To understand the trend of the dataset, it is imperative to look at it from the fiscal policy angle. Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, especially macroeconomic conditions. These include aggregate demand for goods and services, employment, inflation, and economic growth. The fiscal policy can be categorized into three, namely: government revenue, government spending, and public debt.
Government revenue or national revenue is money received by a government from taxes and non-tax sources to enable it to undertake government expenditures.
Figure 1 shows the trend of both oil and non-oil activities in Nigeria. There has been an increase in both oil and non-oil activities from 2010 to 2015. Figure 1 indicates a decline in oil and non-oil activities in 2016. Experts claim that the 2016 economic recession was as a result of a massive decline in oil prices and poor management of the currency crisis at the time. This had a negative transmission effect on the economy, which affected the non-oil activities in Nigeria.
Prior to the current economic recession, the National Bureau of Statistics (NBS) reported that Nigeria experienced a growth rate of 4.45 per cent in the real gross domestic product (GDP) in the first quarter of 2013, and then went on to have a 5.40 per cent and a 5.17 per cent increase in the second and third quarters, respectively. The highest growth rate was experienced in the fourth quarter of 2013, with a 6.77 per cent increase in real GDP. The first quarter of 2014 saw a fall in the growth rate to 6.21 per cent, and subsequently to 6.54 and 6.23 per cent in the second and third quarters, respectively. The growth rate further declined to 5.94 per cent in the fourth quarter of that same year. This was the year Nigeria was declared the country with the largest economy in Africa.
The decline in growth rate continued as it fell to 3.96 per cent and 2.35 per cent in the first and second quarter of 2015. The third and fourth quarters of 2015 witnessed a 2.84 per cent and 2.11 per cent growth rate. However, the Nigerian economy started showing symptoms of recession when NBS reported a negative growth of 0.36 per cent in the first quarter of 2016. The country then went into a full-blown recession as a result of another negative growth of -2.06 percent in GDP in the second quarter of the same year.
The factors that led to the economic recession
i. Fall in Demand for Nigeria’s Crude Oil
Following the boom in shale oil production in 2014, the United States of America (USA) announced that it had reached the level of self-sufficiency and did not see the need to import crude oil anymore. This led to a fall in the total demand for Nigeria’s crude oil from 2.29 million from 2.05 million barrels per day in the first quarter of 2013 to 2.05 million barrels per day in the second quarter of 2015; and a fall in the percentage contribution of crude oil and gas to real GDP from 14.75 percent in the first quarter of 2013 to 9.80 percent in the second quarter of 2015; thereby leading to a fall in foreign exchange earnings. The fall in foreign exchange earnings then worsened the country’s balance of payment. This is the genesis of the problem.
ii. Crude Oil Supply Gluts
The fall in international demand for crude oil and the lifting of the ban on the export of Iran’s crude oil led to a supply glut in the international market, thereby leading to the fall in global oil prices from an all-time high of $114.49 per barrel in December 2012 to $53.77 per barrel on July 30, 2015, and subsequently, to an all-time low of $27.82 per barrel on January 20, 2016. All of these have a transmission effect on both the revenue and the Figures 1 and 2 above show steady growth until 2020, when there was another sharp decline, which was orchestrated as a result of the COVID-19 pandemic. The figures are therefore subject to the general economic events and activities in Nigeria.
Government expenditure refers to the purchase of goods and services, which includes public consumption and public investment, and transfer payments consisting of income transfers (pensions, social benefits) and capital transfers. It can also be described as the cost incurred by the government in running its daily activities.
Figure 3 shows the trend of total expenditure, the figure depicts that total recurrent expenditure has been on increase from 2010 to 2020, followed by total debt and then the total capital expenditure. The implication of this figure 3 is that the government spent a greater part of its expenditure on personnel and overhead costs. The breakdown between these two types of spending is very important. While capital expenditure has a lasting impact on the economy and helps provide a more efficient, productive economy. Recurrent expenditure, however, does not have such a lasting impact. Once the money is spent, it is gone and the effect on the economy is simply a short-term one.
The total debt, on the other hand, has been on increase from 2010 to 2020 as indicated in figure 3. A study by Khan, Rauf, Mirajul-haq, and Anwar (2016) examined the impact of public debt on the economic growth of Pakistan results revealed in the study showed that public debt and economic growth have positive but statistically insignificant relationships. While a similar study conducted by Ajayi and Edewusi (2020) discovered that external debt exerts a negative long-run and short-run effect on the economic growth of Nigeria and domestic debt was ascertained to exert a positive long-run and short-run effect on the economic growth of Nigeria.
Figure 4 clearly explains a situation where the revenue is less than the expenditure. From 2010 to 2020, we can observe that there has been a continual increase in the budget deficit. It is essential to understand this deficit from the budget angle. What Is a Budget Deficit? A budget deficit occurs when expenses exceed revenue and can indicate the financial health of a country. The term is commonly used to refer to government spending rather than businesses or individuals. The economic implication of a budget deficit is that it will lower taxes and increase Government spending (G), this will increase aggregate demand (AD) and this may cause higher real GDP and inflation.
Figure 5 indicates five fiscal policy variables in percentage, personnel costs overhead costs, recurrent expenditure, debt, and capital expenditure. The recurrent has the highest percentage, which implies that government spend more on payments other than capital assets, including goods and services, interest payments, subsidies, and transfers. The next is the personnel costs, costs that are made up of wages, salaries and employers’ social security costs tend to take the greater part of expenditure from 2011 to 2020. Debt has been on the increase as indicated in figure 5. This explains the fact that Nigeria’s public debt has been going up in recent times. Capital expenditure has the lowest percentage as shown in figure 5.
Figure 6 shows some macroeconomic variables such as debt servicing, inflation, and deficit-GDP. It is imperative to look at each of them. Debt service refers to the money that is required to cover the payment of interest and principal on a loan or other debt for a particular time period. The term can apply both to individual debts, such as a home mortgage or student loan, and corporate or government debt, such as business loans and debt-based securities, such as bonds. The ability to service debt is a key factor when a person applies for a loan or a company needs to raise additional capital to operate its business. “Service a debt” means making the necessary payments on it. There has been an increase in debt servicing from 2010 to 2020. However, there was a sharp decline from 2018 to 2019 and another sharp increase in 2020, as indicated in figure 6. The inflation rate trend has been moving in a steady state from 2010 to 2020. The deficit GDP, on the other hand, exhibits a negative trend from 2010 to 2020.
In conclusion, data are critical for the characterization, verification, validation, and assessment of models or trends to ascertain the behaviour of variables. Without adequate data to verify and assess them, many models would have no purpose and variables would have no meaning.