Remittances And Fiscal Sustainability In Nigeria: Is There Any Link?

Abstract

Remittances have attracted extensive debate over their use and the role they play in an economy for some decades now. Nigeria had always been faced with diminishing revenue each time oil price nosedives, forcing the country into massive borrowing to fund budgets. This study is an attempt to elicit interest once more, on the subject of remittances and to contribute to the on-going debate, of its efficacy or otherwise in curing society’s macroeconomic ills. The objective of this study is to investigate whether remittances affect fiscal sustainability in Nigeria.  Johansen cointegration test was employed to check for long run relationship. The study used annual time series data from 1977 to 2014 obtained from the Central Bank of Nigeria and the World Bank. The study applied Ordinary Least Squares (OLS) estimation technique within an error correction modelling context, and the results indicate that remittances have significant impact on fiscal sustainability in the long run but not in the short run. One year lag of remittances improved fiscal sustainability (by reducing debt to GDP plus remittances ratio) by about 1.28% on average every year. Further findings suggest that the Nigerian government should collaborate with other countries that receive remittances in massive size and champion for its inclusion in fiscal sustainability analysis as this would help expand the governments’ borrowing capacity and risk rating.

Keywords: Remittances, Fiscal Sustainability, Risk Rating, Borrowing Capacity, Error Correction Modelling, Debt Sustainability, Nigeria