Exploring Alternative Funding Sources for Sustainable Development of Local Governments in Nigeria

Abstract

This paper examines the impact of Government revenue allocation and Commercial Banks' loans for the development of Local Government Areas in Nigeria in this current democratic dispensation. It investigates the use of traditional funding sources of total Local Government expenditure (that is recurrent and capital expenditures) together with Banks loans to the Agricultural sector as proxies of sources of finance for the funding of developmental projects in Local Government areas of the country. Time series data spanning a period from 1999 to 2020 (22 years) years were analysed using Augmented Dickey-Fuller (ADF). The findings revealed a highly restrictive impact of statutory revenue allocation on the socio-economic development of the third tier of Government. A significant proportion of public revenue allocation is for recurrent expenses, with minimal impact on the provision of needed infrastructures for the expansion of the socio-economic amenities in the rural areas. Similarly, the banks' loans to the Agricultural sector has contributed to gross domestic product, however, this has not equally facilitated meaningful development nor improved agricultural modernisation in the rural areas as much as desired. Public borrowing has not halted the rural-urban drift through the provision of social and economic infrastructures. The paper, therefore, recommends the necessity of exploring alternative sources of financing for the sustainable development of the rural economy in Nigeria, given the important role of the rural and semi-urban economies in the overall national economy. A more responsive, creative and innovative financing strategy such as the establishment of a  multi-level Rural Development Financial Institution might be appropriate that would fund five (5) identified critical areas of rural development like rural road network development, rural housing, rural energy, primary health centre, and rural-based small scale industries.