Fiscal Policy and Inflation in Nigeria: A Conceptual Review
- NIJAF MAU
- Jan 22
- 2 min read
Authors: Felix Osayabor EMOVON, Ph.D.
Abstract
The purpose of this paper is to analyze fiscal policy and inflation in Nigeria. Whether fiscal policy influences inflation. To achieve the study's objective, the library approach was adopted, which focuses on the review of relevant materials. The literature indicates that fiscal policy affects inflation, but the magnitude of the impact is insignificant, as argued by some scholars, while others argue that it is positively significant. However, the high inflation rate in Nigeria has been attributed to poor economic policies like devaluation of the naira and foreign exchange restrictions which increase import cost, insecurity, rising foreign exchange rates, insufficient domestic production, soaring transportation costs largely due to the removal of fuel subsidy, high costs of power (electricity tariff), high cost of borrowing, corruption, infrastructural deficits, among others, although some experts have also argued that the Russia-Ukraine conflict and the COVID-19 pandemic have also played a significant roles. The paper concludes that policymakers use fiscal policy to foster sustainable, robust economic growth while also aiming to keep inflation rates low and stable. Notably, the paper recommends that the government review its fiscal policy to adjust recurrent and capital expenditures and reduce imports by encouraging and supporting local production, given the meteoric rise in the exchange rate between the Nigerian naira and other major currencies. The paper further suggests that the government should build new refineries and fix the existing refineries to be operating at 100 percent capacity in order to cushion the effect of fuel subsidy removal, tackle insecurity and also review the high cost of power in order to reduce the high cost of production, as this will boost, encourage local production and attract foreign investors.
Keywords: Fiscal Policy, Inflation, Economic Growth, Expenditure, Economic Policies