The Central Bank of Nigeria published a Working Paper Series study on how Nigeria’s public expenditure cycle influences macroeconomic stability over 2010Q1–2023Q4, noting that the findings reflect the authors’ views rather than Central Bank policy. Using a nonlinear ARDL framework, the paper reports an asymmetric relationship in which spending reductions worsen macroeconomic stability in the short run, while spending increases are associated with worse stability in the long run; it also finds that private sector credit expansion reduces instability. Methodologically, the expenditure cycle is extracted from aggregate federal government expenditure using a Hodrick-Prescott filter, while macroeconomic stability is proxied by a principal-component index based on real GDP growth, the maximum lending rate and the consumer price index, with crude oil prices, credit to the private sector and the 91-day Treasury bill rate included as controls. The analysis identifies structural breaks in 2016Q3 and 2022Q1 and estimates an error-correction adjustment speed of about 53% over four quarters. On policy, the authors recommend strengthening countercyclical fiscal management by revising the Public Finance Management Act and amending the Fiscal Responsibility Act 2007 to require saving foreign crude oil earnings and exchange gains above appropriated amounts in a consistently funded Sovereign Wealth Fund, and they caution against relying on 91-day borrowing during downturns due to potential adverse effects on private sector investment.
Central Bank of Nigeria 2025-12-29
Central Bank of Nigeria working paper links spending upswings to higher macroeconomic instability and calls for stronger fiscal buffers
The Central Bank of Nigeria's study examines the impact of public expenditure on macroeconomic stability from 2010Q1 to 2023Q4, highlighting an asymmetric relationship where spending cuts worsen short-term stability and increases harm long-term stability. It suggests private sector credit expansion reduces instability and recommends enhancing countercyclical fiscal management by revising fiscal laws and cautioning against reliance on short-term borrowing during downturns.