Please
1.) I 've always wanted someone to explain in a lay man's language what these terms mean "Recurrent and Capital Expenditure"

2.) I 've heard many people say that the removal of fuel subsidy will cause inflation. But I've been wondering how, since I was told back in secondary school that inflation is simply "the loss in value of money because of too much money in circulation"
simple logic has told me that the fuel subsidy removal will leave the people with less money since you have to pay more to buy fuel hence reducing the inflation rate.

Pls can an Economist in the house put me through.

Capital expenditure normally refers to creating, constructing, improving or transforming an asset, infrastructure or buildings.

Recurrent expenditure typically refers to payment of overheads, salaries, miscellaneous expenses, travelling, entertainment, food.

Capital expenditure should see assets being constructed which have a medium term life time.

Recurrent expenditure happens every year and normally refers to and for payments to civil servants, politicians and their aides. 

When recurrent expenditure is too high then it means civil servants and politicians may have a lot of money to spend.  With a lot of money to spend politicians can outspend anybody.  By outspending anybody politicians push up the price of goods and services.  Higher prices leads to inflation.

Spending on recurrent expenditure without any limits ends up in the debt burden increasing as human want is unlimited. This human want will outspend GDP and lead to the country borrowing.

Removal of fuel subsidy can lead to a price shock. 

Petrol, fuel and energy are the lifeblood of Nigeria's economy. In the absence of any meaningful infrastructure the masses have to provide for themselves, generators, okada, danfo etc.

Because the masses provide for themselves our economy is extremely sensitive to changes to energy prices.

A N1 increase in petrol or energy cost can lead to an equal N1 increase in other goods and services.

These increases are not really justified by "logic" but can be explained by behavioural economics. That is human behaviour acting in a personal interest but against the good of all and also in the end against their own interests.

Prices have doubled on a lot of consumable goods since Jan 1st.

Whilst this may be a one time price shock, it is too early to tell where inflation will settle.

Thanks very much Mr Voodoo...I just saw a report online few days ago that the FG will be spending 78% of its income on recurrent expenditure while 22% for capital projects. Are you saying in summary and in effect that we spend this huge percentage on paying the salaries of Government officials?
Please Indulge my ignorance

uzoexcel: Thanks very much Mr Voodoo...I just saw a report online few days ago that the FG will be spending 78% of its income on recurrent expenditure while 22% for capital projects. Are you saying in summary and in effect that we spend this huge percentage on paying the salaries of Government officials?
Please Indulge my ignorance

Nt jst Salaries of govt officials bt civil servants in Generals..in order Words Nigeria's Economy is @ a constant..its aren't progressing neither is it regressing..
Expect Unemployment to rise in 2014...

Educative thread that should hit fp.

They (mods) hardly see this type of thread for fp.
Recurrent expenditiure are those expenditure that are recurring in nature. Salary = monthly, rep allowance = quarterly, govt vehicles = some 2 yrs, others 3 yrs.
There are some underground recurrent expenditures like dollar auction A.K.A. Floating the Naira and it is done weekly but not featured in budget. That's the one partly causing hardship today.

emrain:
Educative thread that should hit fp.

Should i call lalasticlala

OP NAWA FOR U


TO A LAY MAN UNDERSTANDING


RECURRENT EXPENDITURE ARE THOSE DAY TO DAY SERVICING ACTIVITIES LIKE PAYMENT OF SALARIES, WAGES, ETC




THEN CAPITAL EXPENDITURE: FROM THE WORD CAPITAL UR COMMON SENSE WILL TELL U IS ALL ABOUT ASSET LIKE ROAD, BUILDINGS, RAIL WAYS CONSTRUCTIONS, AIRRPORTS ETC

Recurrent re-occurs on Daily/Monthly/Quarterly on government bills like salaries, fueling, entertainment, travel cost,.....

Capital are one-off in nature and may take more than a year to finish like construction roads, dredging of channels, power stations, dam, satellites.....

according to Google

Capital expenditure/project also give birth recurrent expenditure. Example is the twelve new university built by Goodluck Jonathan admin but Buhari's admin must equip/power/maintain them annually and pay salaries monthly.

Sibrah:
Capital expenditure/project also give birth recurrent expenditure. Example is the twelve new university built by Goodluck Jonathan admin but Buhari's admin must equip/power/maintain them annually and pay salaries monthly.

Do u mean Goodluck should not ve built the schools?

chiefobdk:



Do u mean Goodluck should not ve built the schools?

why do people reason like this na, this is totally unfair, he wasnt making referencing his opinion on the feasibility of the school(for nor against) yet you found a way to turn his words around.
abeg address the op, lets all learn from you too. The thread isnt about gej's project nor buhari's spendings.
Thanks

OlujobaSamuel:
why do people reason like this na, this is totally unfair, he wasnt making referencing his opinion on the feasibility of the school(for nor against) yet you found a way to turn his words around.
abeg address the op, lets all learn from you too. The thread isnt about gej's project nor buhari's spendings.
Thanks

i wonder how you got to know wats on his mind.


i didn't even address you.

in as much as i would commend the various comments made so far on recurrent and capital expenditure. i observed that the OP required a layman's explanation . As an Economist, i will try to explain it in a layman way for the OP.

Capital Expenditure has been explained earlier the the previous posts but in i only want to add that it is an accumulation or increase in assets. this implies that the money government spends on roads, electricity and energy as well as refineries, schools, satellite and other expenditure aimed at generating more income in the future is regarded as capital expenditure. the expenditure usually surpass a year and go on till it is completed.

Recurrent expenditure also has been explained in terms of overhead costs. it implies salaries paid to workers, allowance to corp members, expenditure of normal repairs, maintenance etc

Inflation is not just the loss in value of an asset as you were taught. it is the GENERAL increase in the prices of goods and services. yes, it is true that removal of fuel subsidy will lead to inflation because almost everything is tied to the price of fuel in the country.

high fuel price will lead to high cost of production in manufacturing companies because of generators thereby leading to high prices of commodities
high fuel price leads to high transportation cost which shoots the price of food stuffs high etc

until a time when we have constant power supply and alternative sources of energy at a cheaper price, removal of fuel subsidy will DEFINITELY lead to inflation.

high fuel price leads to high cost of transport

Recurrent = chop money
Capital=project money.

chiefobdk:



Do u mean Goodluck should not ve built the schools?

No. I am just stating it the way it is. The financial implication for Buhari govt is more.

Sibrah:
No. I am just stating it the way it is. The financial implication for Buhari govt is more.

but the schools re supposed to generate revenue. wat happen to the school fees and other fees students pay.

Abeg put food money for capital expenditure

chiefobdk:



but the schools re supposed to generate revenue. wat happen to the school fees and other fees students pay.

Those fees hardly cover 10% of the expenses the students use up. The last time I read about it in 2014, the FG claimed it spent average of N300k subsidizing each fed uni grad annually.

Sibrah:
Those fees hardly cover 10% of the expenses the students use up. The last time I read about it in 2014, the FG claimed it spent average of N300k subsidizing each fed uni grad annually.

hmmmm. this is so funny

recurrent means the one that always reoccure every year like salaries, allowance, debt servicing etc. Capital expenditure is the one that is use for projects like roads, housing, power, transportation, etc.

chiefobdk:



hmmmm. this is so funny

the dude is right bro, no govt school is generating enough for the operating cost of any of our schools in nigeria. Govt finances them. an average nigerian cannot afford the fee of a standard school without subsidy. eg, take a look at the recent allowee ASUU wants to go on strike for, 250+bn? not salary, not regular allowee, how much are we paying to generate such?

OlujobaSamuel:
the dude is right bro, no govt school is generating enough for the operating cost of any of our schools in nigeria. Govt finances them. an average nigerian cannot afford the fee of a standard school without subsidy. eg, take a look at the recent allowee ASUU wants to go on strike for, 250+bn? not salary, not regular allowee, how much are we paying to generate such?

before ASUU will demand such. dont u think they kno exactly how much is generated.

chiefobdk:



before ASUU will demand such. dont u think they kno exactly how much is generated.

do you think all tertiary institutions combined(fg) generates 1tr as revenue? we pay average of 50k per yr, a lecturer in the polytechnic system of lecturer 1cadre goes home with more than 500k per month, where do a school generate such?
i understands what it takes to run those religious schs, thats why i never condemned them even though i dont pay for such in my church, running a sch isnt cheap.
missionary schools back then were finannced by nations where they came from through aids and grants.

Stupedinluv:
Should i call lalasticlala

No, I heard he's sick. Give him some time to recover.

OlujobaSamuel:
do you think all tertiary institutions combined(fg) generates 1tr as revenue? we pay average of 50k per yr, a lecturer in the polytechnic system of lecturer 1cadre goes home with more than 500k per month, where do a school generate such?
i understands what it takes to run those religious schs, thats why i never condemned them even though i dont pay for such in my church, running a sch isnt cheap.
missionary schools back then were finannced by nations where they came from through aids and grants.

How many fg uni can even charge 50k per yr?

Sibrah:
How many fg uni can even charge 50k per yr?

exactly, but i said so considering new intake that pays so many fees in with different title.

VoodooDoll:
Capital expenditure normally refers to creating, constructing, improving or transforming an asset, infrastructure or buildings.

Recurrent expenditure typically refers to payment of overheads, salaries, miscellaneous expenses, travelling, entertainment, food.

Capital expenditure should see assets being constructed which have a medium term life time.

Recurrent expenditure happens every year and normally refers to and for payments to civil servants, politicians and their aides. 

When recurrent expenditure is too high then it means civil servants and politicians may have a lot of money to spend.  With a lot of money to spend politicians can outspend anybody.  By outspending anybody politicians push up the price of goods and services.  Higher prices leads to inflation.

Spending on recurrent expenditure without any limits ends up in the debt burden increasing as human want is unlimited. This human want will outspend GDP and lead to the country borrowing.

Oh my good God !!!

I thought recurrent expenditure included fixing of roads .