Fiscal Federalism in Nigeria: Issues, Challenges and Agenda for Reform

Resource allocation and management as well as fiscal federalism/decentralization have remained contentious issues in a federal state such as Nigeria. This is because the essence of government at all levels is to bring about rapid economic development through adequate provisions of social and economic infrastructures for the citizenry. The fiscal arrangement within the federation should, therefore, adequately cater for the federating units to enable them to discharge their constitutional responsibilities. Consequently, the struggle for control of power and equitable distribution of resources by the component units that make up the federation is driven by the need for balanced development, fiscal justice and fair play. Fiscal federalism has, therefore, become part of a worldwide ‘reform’ agenda supported by the Bretton Woods institutions such as the World Bank and the International Monetary Fund (IMF), and several international institutions such as the United States Agency for International Development (USAID) and Asian Development Bank. It has become an integral part of economic development and governance in developing and transitional economies (Bahl, 1999). Fiscal decentralization and the desire for local discretion and devolution of power is often seen by the World Bank as a vehicle to promote governance and development in developing countries such as Nigeria. James (2003) observed that the underlying basis for the renewed interest in fiscal federalism/decentralization as an aspect of any reform agenda includes the following: (i) central governments have discovered that it is impossible for them to meet all the competing needs of their various constituencies and are therefore attempting to build local capacity by delegating responsibilities downward to their regional governments, (ii) central governments expect regional and sub-regional governments to implement national economic development strategies and (iii) regional and local political leaders are demanding more autonomy and want the taxation powers that go along with their expenditures.