Fiscal and Monetary Policy Issues and Economic Stabilization Measures in Nigeria

Abstract

This study investigated the effect of fiscal and monetary policy issues on economic stabilization in Nigeria, with economic stabilization proxied by GDP growth rate (GDPGR). Fiscal policy was represented by the government revenue-to-GDP ratio (GRGDPR) and the capital expenditure-to-total expenditure ratio (CETER), while monetary policy was represented by the monetary policy rate (MPR) and real interest rate (RINTR). The study adopted an ex-post facto research design and used annual time-series data covering the period 1981–2024, sourced from the Central Bank of Nigeria (CBN) Statistical Bulletins and Annual Reports, and the National Bureau of Statistics (NBS). A purposive sampling approach was applied, and the autoregressive distributed lag (ARDL) methodology was employed to capture both short-run and long-run dynamics. Pre-estimation diagnostics, including descriptive statistics, correlation matrix, variance inflation factor (VIF) test, Breusch-Godfrey serial correlation LM test, Breusch-Pagan-Godfrey heteroskedasticity test, and Ramsey RESET test confirmed the appropriateness of the model. Group unit root tests revealed that the variables were integrated of mixed order, satisfying ARDL assumptions. The ARDL bounds test confirmed a long-run relationship between GDPGR and the selected fiscal and monetary variables. However, estimation results indicated that none of the fiscal or monetary policy variables had a statistically significant effect on GDPGR in either the short or long run. In the long run, GRGDPR had a coefficient of 0.885690 (p = 0.4141), CETER had 0.294136 (p = 0.3252), MPR had 0.046069 (p = 0.8969), and RINTR had 0.002553 (p = 0.9967). Short-run coefficients for these variables were similarly insignificant. Nonetheless, the error correction term (CointEq(– 1)) was –0.973159 and statistically significant at the 1% level, indicating a strong and rapid speed of adjustment toward long-run equilibrium following short-run disequilibria. These findings imply that, over the study period, fiscal and monetary policy measures in Nigeria, as proxied in this study, have not exerted a significant direct influence on economic stabilization. The results suggest that structural constraints, weak implementation frameworks, and limited policy transmission mechanisms may have undermined their effectiveness. The study recommends enhancing fiscal efficiency, improving capital project implementation, strengthening monetary transmission, promoting coordinated policy design, and implementing broader structural reforms to improve the growth effectiveness of fiscal and monetary interventions in Nigeria.