EFFECTIVENESS OF NIGERIA’S FISCAL POLICY IN MANAGING OIL PRICE SHOCKS: IMPLICATIONS FOR HEALTH EXPENDITURE AND EXTERNAL DEBT SUSTAINABILITY USING D-i-D TECHNIQUE

Abstract

The volatility of oil prices presents significant fiscal challenges for oil-dependent economies like
Nigeria, often exacerbating economic instability and undermining social sector investments. This
study investigates the effectiveness of Nigeria’s fiscal policy in managing oil price shocks, with
particular emphasis on their implications for health expenditure and debt sustainability. Motivated
by the need to address persistent fiscal imbalances and declining public healthcare funding, the
study examines the extent to which fiscal responses mitigate the adverse impacts of oil price
fluctuations over a 43-year period. Grounded in Resource curse hypothesis, Wagner’s law and
fiscal illusion, and Public finance theory, the study highlights the inadequacies of countercyclical
fiscal policies in resource-dependent economies. The analysis employs the Difference-inDifferences (D-i-D) technique, and macroeconomic time series data. Key variables include oil
price changes, government health expenditure, and debt-to-GDP ratio. Findings from the study
reveal that fiscal policy responses during periods of economic contraction often result in reduced
healthcare spending and increased borrowing. In contrast, periods of economic recovery from
rising oil prices show limited fiscal prudence, with inadequate investments in social infrastructure
or debt reduction. These inefficiencies amplify fiscal vulnerabilities and compromise long-term
economic stability.The study recommends adopting countercyclical fiscal measures, diversifying
revenue sources, and strengthening institutional frameworks to enhance fiscal resilience.
Policymakers should prioritize healthcare financing and debt sustainability to mitigate the socioeconomic effects of oil price volatility, ensuring equitable access to health services and fiscal
stability.