Nigerian Economy and Medium-Term Expenditure (MTEF) Framework

A Structural Vector Autoregressive Analysis

Abstract

The operations of medium-term expenditure framework(MTEF) in Nigeria in the recent years has revolved around the adoption of an oil-priced based fiscal rule and complete adherence to that rule in budget initiation and implementation. The focus of this paper is on the examination of MTEF on economic growth. The structural vector autoregressive model [SVAR] approach was adopted in  achieving this objective between the period 1970 to 2020 using data and proxy  variables sourced from the Central Bank of Nigeria (CBN), National Bureau of Statistics[NBS], African Development Database [AfDB, 2020] and the World Bank Development indicator (WDI,2020). The variables used include, real GDP, the dependent variable; fiscal balance as percentage of GDP, total government debt, total government expenditure, broad money supply and exchange rate as explanatory and control variables. The framework was anchored on the Barro (1996) economic growth framework. The key findings show that total government expenditure on real GDP accounted for 49% and 42% of the shocks respectively on economic growth. From the result also, the shock of fiscal balance on economic growth ranges from 60% in the 1^st quarter to 5% in the 2^nd quarter. This implies that the shock of fiscal balance on real GDP may be temperate and may have short term effect on economic growth. The findings further reveal that inflation shock resulting from oil price accounted for about 2% and as such fluctuation in oil price may cause inflationary pressures on the economy in the short-run. Diversification is germane to the export growth of the Nigerian economy; hence, the paper reiterated the importance of diversifying the Nigerian economic base so as to reduce the shock of MTEF on economic growth in the medium to the long term.