget, having forecast revenue to be #79.39b at a very low percentage of 9.14%. This looks surprising you and you are thinking it is not possible. Just check the coming chart for the budget performance of the state since 2011.

Source: Ministry of Finance- OYSG.

You can now see that it is possible since you even see some performance that are lower than this. If care is not taking and this happened, the budget will then have the 3rd lowest budget performance in the last decade. And the budget that will all appraise and celebrate will end up entering bad record.