Fiscal Policy in Nigeria: An Appraisal of the Increasing Role of Sub-National Governments

The conduct of economic policy is a shared responsibility of the three tiers of government in Nigeria with federal government having the largest share especially in the area of revenue generation, hence the role of state and local governments in the fiscal policy actions in the past are often disregarded. Analysts are, however, of the view that, in recent times, particularly with the entrenchment of democratic governance, the fiscal policy feats of sub-national government put together are becoming as important as that of federal government. This study therefore assesses the trend in the fiscal policy roles of the three tiers of government in Nigeria, to determine which is dominant; federal or state and local governments put together. The findings of the study indicate that, there is still a “centripetal” bias in the assignments of revenue powers without regard to expenditure responsibilities. The expenditure trends of the sub-national governments have surpassed that of federal government without a corresponding increase in their revenue powers, thereby makes them heavily dependent on federal government for revenue. It also finds an increasing trend in the fiscal deficit of sub-national government. The study suggests further divulgence of tax base in favour of sub-national governments or increase in their share of Federation Account as well as diversification of the nation’s revenue base so as to improve the revenue accruable to all tiers of government. Keywords: Fiscal policy, government, revenue, expenditure, budge

Nigeria’s Potential Growth and Output Gap: Application of Different Econometrics Filters

The concept of potential output and the corresponding output gap had received considerable attention by both policy makers and academic researchers, particularly in the developed countries. This is a reflection of not only its theoretical significance, but also its policy relevance. Output gap is used to model price and wage inflation, in estimating fiscal balance and the impact of structural reforms on the economy, hence an important indicator of fiscal policy trust. Most importantly, to a central banker it is critical in modelling monetary policy decision making process, as it serves as an input into central banks economic projections which forms an integral part of monetary policy decision and the setting of monetary policy rates. This paper measures the potential output and the corresponding output gap for Nigeria using Hodrick-Prescott filter, Baxter-King filter and both fixed and full length Christiano-Fitzgerald filters. The methods yielded different results, but with strong similarities in their evolution over time. According to all the methods, on the average, the economy was over heated during the early part of the sample period (2004:Q1 to 2005:Q4) but operated below capacity between 2008:Q1 and 2009:Q4. Interestingly, a fairly strong and stable relationship exists between inflation and the estimated output gaps. With this noticeable connection, using output gap to compliment expert judgement, in monetary policy decision making, would conceptually be a good decision. Keywords: Potential growth, output gap, econometric filtering, Nigeri

A Post Market Reform Analysis of Monetary Conditions Index for Nigeria

The introduction of SAP and the accompanying financial market reform in 1986, witnessed a continuous decline of emphasis on direct monetary controls by the Central Bank of Nigeria (CBN) such that the Naira is allowed to freely float while trade and exchange controls were liberalized, market based interest rate policy was introduced and mandatory credit allocation was abolished to pave way for effective implementation of a market based system whereby the use of market forces is encouraged. This led to significant changes in the monetary policy framework of the CBN. However, while the post SAP monetary policy strategies, institutional framework and arrangements as well as instruments have been adequately given research attention, the monetary conditions arising from the adoption of these different strategies, framework and instruments have been largely ignored. The study applied a bounds testing approach to cointegration to estimate the weights of the variables in the broad monetary conditions index for Nigeria for the period 1989:Q1 to 2012:Q2. The result attached a higher weight to interest rate channel, followed by exchange rate channel and then credit channel, implying that interest rate channel is more important than the exchange rate and credit channel in determining the level of output in Nigeria. The resultant monetary conditions index traces fairly well the policy direction of the Central Bank of Nigeria for the studied period, hence can serve as an adequate gauge of monetary policy stance of the CBN. Keywords: Monetary policy, monetary conditions, monetary transmission, ARDL, cointegratio

Money, Exchange Rate, Prices and Output in Nigeria: A Test of the P-Star Model

The search for robust model to predict inflation within a QTM framework gave birth to P-star model which has attracted less attention of researchers and practitioners in Nigeria. This study applied the methodology to high frequency Nigerian data from 1995M1 to 2018M6 to determine the validity of the model for Nigeria using error correction model (ECM). The result supports the working of the model but with slight modification. The modification centres on the incorporation of foreign price gap, (open economy view of inflation), reserve money (Friedmanic/monetarist view), price per litre of petroleum motor spirit (PMS) and output gap (Structuralist view). With this modification, P-star model proved to be a viable inflation forecasting alternative model for Nigeria. Consequently, the Central Bank of Nigeria is advised to consider adopting this modified version of the model to forecast inflation for Nigeria at least as a complimentary model to be used side-by-side with the existing forecasting model of the Bank. This will no doubt enhance the efficacy of the monetary policy of the Bank as such policies will be predicated on sufficient information, particularly on the future path of inflation

Capital Structure and Profitability of Deposit Money Banks: Empirical Evidence from Nigeria

The banking sector consolidation exercise that took place in Nigeria in 2005 did not only reduce the number of Deposit Money Banks (DMBs) but diversified their capital structure and adjusted their regulatory capital requirements. Given these developments, it is imperative that the DMBs determine the most optimal financing mix which minimises the cost of financing as well as maximises returns. This study empirically examined the impact of capital structure (owners’ funds and borrowed funds) on bank profitability in Nigeria. Applying autoregressive distributed lag model on a sample of 13 DMBs from 2005 through 2014, the study found that about 83 per cent of total assets employed by the DMBs are not financed by owners, confirming the hypothesis that banks are highly levered institutions. Consistent with the agency and static trade-off theories of capital structure and earlier empirical findings in Nigeria, the results further found evidence of a positive and significant influence of both owners’ and borrowed funds on profitability. However, borrowed funds was found to be more prevalent in enhancing the performance of DMBs during the study period. Following these findings therefore, the study recommends that DMBs should study and understand the dynamics of capital structure to enable them make optimal capital mix decision. In addition, since debt is more critical in boosting profitability of banks in Nigeria, DMBs should employ more debt than equity in financing real investment with positive net present values. The management and board of directors of DMBs should incentivise lenders and depositors so as to enhance easy access to funds other than shareholders’. Additional incentives on depositors’ and creditors’ funds such as increase in their returns are capable of attracting more funds from the investing public to create assets. Key Words: Capital Structure, Owners’ Funds, Borrowed Funds, Gross Earnings, Deposit Money Banks, Nigeri

Employee Commitment and Retention among Medical Doctors and Nurses in University Teaching Hospitals in North-Western Nigeria

Employee commitment and retention are two axioms associated with productivity and stability of employment in organizations. This concept is much more important in the health sector. This study investigates the relationships between each dimension of employee commitment and retention as well as determines their combined influence on retention among doctors and nurses in University Teaching Hospitals in North-Western Nigeria. The study uses cross sectional survey data collected in 2015 from 441 respondents drawn through multi-stage sampling technique. The data was analysed using correlation and regression techniques. The results, in line with multidimensional theory of commitment, indicate that employee commitment dimensions (affective, continuance and normative) are significantly related to retention. Contrary to findings of some previous studies, however, normative commitment is more prevalent in affecting retention than affective commitment. The study, therefore, recommends that management should foster and sustain high levels of affective and normative commitments among employees. Critical working tools should also be made readily available and the overall working environment be made conducive in order to enhance their commitment and retention. Key Words: Employee Commitment, Retention, Management, Teaching Hospitals, Nigeria

How Effective is Monetary Policy in the Presence of High Informality in Nigeria

This study investigates whether the existence of high informality in Nigeria dampens effective transmission of monetary policy variation to retail rates. Using time series data from 1981-2018, the study adopts ARDL model to estimate both the long and short-run impacts of a high informal economy on the effectiveness of monetary policy. Findings reveal that changes in monetary policy rate has a significant positive impact on retail rates and that, without accounting for informality in the long-run, the transmission of monetary policy to commercial banks' average lending rate is about 95 percent. In addition, the study finds that, in the long-run, informality dampens the effectiveness of monetary policy in Nigeria through the interest rate channel by at least 72 percentage points. The authors, therefore, conclude that high presence of informality in Nigeria dampens the effectiveness of the monetary policy and that the size of the informal economy and commercial bank lending rate are positively related

Investigating Predictors of Inflation in Nigeria: BMA and WALS Techniques

The recent economic conundrum arising from the fall in the international oil price has threatened the maintenance of price stability, a key function of the central bank, therefore the need to investigate predictors of inflationary measures arises. The model averaging method considers uncertainty as part of the model selection, and include information from all candidate models. We analysed a wide spectrum of inflation predictors and all the possible models for Nigeria CPI inflation using the Bayesian Model Averaging and Weighted Average Least Squares. The study uses fifty-nine (59) predictor variables cutting across all sectors of the Nigerian economy and three (3) measures of inflation, namely; all items consumer price index, core consumer price index and food consumer price index. The results from both model averaging techniques showed that maximum lending rate, world food price index and Bureau de change exchange rate are the significant drivers of inflationary measures among focus variables, while foreign assets, credit to private sectors, net credit to government and real effective exchange rate are the drivers of inflationary measures, for the auxiliary variables, strongly supporting the monetarist and open economy views on inflation. The structuralist view is reported to be relatively weaker because government expenditure is only significant at 10.0 per cent.

Investigating Predictors of Inflation in Nigeria: BMA and WALS Techniques

The recent economic conundrum arising from the fall in the international oil price has threatened the maintenance of price stability, a key function of the central bank, therefore the need to investigate predictors of inflationary measures arises. The model averaging method considers uncertainty as part of the model selection, and include information from all candidate models. We analysed a wide spectrum of inflation predictors and all the possible models for Nigeria CPI inflation using the Bayesian Model Averaging and Weighted Average Least Squares. The study uses fifty-nine (59) predictor variables cutting across all sectors of the Nigerian economy and three (3) measures of inflation, namely; all items consumer price index, core consumer price index and food consumer price index. The results from both model averaging techniques showed that maximum lending rate, world food price index and Bureau de change exchange rate are the significant drivers of inflationary measures among focus variables, while foreign assets, credit to private sectors, net credit to government and real effective exchange rate are the drivers of inflationary measures, for the auxiliary variables, strongly supporting the monetarist and open economy views on inflation. The structuralist view is reported to be relatively weaker because government expenditure is only significant at 10.0 per cent.

Forecasting Nigerian Inflation using Model Averaging methods: Modelling Frameworks to Central Banks

As a result of the adverse macroeconomic effect of inflation on welfare, fiscal budgeting, trade performance, international competitiveness and the whole economy, inflation still remains a subject of utmost concern and interest to policy makers. The traditional Philips curve as well as other methodologies have been criticized for their inability to track correctly the pattern of inflation, particularly, these models do not allow for enough variables to be included as part of the regressors, and judgment is often made by a single model. In this work, model averaging techniques via Bayesian and frequentist approach were considered. Specifically, we considered the Bayesian model averaging (BMA) and Frequentist model averaging (FMA) techniques to model and forecast future path of CPI inflation in Nigeria using a wide range of variables. The results indicated that both in-sample and out-of-sample forecasts were highly reliable, judging from the various forecast performance criteria. Various policy scenarios conducted were highly fascinating both from the theoretical perspective and the prevailing economic situation in the country