Budget Preparation, Approval, Reserves and Supplementary Estimates

Between a ministry’s first idea and the day its money may be spent, a budget passes through four sets of hands: the ministries propose, the budget office assembles, the cabinet approves, and the legislature debates and passes it, after which the President signs it into law. Each step has a purpose, and each can delay the budget so that the year begins without an Appropriation Act.

Once the budget is law, circumstances change: a flood, a strike, an unexpected price, and the government needs more money for one purpose or has too much for another. The law provides for this through supplementary estimates and virement, with conditions designed to keep the legislature in control.

This topic follows the budget from the call circular to the Appropriation Act; explains the surplus and deficit that the estimates produce; sets out the supplementary estimates, their conditions and virement; and then lists the uses of a budget: planning, communication, motivation, a standard for measuring performance, evaluation of economic and social policy, and cost reduction.

The next topic covers the personnel cost budget and the overhead cost budget, with worked examples.

This topic was tested three times:

• November Diet, 2025, Question 4 (20 marks), where part (a) (10 marks) asked for five uses of the budget
• May Diet, 2021, Question 4 (20 marks), where part (a) (10 marks) asked about the medium-term expenditure framework, the budget call circular and the difference between them
• November Diet, 2024, Question 4 (20 marks), where part (b) (6 marks) asked for three conditions for approving supplementary funds

Read base estimates, committed growth and the problems of public budgeting first.

Preparation and approval: the four phases

The budget process is a cycle of events that recurs each year and ends in the approved budget. In ministries and extra-ministerial departments, preparation and approval pass through these stages.

1. The ministerial or pre-treasury board phase

Before the budget guidelines are issued, the Ministry of Budget and Planning (the Ministry of Finance at State level) receives policy statements from the Presidency (or the State Governor). The guidelines are then issued by the ministry as a call circular: a circular issued by the budget department to all agencies of government asking them to submit their revenue and expenditure estimates for the coming year.

On receiving it, each ministry, department and agency sets up a committee on “advance proposals”. A pre-treasury board, headed by the Permanent Secretary of the Ministry of Budget and Planning (Finance, Budget and Planning in a State), appraises the proposals in light of the funds available. Proposals given provisional approval go to the Presidency or the treasury board (headed by the Governor in a State).

The call circular and the medium-term expenditure framework. The framework (the earlier topic) is a three-year, high-level strategic plan, prepared by the Minister of Finance under the Fiscal Responsibility Act and approved by the National Assembly, which sets the total resources, the priorities and the sector ceilings for the medium term.

The call circular is an annual administrative instruction that turns that framework into guidelines for the next budget and asks each agency to submit its estimates within the ceilings and format set. In short: the framework sets the envelope and priorities over three years; the call circular is the yearly request to agencies for their detailed estimates.

2. The executive council phase

The draft estimates are presented to the executive council (the council of ministers): the President, Vice-President (Governor and Deputy Governor in a State), the Secretary to the Government, all ministers (commissioners in a State) and the Head of Service. After approval, the draft is sent to the National Assembly or State legislature in the form of an Appropriation Bill.

3. The legislative phase

The President or Governor presents the budget package and speech to the National Assembly (both Houses together) or the House of Assembly: the budget session. A standing committee considers the proposals; each House approves the budget; where the Houses differ, a finance committee is appointed to resolve the differences. Its resolution is final; and the final stage is consideration at a joint session of both Houses.

4. Assent

The budget is sent back to the President or Governor for assent, and becomes the Appropriation Act. Copies of the approved estimates are printed and given to ministries, departments and agencies.

If the Act is not passed by the start of the financial year, the Constitution allows provisional withdrawals for up to six months under a provisional expenditure warrant, at a limit tied to the corresponding period of the previous year (see the earlier topic on the regulatory framework).

Surplus, deficit and reserves

If estimated income exceeds estimated expenditure, the budget shows a surplus; if estimated income is less than estimated expenditure, it shows a deficit. Surplus or deficit financing is a matter of government policy. If estimated income is ₦3,200bn and estimated spending ₦3,650bn, the deficit is 3,650 − 3,200 = ₦450bn, which is 450 ÷ 3,200 = 14.1% of income and has to be financed by borrowing or other sources.

Supplementary estimates and virement

The government may ask the National or State Assembly, as often as needed, for supplementary allocation during the year, because unforeseen circumstances force it to. It may also vire (transfer) money between sub-heads, provided they belong to the same head or title of expenditure. At present the approval of the National Assembly is required for virement, even though the financial regulations give the authority to the Minister of Finance.

Conditions for approving supplementary funds

1. The request must manifestly be in the public interest.
2. The need must be so urgent that the additional provision cannot be deferred to the following year, when it would be included in the new estimates.
3. The need could not have been foreseen when the current estimates were being approved.
4. The money required cannot be found by virement.

Examples. A government with an Appropriation Act of ₦1,000bn asks for a supplementary ₦120bn: the supplementary is 120 ÷ 1,000 = 12% of the original and the new total is ₦1,120bn. For virement, a head of ₦90m has sub-heads of ₦40m, ₦30m and ₦20m. If the second needs an extra ₦8m and the third has ₦8m unspent, the transfer within the same head leaves the head at 40 + (30 + 8) + (20 − 8) = ₦90m. Moving ₦8m from a different head would be a transfer between heads, which virement does not allow, so a supplementary vote is needed.

Uses of the budget

1. Planning. Budgets are plans to which monetary values are assigned for what is to be achieved in a determinable future time, such as a year.
2. Communication. Budgets communicate horizontally and vertically. While a budget is prepared, individuals, groups, communities and associations tell government about their interests (upward communication); once it is approved, government reads it to the public and publishes it (downward communication).
3. Motivation. A budget is a target; government motivates staff through promotions and better conditions of service to help carry it out.
4. Standard for measuring performance. Because a budget is a target, what is achieved is recorded and compared with it; the process draws management attention to problem areas.
5. Evaluation of economic and social policy. Budgets are used to tackle social problems such as inflation and unemployment.
6. Cost reduction technique. Evaluating operations and procedures may lead to savings.

When a budget is not approved, spending can be incurred only under a provisional expenditure general warrant, which is why delay in approval weakens each of the uses above, since there is no authorised target.

The ideas in more depth

Why the legislature has the last word on money

The Constitution forbids spending from the Consolidated Revenue Fund except as authorised by the legislature. The executive proposes, but only the Appropriation Act, passed by both Houses and signed, makes the proposal lawful. Supplementary estimates and virement are exceptions that keep the same control: each needs the Assembly’s approval, and the conditions stop the executive from treating them as a way round the Act.

Why each condition for a supplementary vote matters

Public interest keeps supplementary money for national needs, not private ones; urgency stops it being used for what can wait; unforeseeability stops a ministry that under-estimated its needs from asking for more; and the virement test makes it use its own head first. Together they make a supplementary estimate a last resort.

Sources and references

• The 1999 Constitution (sections 80 to 82 and 120 to 122); the Appropriation Act process; the Finance (Control and Management) Act and the Financial Regulations on virement and supplementary estimates.

These points are stated as at 5 November 2026.

Worked examples

1. Deficit.
   3,650 − 3,200 = ₦450bn.
2. Percentage.
   450 ÷ 3,200 = 14.1%.

1. Percentage.
   120 ÷ 1,000 = 12%.
2. Total. ₦1,120bn.

1. Sum.
   40 + 38 + 12 = ₦90m, unchanged.

How to answer in the exam

• Give the phases in order with the body responsible for each.
• Distinguish the framework (three years, strategic) from the call circular (annual instruction).
• State all four conditions for a supplementary vote.
• For uses, name each use and give an example.

Common mistakes in the exam

• Saying that the legislature prepares the budget.
• Confusing the Appropriation Bill with the Appropriation Act.
• Allowing virement between different heads.
• Omitting that the money cannot be found by virement as a condition for a supplementary estimate.
• Describing the call circular as the framework itself.
• Forgetting that the finance committee’s resolution is final.

Quick revision

• Four phases: call circular and pre-treasury board; executive council; legislature; assent.
• Supplementary: public interest, urgent, unforeseen, no virement.
• Virement: within the same head, with the Assembly’s approval.
• Uses: planning, communication, motivation, standard, policy evaluation, cost reduction.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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