This study examines the impact of Economic Sustainability Plan (ESP) on the performance of the Nigerian economy as a national economic resilient policy in the post COVID-19 era within the framework of a macro-econometric model. The study is hinged on the Keynesian general theory of employment, income and interest. Annual time series data spanning from 1970 to 2019 for within sample forecast, and a six-year out-of-sample forecast spanning from 2020 to 2025 were used. The policy scenario of 21.3 percent increase in government expenditure under the ESP as a stimulus package was simulated and the findings showed that increase in government expenditure under the ESP in critical areas would bring about significant impact on the macroeconomic performance of the Nigerian economy, especially on employment, inflation, economic growth and balance of payment in the post COVID-19 era. Emer gent from these findings, the study recommended among others that the government should mobilize resources to finance the ESP in order to stimulate the economy in the post COVID-19 era by ensuring prudential fiscal management of resources; and the Central Bank of Nigeria (CBN) should ensure that financial institutions saddled with the responsibility of disbursement of intervention funds reduce interest rate from 9 percent to 5 percent as reflected in the ESP.
The outbreak of COVID-19 has created distortions in the global health and economic systems due to the high rates of infections and deaths resulting in serious disruptions in the macroeconomic trajectories of economies the world over. In Nigeria, the pandemic has taken a toll on the economy as a result of the lockdowns and the slump in international oil prices precipitated by low global demand for oil. The dependence of the Nigerian economy on oil for revenue and foreign exchange made the economy particularly vulnerable in the face of the pandemic. The dip in oil prices has reduced the revenue available for the government at all levels with its negative attendant consequences on wages, overheads and capital expenditures; this has implications for the 2020 budget. Given the shortfall in revenue to finance the budget and contain with the raising health expenditure, public debt in the economy has increased from US $79,303.31 million in March 2020 to US $85,896.52 million in June 2020 [
Given this bleak economic outlook, the Nigerian government launched the Economic Sustainability Plan (ESP) on March 30, 2020 as the National Economic Resilience (NER) response to the outbreak of COVID-19 pandemic. The general objective of the plan is to provide stimulus packages to the Nigerian economy and prevent it from total collapse and illiquidity. The plan intends to invest in agriculture, manufacturing, Micro, Small and medium Scale Enterprises (MSMEs) with a view to creating jobs and reducing poverty in the post COVID-19 era [
Following the proposed stimulus package in the Nigerian economy to salvage the ravaging effects of COVID-19, the fundamental question that arises is: to what extent will this injection stimulate the macroeconomic performance of the Nigerian economy in the post COVID-19 era? Answering this question requires simulating the impact of the increase in government expenditure under the ESP on macroeconomic indicators of the Nigerian economy. Therefore, the objective of this paper is to simulate the extent of the impact of government expenditure under the ESP on the Nigerian economy in the post COVID-19 era. Towards this end, the rest of the paper is organized into four sections following the introduction. Section 2 is the literature review; Section 3 is hinged on the methodology; Section 4 dwells on results and discussion; Section 5 deals with the conclusion and policy recommendations.
The review of literature is divided into three parts, namely; the conceptual clarification, the theoretical and empirical literature review.
1) Economic Sustainability Plan: Economic Sustainability Plan is the Nigeria’s National Economic Resilience (NER) plan in response to the outbreak of COVID-19 that was launched on March 30, 2020. The objectives of the Plan are to provide stimulus packages to the economy with the view to preventing businesses from total collapse and retain employment in the country; create jobs using agriculture, manufacturing and services; invest in infrastructural facilities such as roads, bridges, solar power and information technologies as well invest in the poor through social investment schemes [
The plan intends to increase agricultural production in the country so as to ensure food security and employment creation. The plan believes that increase in agricultural production will lead to employment creation, income generation and poverty reduction in the country in the post COVID-19 era. It is the intention of the ESP to increase agriculture production in order to reduce food importation in the country. The reduction in food importation will conserve the scarce foreign exchange thereby reducing pressure on foreign exchange and the country’s reserves. The plan is anchored on three pillars, namely; real sector measures, fiscal and monetary measures and the implementation phase [
2) Economic Performance: According to [
This study is anchored on the Keynes’ General theory of Employment, Income and Interest which was propounded in 1936 in response to the Great Depression
of 1930s. The failure of the Classicalists theory of self-adjustment mechanism to address the global economic ills of 1930s necessitated the Keynesian general theory. The theory stresses the role of demand management by the government for the stable growth of the economy. The central theme of the Keynesian aggregate demand management theory is that, given the resources, the level of output and employment are determined by aggregate demand; unemployment and economic fluctuations are caused by aggregate demand deficiency and it can be removed through compensatory government spending [
Also, in periods of economic depression, government reduces taxes and increase government expenditure to stimulate aggregate demands and conversely, in periods of booms government increases taxes and reduce government expenditure in order to control inflationary pressures in an economy. All these are done to maintain internal and external balance in an economy according to Keynesian aggregate demand management economic analyses [
This theory is found suitable for this study because the outbreak of COVID-19 has disrupted economic activities leading to GDP contraction, increase in the level of unemployment, inflation and balance of payments deficits. In order to avert recession, governments have responded by providing stimulus packages to their economies. In Nigeria, the economic sustainability plan is instituted as the national economic resilience response to the economic consequences of COVID-19. This fiscal action in the period of COVID-19 pandemic is in line with the postulations of the Keynesian theory of aggregate demand management by the government.
Empirical literature review in this study is grouped into two parts. The first part is on the impact of COVID-19 on macroeconomic variables and the second is on the impact of government expenditure on macroeconomic variables.
On COVID-19 and macroeconomic performance, [
On the other hand, the empirical evidence on the impact of government expenditure on macroeconomic variables in Nigeria is mixed. For instance, [
Furthermore, [
The study has employed a small macro econometric model to simulate the impact of increase government expenditure under the Economic Sustainability Plan on the performance of the Nigerian economy. The macro-econometric model for this study is derived from the theoretical foundations of the Keynesian aggregate demand management theory. The Keynesian model is stated as:
Y = C + I + G + (X − M) (1)
where Y = supply of national income, C = private consumption, I = private investment, G = government expenditure, and X − M = income from abroad.
The modeling procedure divides the Nigerian economy into four interrelated blocks namely: production block, aggregate demand block, government block, and the external block. The specifications in these blocks are based on theories and eclectic incorporation of specific features of the Nigerian economy within the broad Keynesian framework. The following schema shows the division of the blocks based on the Keynesian framework (
Based on the schema model, the equations in the macro-econometric model are specified block by block based on theories, empirical literature and the institutional knowledge of the Nigerian economy.
Demand Block
The demand block is subdivided into private consumption and private investment. Based on the Keynesian psychological law of consumption, private consumption is specified as:
C = f ( Y D ) (2)
where C is consumption and Yd is disposable income. In line with [
P C = f ( Y D , I N F , G E X , I N T R , R M T ) (3)
Private investment is modeled in line with the accelerator and Keynesian theories which emphasized the role of output growth in investment process and cost of capital (interest rate) as major determinants of private investments respectively. Therefore, private investment is a function of gross domestic product
(Y), interest rate (INTR), credit to the private sector (CPS), government expenditure (GEX) and inflation rate (INF). Thus the private investment equation is specified as follows:
P I = f ( Y , I N T R , C P S , G E X , I N F ) (4)
Government Block
The modeling of the government block is predicated on the Keynesian public sector-led development strategy typical of developing countries. The specification is subdivided into government expenditure and government revenue [
Government oil revenue
Government oil revenue according to [
G R V O = f ( Y O , X O , P O , N E R , P P T ) (5)
Government non-oil revenue
Government non-oil revenue (GRVn) in line with [
G R V N = f ( C I T , Y n , M , E X B , T A R , G E X ) (6)
Government expenditure
Government expenditure is subdivided into capital and recurrent expenditure. In Nigeria, government expenditure is largely influenced by total government revenue (TGR), credit to government by deposit money banks (CGDMB), gross domestic product (Y), external borrowings (EXB), inflation rate (INF), and debt services (DS) [
G K E = f ( T G R , C G D M B , Y , E X B , I N F , D S ) (7)
G R E = f ( T G R , C G D M B , Y , E X B , I N F , D S ) (8)
Production Block
Production activities in Nigeria are segregated into oil and gas, non-oil and services sub-sectors. Thus following [
Oil and gas sub-sector
Oil and gas sub-sector production activities according to [
Y O = f ( M K , O P N , F D I I , P O , O P E C , G E X , Y O ( − 1 ) ) (9)
Non-oil Sector
Non-oil production encompasses all other sectors besides oil and gas. It is sub-divided into three components, namely; agricultural, manufacturing, and services value additions. These sub-sectors employ a huge proportion of labour force and are critical sectors that have been in the development by government over the years.
1) Agricultural Value Added
According to [
Y A = f ( R N F , C R E A , P L R , G E X , C U A , M K ) (10)
2) Manufacturing Value Added
Manufacturing sub-sector (YM) in Nigeria in line with [
Y M = f ( I E P , M K , C U M , C R E M , N E R , G E X ) (11)
3) Services and Value Added
Like other aspects of productive activities, services value addition (YS) largely depends on credit to the private sector (CPS), exchange rate (EXR), capacity utilization in the services sector (CUS), import of capital goods (MK), infrastructure proxy by the index of electricity production (IEP), and government expenditure (GEX). Thus the services value added equation is specified in line with [
Y S = f ( C P S , E X R , C U S , M K , I E P , G E X ) (12)
External Block
The external sector of the model takes into account exports and imports activities. Exports are sub-divided into oil and non-oil exports, while imports are sub-divided into import of capital goods and imports of consumables.
Oil Exports
In modeling the external sector in line with [
X O = f ( Y O , O P E C , O P N , P O , G E X ) (13)
Non-oil exports
Non-oil exports (XN) are further sub-divided into the exports of agriculture (XA), manufacturing exports (XM) and services exports (XS). In Nigeria, non-oil exports are influenced by exchange rate (EXR), government expenditure (GEX), credit to the private sector (CPS), prime lending rate (PLR), and terms of trade (TOT) [
X A = f ( E X R , G E X , C R E A , P L R , T O T ) (14)
X M = f ( E X R , G E X , C R E M , P L R , T O T ) (15)
X S = f ( C R E S , E X R , G E X , P L R , T O T ) (16)
Imports
In line with [
M = f ( Y , E X R , T A R , R E S , P L R , G E X , T O T ) (17)
Exchange Rate
In this study, exchange rate is modeled using modified uncovered interest parity (UIP). According to [
E X R = f ( M 2 , I R D , I N F , G E X , P O , T A R ) (18)
Foreign Reserve
Following the work of [
R E S = f ( E X R , P O , X O , N X , E D S , T A R ) (19)
Gross Domestic Product
Furthermore, gross domestic product, infrastructure, inflation and employment specifications are considered so as to track the effects of increase in government expenditure on the performance of the Nigerian economy. Accordingly, GDP in Nigeria is influenced by critical variables such as interest rate (INTR), government expenditure (GEX), tariff (TAR), exchange rate (EXR), infrastructure proxy by the index of electricity production (IEP), and private investment (PI). The specification for gross domestic product is given as follows:
Y = f ( I N T , G E X , T A R , E X R , I E P , P I ) (20)
Infrastructure
The model for infrastructure is built in line with [
I E P = f ( G E X , F D I , E X R , I N F , M K ) . (21)
Inflation
The inflation rate in Nigeria is determined by both monetary and fiscal activities in the economy. Thus, inflation is a function of money supply (M2), exchange rate (EXR), government expenditure (GEX), level of trade openness (OPN), gross domestic product (Y) and the lag of inflation (INFt−1). Therefore, inflation is specified as follows:
I N F = f ( M 2 , E X R , G E X , O P N , Y , I N F t − 1 ) (22)
Employment
Employment in the primary, secondary and tertiary sectors of the Nigerian economy is influenced by the demand for and supply of goods and services which equally affect wage and price levels. The specification of the employment equation is in line with the Okun’s Law (OL) which postulates a negative relationship between an increase in unemployment rate and growth rate of real gross domestic product [
E M P = f ( G D P ) (23)
In this study, employment and unemployment are used interchangeably as the same variable in line with [
E M P = f ( Y , G E X , P I , C P S , I E P ) (24)
The stochastic forms of the equations are expressed as:
P C = α 0 + α 1 Y D + α 2 I N F + α 3 G E X + α 4 I N T R + α 5 R E M + μ t (25)
P I = α 0 + α 1 Y + α 2 I N T R + α 3 C P S + α 4 G E X + α 5 I N F + μ t (26)
G R V o = α 0 + α 1 Y o + α 2 X o + α 3 P o + α 4 N E R + α 5 P P T + μ t (27)
G R V n = α 0 + α 1 C I T + α 2 Y n + α 3 M + α 4 E X B + α 5 T A R + α 6 G E X + μ t (28)
G K E = α 0 + α 1 T G R + α 2 C G D M B + α 3 Y + α 4 I N F + α 5 D S + μ t (29)
G R E = α 0 + α 1 T G R + α 2 C G D M B + α 3 Y + α 4 I N F + α 5 D S + μ t (30)
log Y o = α 0 + α 1 log M K + α 2 log O P N + α 3 log F D I I + α 4 log P o + α 5 log O P E C + α 6 log Y o ( − 1 ) + μ t (31)
log Y A = α 0 + α 1 log R N F + α 2 log C R E A + α 3 log P L R + α 4 log G E X + α 5 log C U A + α 6 log M K + μ t (32)
log Y M = α 0 + α 1 log I E P + α 2 log M K + α 3 log C U M + α 4 log C R E M + α 5 log N E R + α 6 log G E X + μ t (33)
log Y S = α 0 + α 1 log C P S + α 2 log E X R + α 3 log C U S + α 4 log M K + α 5 log I E P + α 6 log G E X + μ t (34)
X O = α 0 + α 1 Y O + α 2 O P E C + α 3 O P N + α 4 P O + α 5 G E X + μ t (35)
X A = α 0 + α 1 E X R + α 2 G E X + α 3 C R E A + α 4 P L R + α 5 T O T + μ t (36)
X M = α 0 + α 1 E X R + α 2 G E X + α 3 P L R + α 4 T O T + α 4 C R E M + μ t (37)
X S = α 0 + α 1 C R E S + α 2 E X R + α 3 G E X + α 4 P L R + α 5 T O T + μ t (38)
M = α 0 + α 1 Y + α 2 E X R + α 3 T A R + α 4 R E S + α 5 P L R + α 6 G E X + α 7 T O T + μ t (39)
E X R = α 0 + α 1 M 2 + α 2 I R D + α 3 I N F + α 4 G E X + α 5 P O + α 6 T A R + μ t (40)
R E S = α 0 + α 1 E X R + α 2 P O + α 3 X O + α 4 N X + α 5 E D S + α 6 T A R + μ t (41)
Y = α 0 + α 1 I N T R + α 2 G E X + α 3 T A R + α 4 E X R + α 5 I E P + α 6 P I + μ t (42)
I E P = α 0 + α 1 G E X + α 2 F D I + α 3 E X R + α 4 I N F + α 5 M K + μ t (43)
I N F = α 0 + α 1 M 2 + α 2 E X R + α 3 G E X + α 4 O P N + α 5 Y + μ 6 I N F t − 1 + μ t (44)
E M P = α 0 + α 1 Y + α 2 G E X + α 3 P I + α 4 C P S + α 5 I E P + μ t . (45)
The measurement of variables used in the macro-econometric model is presented in Appendix I.
The stochastic equations of the model were estimated using the Two-Stage Least Squares technique given that all the equations in the system were over identified and the quest to circumvent the simultaneity problems inherent with macro econometric models. The study used annual data spanning from 1970 to 2018 for the within sample forecast and from 2019 to 2025 for the out-of-sample forecast. Data for this study were sourced from CBN statistical bulletins, National Bureau of Statistics bulletins, direction of trade, and world trade indicators.
The study simulated 21.3 percent increase in government expenditure in Nigeria under the Economic Sustainability Plan. This is because the plan is to be funded by injecting stimulus package of N2.3 trillion into the economy which translates to 21.3 percent of the total expenditure of N10.8 trillion of the revised 2020 budget of the Federal Government of Nigeria.
The estimated results using the two stage least squares is presented in
The results reveal that government expenditure has positive and statistically significant relationship with private investment, agricultural output, manufacturing output, services output, critical infrastructure and employment. The implication of the result is that increase in government expenditure on agriculture, manufacturing, services and critical infrastructure will boost output growth in the economy and increase a sustained level of employment in Nigeria. The results of this study have buttressed the findings of [
| PC = 23.6 + 4.50 * YD − 0.25 * INF − 0.92 * GEX − 1.35 * INTR + 0.40 * RMT |
|---|
| PI = 3.78 − 0.06 * Y − 0.12 * INTR + 1.02 * CPS + 0.09 * GEX − 0.02 * INF |
| GRVO = −11.1 + 2.62 * YO + 0.15 * XO + 0.51 * PO − 0.01 * NER + 0.39 * PPT |
| GRVN = −2.98 − 0.44 * CIT − 0.13 * YN − 0.37 * M + 0.65 * EXB − 1.71 * TAR + 1.78 * GEX |
| GKE = 0.93 + 1.41 * TGR − 0.28 * CGDMB − 0.08 * Y + 0.22 * EXB − 0.28 * INF − 0.71 * DS |
| GRE = −4.39 + 0.67 * TGR + 0.03 * CGDMB + 1.09 * Y + 0.07 * EXB − 0.03 * INF − 0.07 * DS |
| YO = 1.06 + 0.017 * MK + 0.02 * OPN + 0.03 * FDII − 0.019 * PO − 0.04 * OPEC + 0.02 * GEX + 0.71 * YO (−1) |
| YA = 46.3 − 9.76 * RNF + 0.05 * CREA + 0.44 * PLR + 0.59 * GEX + 0.03 * CUA − 0.03 * MK |
| YM = 4.73 − 0.78 * IEP − 0.10 * MK + 0.26 * CUM + 0.28 * CREM − 7.49 * NER − 0.07 * GEX |
| YS = 4.86 + 0.58 * CPS − 0.08 * EXR − 0.05 * CUS − 0.07 * MK − 0.46 * IEP + 0.18 * GEX |
| XO = 36.5 − 5.89 * YO + 4.06 * OPN − 6.17 * OPEC − 3.16 * PO + 1.67 * GEX |
| XA = 0.67 + 0.61 * EXR + 0.19 * GEX + 0.18 * CREA + 0.08 * PLR + 0.08 * TOT |
| XM = −1.89 − 0.61 * EXR − 0.31 * GEX + 0.27 * CREM + 2.94 * PLR + 1.18 * TOT |
| XS = 8.67 − 1.36 * CRES + 2.68 * EXR − 0.54 * GEX − 0.31 * PLR − 0.34 * TOT |
| M = −7.12 − 0.22 * Y − 0.62 * EXR + 0.24 * TAR + 0.36 * RES + 0.98 * PLR + 1.52 * GEX − 0.07 * TOT |
| EXR = −4.37 − 0.10 * M2 + 0.59 * IRD + 0.16 * INF + 0.95 * GEX + 0.04 * PO |
| RES = 1.40 − 0.87 * EXR + 0.73 * PO − 0.09 * XO + 0.56 * NX + 0.72 * EDS + 0.31 * TAR |
| Y = 3.76 − 1.09 * INTR + 0.52 * GEX − 0.04 * TAR − 0.23 * EXR + 0.02 * IEP − 0.08 * PI |
| IEP = 2.69 + 0.35 * GEX + 0.31 * FDI + 0.01 * EXR − 0.14 * INF − 0.04 * MK |
| INF = 5.47 + 0.37 * M2 + 0.46 * EXR − 0.68 * GEX + 0.11 * OPN − 0.69 * Y + 0.57 * INF(−1) |
| EMP = 1.73 + 0.01 * Y + 0.02 * GEX + 0.02 * PI − 0.01 * CPS − 0.01 * IEP |
Source: Extract from E-views 10.
expenditure and private consumption, manufacturing exports, services exports and inflation rate. This suggests that government expenditure have crowding-in and crowding-out effect on macroeconomic variables. Government expenditure here has crowded-out private consumption, exports of manufacturing and services sector as well as inflation rate in Nigeria. This finding is in tendon with the findings of [
Before the simulation experiments were conducted, the model was evaluated using the validation statistics. The validation results of the estimated model are reported in
| Variables | RMSPE | Theil’s Inequality | Bias Proportion | Variance Proportion | Covariance Proportion |
|---|---|---|---|---|---|
| PC | 0.643587 | 0.046798 | 0.000000 | 0.143045 | 0.856960 |
| PI | 0.135909 | 0.012780 | 0.000000 | 0.003194 | 0.996806 |
| GRVO | 0.221360 | 0.042645 | 0.000000 | 0.009746 | 0.990254 |
| GRVN | 0.377808 | 0.072665 | 0.000000 | 0.378321 | 0.962168 |
| GKE | 0.281497 | 0.048936 | 0.000000 | 0.014512 | 0.985488 |
| GRE | 0.187482 | 0.032793 | 0.000000 | 0.008550 | 0.991450 |
| YO | 0.029553 | 0.003901 | 0.000000 | 0.026671 | 0.973324 |
| YA | 0.196785 | 0.025335 | 0.000000 | 0.093464 | 0.906536 |
| YM | 0.121717 | 0.017898 | 0.000000 | 0.088325 | 0.911675 |
| YS | 0.043594 | 0.005614 | 0.000000 | 0.003928 | 0.996072 |
| XO | 0.558936 | 0.06.805 | 0.000000 | 0.092297 | 0.907703 |
| XA | 0.183187 | 0.024129 | 0.000000 | 0.008285 | 0.991715 |
| XM | 0.355870 | 0.011740 | 0.000000 | 0.046284 | 0.953716 |
| XS | 0.625410 | 0.068100 | 0.000000 | 0.121906 | 0.878094 |
| M | 0.187298 | 0.035593 | 0.000000 | 0.004972 | 0.995028 |
| EXR | 0.127413 | 0.042310 | 0.000000 | 0.003911 | 0.996089 |
| RES | 0.301401 | 0.031507 | 0.000000 | 0.019676 | 0.980324 |
| Y | 0.199530 | 0.021445 | 0.000000 | 0.068574 | 0.931426 |
| IEP | 0.115741 | 0.032651 | 0.000000 | 0.144420 | 0.855580 |
| INF | 0.237629 | 0.011735 | 0.000000 | 0.026293 | 0.951370 |
| EMP | 0.006587 | 0.001906 | 0.000000 | 0.092912 | 0.907088 |
Source: Authors’ computation.
The baseline simulation of the endogenous variables shows that the simulated values were able to mimic the critical turning points of the historical data. This also validates the suitability of model for policy analysis and projections of the macroeconomic variables of the Nigerian economy in the post COVID-19 era.
Policy Scenario: Increase in Government Expenditure by 21.3%
The scenario used for the simulation was 21.3 percent increase in government expenditure under the ESP. The results of the simulation are shown in
The results of the simulation experiment reveal that 21.3 percent increase in government expenditure as a stimulus to the Nigerian economy would increase economic activities such as private investment and consumption, output of agriculture, manufacturing, and services by 6.54, 4.63, 3.03, 2.59 and 3.51 percent, respectively in the out-of-sample forecast. The simulation results further indicate that inflation and unemployment would reduce by 0.13 and 0.71 percent respectively as a result of increase in government expenditure in the post COVID-19 era. These findings lend credence to the Keynesian theoretical postulations that stimulus packages by the government in periods of economic crisis will stimulate aggregate demand and consequently, other macroeconomic aggregates. The findings are also in line with that of [
To clearly show the impact of increase in government expenditure under the ESP on key macroeconomic aggregates that underscore economic performance of the Nigerian economy in the post COVID-19 era, the following variables, namely; inflation as a measure of price stability, unemployment, Gross Domestic Product (GDP) as a measure of economic growth, and import and export as a measure of balance of payments are depicted in
| Variables | 21.3% Increase in Government Expenditure | Variables | 21.3% Increase in Government Expenditure |
|---|---|---|---|
| Out of Sample | Out of Sample | ||
| PI | 6.54 | XS | 4.00 |
| PC | 4.63 | M | 3.89 |
| YO | 2.95 | GRVN | 2.26 |
| YA | 3.03 | GRVO | 3.45 |
| YM | 2.59 | EXR | 2.03 |
| YS | 3.51 | RES | 5.73 |
| XO | 4.08 | Y | 3.49 |
| XA | 4.59 | INF | −0.13 |
| XM | 1.55 | YA | 3.03 |
| IEP | 1.00 | UEMP | 0.71 |
Source: Authors’ computation.
In (a), increase in government expenditure under ESP would reduce inflation by 0.11 percent in 2020 and this will continuously reduce inflation to 0.16 percent in 2025. This represents 31.25 percent reduction in the rate of inflation over this forecast horizon in the post COVID-19 era in Nigeria. This reduction may be attributed to the Keynesian transmission mechanism that increase in government expenditure would boost aggregate demand via consumption. The simulation results depicted in
Similarly, in (b), increase in government expenditure by 21.3 percent under the ESP would continuously reduce unemployment in the country over the forecast horizon. This reduction in unemployment is consistent with the Keynes’ General theory of Employment, income and Interest. Again, the simulated results as shown in the table have validated the Keynesian postulations; since, increase in government expenditure has significantly increased output in oil, agriculture, manufacturing and services sectors with its implications for reduction in unemployment by 0.71 percent over the forecast horizon in the post COVID-19 era in Nigeria. This finding is in tendon with that of [
In (c) increase in government expenditure by 21.3 percent under the ESP shows that GDP would increase by 3.50 percent in 2020 and this will increase continuously to 3.78 per in 2025 representing 7.41 percent increase over the forecast horizon in the post COVID-19 era in Nigeria. Empirically, this corroborates the findings of [
Finally, in (d), it is evident that increase in government expenditure by 21.3 percent under ESP would increase imports and exports by 3.71 and 3.60 percent, respectively in 2020. These increases would continue such that imports would increase by 4.18 percent and exports by 4.04 percent in 2025. This represents 11.2 and 10.9 percent increases in imports and exports over the forecast horizon in the post COVID-19 era in Nigeria. The increase in imports over exports may be ascribed to the import dependent nature of the Nigerian economy and the quest to diversify the economy away from oil which requires the importation of capital and intermediate goods.
Arising from the findings, the study concludes that increase in government expenditure under the Economic Sustainability Plan would have significant impact on the macroeconomic performance of the Nigerian economy, especially on economic growth, employment, inflation and balance of payment in the post COVID-19 era.
Based on the findings, the study has made the following policy recommendations: First, as a fiscal measure, the government should mobilize resource to finance the Economic Sustainability Plan in order to stimulate the economy in the post COVID-19 era. To achieve this, government can maximize revenue and streamline expenditures to the provision of critical infrastructure that can assist in agricultural, manufacturing and MSMEs. Again, the government can grant tax holidays to investors in areas of agriculture, manufacturing and MSMEs to help sustain local production and safeguard existing jobs.
Second, government should ensure that the intended stimulus packages get to the target beneficiaries as contained in the policy document of the ESP. Furthermore, concerted efforts should be made to ensure that beneficiaries put to maximum use the resources gotten from the ESP in order to avoid diversion of funds to other non-essential expenditures. Finally, in terms of monetary policy measures, the Central Bank of Nigeria (CBN) should ensure that all financial institutions saddled with the responsibility of disbursement of intervention funds under ESP reduce the interest rate from 9 percent to 5 percent as contained in the ESP document. Also, the CBN should authorize banks to restructure the payment terms of loan of the affected sector.
The authors declare no conflicts of interest regarding the publication of this paper.
Akighir, D.T., Kpoghul, E.T., Ebele, E.J., Ikwue, R., Ikyator, J.V. and Ayaga, J.M. (2022) Simulating the Impact of the Economic Sustainability Plan on the Performance of the Nigerian Economy in the Post COVID-19 Era. Open Journal of Modelling and Simulation, 10, 118-138. https://doi.org/10.4236/ojmsi.2022.102007