Monetary-Fiscal Policy Coordination and Economic Growth Sustainability in Nigeria

In many economies the major role of government is the regulation and stabilization of the system in other to achieve macroeconomic objectives, which include but not limited to sustainable economic growth, full employment, and price stability. Monetary and fiscal policies have been considered as viable economic planning strategies for achieving the stated macroeconomic objectives. But the extent to which each is to be used to achieve the desired objectives is a matter of intense debate among policy makers and economists. This study is on monetary-fiscal policy coordination and economic growth sustainability in Nigeria. The objective is to examine the contributions of monetary and fiscal policies to economic growth in Nigeria and how their coordination has affected the economy towards growth recovery and sustainability. Unit root test, co integration test, Auto Regressive Distribution Lag (ARDL) model and trend analysis were some of the econometric techniques used for data estimation. The following variables were used as explanatory variables – Money Supply (MS), Monetary Policy Rate (MPR), Total Government Expenditure (TEXP) and Tax Revenue (TXREV), while the dependent variable is Real Gross Domestic Product (RGDP) proxy of economic growth. The data were sourced from Central Bank of Nigeria (CBN) statistical bulletin covering the period of 37 years. The result of the st stationarity test showed that all the independent variables were stationary at 1 difference while the dependent variable was stationary at level form. The Bound test proved that there was the existence of long run equilibrium relationship among the variables. The result from the short run analysis showed that TXREV was significant in one period lag and negatively related to RGDP. In the long run MPR and MS have significant impact on RGDP and were rightly signed. The combined effect of monetary and fiscal policies on the level of economic growth in Nigeria is found to be weak and unstable over the years of study, which indicates weak long-run relationship between the explanatory variables and the dependent variable. It is therefore necessary to establish an appropriate framework to intensify coordination between monetary and fiscal policies as tools for economic stabilization. However increased autonomy of the Central bank and the Debt management office may help realize the desired objective.