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Effect of Government Spending on Fiscal Sustainability in Nigeria

Prof. M.A. Mainoma and Luka Joshua Izang

Abstract

The study examines the effect of government spending on fiscal sustainability in Nigeria from 2016 to 2024. Using Ex post facto research design, quarterly time series data were extracted from the NBS annual report & Central Bank of Nigeria's statistical bulletin 2024 and Johansen cointegration test was used based on the unit root test result. The dependent variable was proxied by Debt-GDP ratio, while the independent variables were proxied by capital expenditure and recurrent expenditure. The Johansen cointegration shows that Debt-to-GDP, Capital Expenditure, and Recurrent Expenditure do not exhibit a cointegrating relationship in the long run. Thus, in the short-run, the walt test showed that capital expenditure had negative significant effect on Debt-GDP ratio in Nigeria, while recurrent expenditure had a positive significant effect on Debt-GDP ratio in Nigeria. Therefore, the study recommended that government should rebalance its expenditure profile by allocating a greater share of resources to capital projects that stimulate growth and revenue generation. This will enhance the debt- servicing capacity of the economy by improving fiscal sustainability. Also, efforts should be made by government to curb the unsustainable expansion of recurrent outlays, particularly in salaries and administrative overheads. Introducing expenditure ceilings and improving payroll audits can help reduce fiscal leakages and improve fiscal sustainability.

Keywords

Government SpendingCapital ExpenditureRecurrent ExpenditureFiscal SustainabilityDebt-GDP Ratio.

References

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