TRANSPARENCY, GOVERNANCE AND FISCAL SUSTAINABILITY NEXUS: THE NIGERIA SCENARIO

Abstract

The problem of fiscal unsustainability has become pronounced in Nigeria. The role of policy makers and the availability of essential information on the economy seem to be major causes of this ominous predicament. This paper aimed at investigating the causal relationship between transparency, governance and fiscal sustainability in Nigeria from 1996 to 2021, using a vector auto regression framework. The empirical results confirm a cointegration relationship between transparency, governance and fiscal sustainability. The flow of causality between control of corruption and fiscal sustainability appears to be mixed. At 1 lag, control of corruption granger causes fiscal sustainability, while at 2 lags, fiscal sustainability granger causes control of corruption at 5% and 10% significance levels. Results of the impulse response functions suggest that one standard deviation innovation on fiscal sustainability reduces fiscal deficit in the medium and long term, while results of the variance decomposition indicate that a significant variation in Nigeria’s fiscal sustainability is not attributable to changes in the political stability. It is recommended that for fiscal sustainability to be improved and sustained, mechanisms which deliberately seek to enhance improved level of fiscal discipline in the country should be employed. It is also imperative for more institutionalized policies that can improve transparency and promote inclusive governance that can curb fiscal indiscipline like budget deficit in view of stimulating fiscal sustainability in Nigeria.