Fiscal policy and current account in an oil-rich economy: the case of Nigeria

This study empirically investigates the link between fiscal policy and the current account in Nigeria. Given the enormous influence of the oil revenue on Nigeria's economy, the study separates the effects of oil on the fiscal balance and the current account balance. In line with existing literature, the causal link between the fiscal balance and current account takes into consideration the contemporaneous effects on the current account balance brought about by exchange-rate fluctuations, the growth in GDP, and the growth in money supply. The models are estimated using time-series data from 1970 to 2012, using the Johansen estimation techniques. The results from the estimation results reveal the existence of a positive and stable relationship between government budget surplus and the current account balance in the overall economy. In the non-oil segment, on the other hand, there is evidence of a twin-deficit, a fact which has been blurred by proceeds from the oil revenue. The unequivocal conclusion is that the country remains over-reliant on the revenue generated by oil; also, the proceeds from oil have not yet trickled down to the rest of the economy.