A Study on the Effects of Fiscal Policy Uncertainty on Economic Growth in Nigeria
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Background of the Study
Fiscal policy uncertainty refers to the unpredictability associated with government spending, taxation, and budgetary decisions. In Nigeria, economic planning is significantly influenced by fiscal policy uncertainty, which can deter investment and undermine economic growth. Between 2023 and 2025, fluctuations in fiscal policy—often driven by political instability and shifting economic priorities—have contributed to an unpredictable business environment (Oluwaseun, 2023). The theoretical framework posits that uncertainty increases the risk premium, thereby reducing capital inflows and slowing down growth. Empirical evidence from emerging economies suggests that fiscal policy uncertainty negatively affects investor confidence and consumption patterns, ultimately hampering economic expansion (Adebisi, 2024). In Nigeria, where the economy is highly sensitive to policy changes due to its reliance on volatile oil revenues, the adverse effects of uncertainty are even more pronounced. This study examines the relationship between fiscal policy uncertainty and economic growth by analyzing macroeconomic indicators, investor sentiment, and fiscal data. It aims to assess whether the unpredictability in fiscal policy has a statistically significant impact on Nigeria’s growth trajectory and to identify policy measures that could mitigate these negative effects (Chinwe, 2025).
Statement of the Problem
Despite efforts to stabilize fiscal policies, uncertainty remains a chronic challenge in Nigeria’s economic management. Frequent changes in tax laws, budgetary allocations, and government spending priorities create an environment of unpredictability that discourages both domestic and foreign investment (Ibrahim, 2024). This volatility not only disrupts long-term planning by businesses but also leads to inefficient allocation of resources. The resultant impact is a slowdown in economic growth, increased unemployment, and heightened inflation. Furthermore, fiscal policy uncertainty complicates macroeconomic forecasting, making it difficult for policymakers to implement effective stabilization measures. These issues underscore the need for a systematic investigation into how fiscal policy uncertainty affects economic growth and what steps can be taken to enhance policy predictability (Nwankwo, 2023).
Objectives of the Study
- To analyze the impact of fiscal policy uncertainty on economic growth in Nigeria.
- To identify the sources and drivers of fiscal policy uncertainty.
- To propose policy recommendations to reduce uncertainty and promote stable growth.
Research Questions
- How does fiscal policy uncertainty affect economic growth in Nigeria?
- What are the key sources of fiscal policy uncertainty in the Nigerian context?
- Which measures can reduce uncertainty and enhance economic stability?
Research Hypotheses
- H1: Higher levels of fiscal policy uncertainty are negatively correlated with economic growth.
- H2: Political instability significantly contributes to fiscal policy uncertainty.
- H3: Implementing stable and transparent fiscal policies reduces uncertainty and boosts growth.
Scope and Limitations of the Study
The study focuses on the period 2023–2025, using macroeconomic data, fiscal reports, and surveys of investor sentiment in Nigeria. Limitations include external economic shocks and the difficulty of isolating fiscal uncertainty effects from other variables.
Definitions of Terms
– Fiscal Policy Uncertainty: The unpredictability in government fiscal actions and policy decisions.
– Economic Growth: The increase in the production of goods and services in an economy.
– Risk Premium: The extra return demanded by investors for bearing uncertainty.
– Macroeconomic Indicators: Key economic metrics such as GDP, inflation, and employment.
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