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Fiscal Forecast Errors in Nigeria
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The budget should provide credible guidance on fiscal policy. A government’s budget is a comprehensive financial plan for: Identifying resource allocation/spending priorities Providing a framework for implementing policy goals Ensuring fiscal discipline and promoting accountability An analysis of forecast errors in the budget can shed light on the credibility of the budgeting process Persistent bias in budgets undermines credibility, can create macroeconomic imbalances, and reduces private sector confidence

Fiscal Forecast Errors in Nigeria

We evaluate fiscal forecast errors in Nigeria’s budget process The forecast error is measured as the difference between budget projections and outturn. We use budget implementation reports published by the Ministry of Budget and Economic Planning Evaluate forecast errors for major budget items: Oil/Non-oil revenues, expenditures, fiscal deficit. We also look at the narrative of budget implementation reports to identify possible cause of the errors

Forecast errors: Total Revenues
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  • Revenue forecasts have persistent optimism bias
  • Average forecast error of 1.1 percent of GDP and 28 percent of total revenues>
  • Forecast errors: Oil Revenues
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    Revenue forecast errors are driven by optimistic oil revenue projections ◆ With the exception of the pandemic, oil revenues are always overestimated ◆ Oil revenue forecast errors average 1.1 percent of GDP and 61 percent of total revenues

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