Fiscal Policy and Public Debt Sustainability in Nigeria

Abstract

The study investigated fiscal policy and public debt sustainability in Nigeria between 1990 and 2017, by employing an error correction model and IMF/World Bank debt burden indicators such as solvency and liquidity ratios. The results from IMF/World Bank debt burden indicators revealed that Nigeria’s debt has been sustainable over the last 8- 10 years using the solvency ratios. Also, the liquidity indicator (debt service/export earnings) showed that Nigeria was able to meet its short term liabilities, as the debt burden indicators were below the indicative threshold of 20%. On fiscal policy sustainability, the empirical result using cointegration test revealed that the fiscal variables were cointegrated, indicative of the fact that fiscal policy in Nigeria was sustainable. However, it was further revealed by Wald coefficient restriction test that although fiscal policy in Nigeria was sustainable, it was found to be weakly sustainable. Thus, Nigeria could introduced debt ceilings in order to prevent explosion of the initial stock of debt arising from arbitrary borrowings by state governments.

DOI: 10.7176/JESD/10-19-02

Publication date:October 31^st 2019