Fiscal Sustainability And Economic Growth Nexus In Nigeria

Abstract

Purpose – Analyzing the impact of fiscal sustainability indicators (debt to GDP ratio, tax to GDP ratio, debt service to revenue ratio, and fiscal balance) on Nigeria's economic growth.

Design/methodology/approach – It employs a quasi-experimental quantitative approach using time-series data from the Central Bank of Nigeria covering the period 1990–2024. The analysis utilizes the Augmented Dickey-Fuller (ADF) unit root test, the Johansen cointegration test, and the Error Correction Model (ECM).

Originality – The analysis focuses on the use of fiscal sustainability indicator ratios rather than merely absolute debt or expenditure values and incorporates the latest data on fiscal dynamics up to 2024.

Findings and Discussion – Debt to GDP Ratio: Significant negative impact ($\beta = -2.11$; $p = 0.0450$); excessive debt triggers a debt overhang. Tax to GDP Ratio: Positive but insignificant impact ($\beta = 2.48$; $p = 0.3816$); tax revenue remains suboptimal. Debt Service-to-Revenue Ratio: Significant negative impact and the most dominant factor ($\beta = -8.07$; $p = 0.0037$); debt repayment burdens drain funds from productive sectors. Fiscal Balance: Significant negative impact ($\beta = -1.87$; $p = 0.0328$); prolonged deficits slow down growth. Speed ​​of Adjustment (ECM): -0.293 ($p = 0.0000$); 29.3% of the disequilibrium is corrected annually.

Conclusion – Fiscal sustainability is crucial for Nigeria's economy. Economic growth is hampered by excessive debt, recurring deficits, and, above all, the burden of debt service payments. The government is advised to implement prudent borrowing strategies, ensure budget efficiency, and strengthen domestic tax collection.

Keywords – Debt service to revenue ratio, fiscal sustainability, fiscal balance, public debt to GDP ratio, tax to GDP ratio.