How Sustainable is Fiscal Policy in Nigeria?

Abstract

The rise in public debt has heightened fiscal sustainability challenges, with the potential of throwing countries into the risk of committing costly mistakes of accumulating public debt to unsustainable levels. The paper determines the extent of fiscal sustainability in Nigeria between 1981 and 2022 by comparing the existing level of the fiscal spending with the resources to pay it off. A technique of Dynamic Ordinary Least Squares (DOLS) is used to test for existence or otherwise of fiscal sustainability based on the inter-temporal budget constraint (IBC) and the results reveal a weak fiscal policy sustainability for Nigeria. It is recommended that the Nigerian government should ensure a reasonable cut in her frivolous spending so as to reduce the country’s continuous rise in debt profile. This is to enhance a higher level of fiscal sustainability for the African largest economy to ensure a more robust and systemic link between tax and expenditures policies that will not engender sustainable growth and development.