OIL PRICE VOLATILITY AND PUBLIC SECTOR FINANCING IN NIGERIA

The paper has explored the influence that oil price volatility has on financing in the public sector in Nigeria. The fluctuation of oil prices in the world market has posed great fiscal pressures on the economies of the world that are major consumers of oil, with Nigeria being the most notable example, as oil revenue and government spending largely depend on the petroleum industry. The study was conducted to test the connexion between the volatility of the oil prices, the volatility of the exchange rate, the volatility of the inflation rate and the financing proxied by the public sector advances by government expenditure. The paper was based on the theory of fiscal theory of revenue instability, Dutch disease theory and Keynesian theory of public expenditure. The research design chosen was ex post factor research design and the positivist philosophy was used to guide the empirical analysis. The study population included macroeconomic statistics of the public sector financing of Nigeria and the macroeconomic volatility level of the country between the period of 1986 and 2024 making up a total of 39 cases in time-series data. The secondary sources were the Central Bank of Nigeria Statistical Bulletin and World Development Indicators where the data were found. The analysis also used descriptive statistics, Augmented Dickey-Fuller unit root test as well as ARCH-GARCH models to study volatility at 5 percent level of significance. It was found that oil price volatility affects negatively and significantly the financing of the public sector, whereas the exchange rate volatility affects positively and significantly the government expenditure. The volatility of the inflation rate was negatively and non-significantly related to the public sector financing. The paper concluded that fiscal sustainability in Nigeria is a major issue caused by the instability in oil prices. The research suggests such fiscal stabilisation measures, exchange rate policies and economic diversification to mitigate fiscal weakness. The research would be an addition to the body of knowledge that gives empirical results on the volatility relationship between the movements of oil prices and the finance of the public sector in Nigeria.