Nigeria’s model of fiscal federalism represents a fundamental legal and institutional
framework for policymaking in the country. As in other federations, it defines the core
rules for resource allocation, distribution of responsibilities for service delivery, and
mechanisms for interaction between different tiers of government.
Nigeria’s fiscal federalism arrangements are currently attracting increasing
attention from both policymakers and analysts. This is a reflection of the fact that longer
term perspectives of economic policy reform in the country are critically dependent upon
improvements in the organization of inter-governmental arrangements. Such arrangements
have direct implications for achieving national growth and poverty reduction targets.
Simply put, there is a major need to strengthen the incentives of government agencies at all
levels of authority to improve cooperation in designing of their policies and delivery of
services. At the same time, capacity will have to be built to support such future intergovernmental
cooperation.
The need for stronger cooperation and other reforms in federalism is driven by
several factors such as the following:
a) According to the Nigerian constitution, main public sector responsibilities are
split across various government levels. Thus, no sole government could deliver
radical improvements in service delivery on its own, which means that
coordination and cooperation are pre-requisites. However, the existing
mechanisms and institutions for inter-governmental policy coordination are
weak and need strengthening.
b) Significant fiscal decentralization of the public finance system have taken place
since 1999. Given the existing resource allocation rules, such decentralization
poses the risk of emphasizing – rather than taming - fiscal inequalities across
the states. But the extent and trends in horizontal inequality remains
undocumented, and no mitigation mechanism has been proposed as yet.
c) Reforms undertaken in Nigeria since 2003 appear to have been more profound
at the federal level than in the states. The benefits of drastic improvements in
macroeconomic policies and fiscal discipline at the Federal Government of
Nigeria (FGN) level are severely constrained by lagging reforms in the states.
The FGN is actively exploring options for setting up - within its existing legal
and institutional remits - new mechanisms to encourage states to accelerate
reforms and to improve intergovernmental coordination in key service areas
under joint responsibility.
d) The reform of federal arrangements is politically sensitive. Reforms of the
Federal system are likely to be gradual and based on broad political consensus.
This underlines a need for broadening a public debate on key challenges in the
existing model of fiscal federalism. The post-2007 election period may present
a window of opportunity for addressing some of these issues, and it is important
to inform policy makers in advance about existing challenges and available
choices.
This paper intends to discuss some of these issues from the perspective of improvements in
the quality of service delivery in core sectors, such as education and health.