Forecasting expenditure components in Nigeria

Purpose - This study forecasts the government expenditure components in Nigeria, including recurrent and capital expenditures for 2021 and 2022, based on data from 1981 to 2020. Design/methodology/approach - The study employs statistical/econometric problems using the Feasible Quasi Generalized Least Squares approach. Expenditure forecasts involve three simulation scenarios: (1) do nothing where the economy follows its natural path; (2) an optimistic scenario, where the economy grows by specific percentages and (3) a pessimistic scenario that defines specific economic contractions. Findings - The estimation model is informed by Wagner's law specifying a positive link between economic activities and public spending. Model estimation affirms the expected positive relationship and is relevant for generating forecasts. The out-of-sample results show that a higher proportion of the total government expenditure (7.6% in 2021 and 15.6% in 2022) is required to achieve a predefined growth target (5%). Originality/value - This study offers empirical evidence that specifically requires Nigeria to invest a ratio of 3 to 1 or more in capital expenditure to recurrent expenditure for the economy to be guided on growth.