Fiscal Stability and Macroeconomic Environment in Nigeria: A Further Assessment
DOI:
https://doi.org/10.18096/TMP.2021.03.05Keywords:
Debt, fiscal stability, macroeconomic environment, revenue, sustainabilityAbstract
This paper examines the relationship between fiscal stability and macroeconomic environment in Nigeria using time series data covering the period 1981-2019. As Nigeria’s debt appears excessive amid macroeconomic imbalance, different concerns are raised about the capacity of the government to repay the debt. In this regard, several studies are conducted on the sustainability of the country’s debt. But then, as a long-run analysis, assessment of debt sustainability is prone to considerable uncertainty and large margins of error. Thus, the relevance and need for a short-run analysis which serves as the basis for assessing fiscal stability. In the process, while multiple structural breaks are revealed in the total revenue, exchange rate, and total debt series, a feedback causal-effect is affirmed between fiscal stability and interest rate. Consequently, the short-run analysis establishes negative impacts from each of debt and exchange rate, as against positive effect from revenue on fiscal stability. As such, given a mixed relationship between fiscal stability and certain macroeconomic factors, an improved revenue collection is suggested with reduction in borrowing.
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i i The International Monetary Fund [IMF] is worry about the sustainability of the country’s debt profile which rises from $3627.5 million in 2009 to $79.44 billion in first quarter 2019 (Nweze, 2019).
ii ii The total deficit widens from 4.3% in 2019 to 5.2% in 2020 as the figure reaches ₦4.45trillion from ₦3.8trillion in 2019 (Asu, 2019; African Development Bank [AfDB], 2021; Sunnews, 2021).
iii iii Even while the debt level is within the specific limit of 19.39% as public debt-to-GDP rises from 13.02% in 2015 to 16.27% in 2016, yet, owing to low revenue, especially from the oil sector, the public debt service-to-revenue is relatively high at 33.94% (DMO, 2017; AfDB, 2021).
iv iv The federal government introduced the fiscal sustainability plan (FSP) in 2016 and the economic sustainability plan (ESP) in 2020 to revive the economy from recessions in both years.
v v According to DMO (2017), external debt analysis captures external debt of the federal government of Nigeria (FGN), the 36 states and federal capital territory (FCT); while fiscal sustainability analysis (or total public debt sustainability) covers domestic and external debt of the FGN, states and FCT, and their respective revenues, including internally generated revenues.
vi vi The revenue strategies include the introduction of value added tax (VAT) in 1993, tax reforms of 2004, and FSP in 2016, among others. The country received debt forgiveness from the London and Paris Clubs in 2005.
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