MONETARY INFLATION AND FISCAL SPENDING IN NIGERIA
MONETARY INFLATION AND FISCAL SPENDING IN NIGERIA

Summary/Abstract: In Nigeria, fiscal expenditures continue to grow without a corresponding increase in revenue. This has worsened fiscal sustainability resulting in high rate of deficits and severe inflationary pressure. In this study, we examined the relationship between monetary inflation and fiscal spending in Nigeria using time series data from 1981 to 2016. Following ex post facto research design, we employ Least Squares (LS) technique in the estimation while line graph, normality test, correlation analysis were used in the preliminary analysis. Data for the model in which inflation was made a function of government recurrent expenditure, government capital expenditure and interest rate were collected Central Bank of Nigeria (CBN) Statistical Bulletin. The findings indicates that government capital spending (𝛽𝛽=-0.778665, t=-10.1298, p<0.05) exert a significant negative effect on monetary inflation in Nigeria, money supply (𝛽𝛽=1.556819, t=2.7021, p<0.10) exert a significant positive effect on monetary inflation in Nigeria. However, government recurrent spending (𝛽𝛽=-1.0005, t=-0.1970, p<0.10) exerts no effect on monetary inflation in Nigeria. The result suggests that inflation do not grow with the growth in fiscal spending a results which implies that government fiscal spending has not reach a level that it can stimulate inflation and that, inflation is indeed monetary phenomena in the country. Therefore, government needs to discourage all non-productive expenditures since fiscal spending has been shown to be ineffective neither in raising aggregate demand nor stimulating inflation. Also, contractionary monetary policy as well as economic diversification and import reduction policies that can bring about stable inflation rate should be revitalised.

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