FISCAL POLICY, MONETARY POLICY AND AGRICULTURAL GROWTH IN NIGERIA
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Abstract
This study is to assess the effectiveness of fiscal policy and monetary policy in promoting agricultural growth in Nigeria from 1990-2018. The study used chi-square statistics to show contribution of government fiscal and monetary policies to agricultural growth. Findings reveal that the amount of tax imposed on agricultural exports has not improved its productions and thus has a dampening multiplier effects on its growth. Value added tax (VAT) imposed on agricultural outputs has improved the growth of the agricultural produce. The total government expenditures on agricultural sector were found to have negatively influenced agricultural growth in Nigeria. It showed that the amount of government expenditures towards the growth of the sector has not been favorable. Government capital allocation and expenditure to agriculture is relatively low and the actual expenditure falls short of budgeting expenditure. The rate of under spending was found to have been higher for agriculture than for any other economic sectors as large proportion of the funds allocated to agriculture has not gone directly to farmers. Suggestive from the analysis therefore is that Government should increase her budgetary allocation to this sector in a consistent manner because of its importance to national developments.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Nigeria is yet to realize her potential for growth and poverty reduction even with the abundance of 34 natural resources in the country. The strive to sustain her economy over the years through agricultural produce has yielded an epileptic results. Varieties of food stuffs and agricultural products are still being shift in from other nations around the world on a daily basis. In a bid to address the problems, the Nigerian government, from 1975 became directly involved in the commercial production of food crops. Several large scale agricultural projects specializing in the production of grains, livestock, dairies and animal feeds, etc. were established.
Fiscal policy is used by governments of most developing countries as an instrument for promoting growth and equitable distribution. Fiscal policy involves the use of government public expenditure and taxes to regulate the economy. It provides the incentives and enabling environment to promote private sector investments in order to further growth and development.
The Nigerian government introduced fiscal policy into her system to help adjusts her level of spending in order to monitor and influence the Nigerian economy. Fiscal policy goes hand in hand with monetary policy which the central bank uses to influence money supply in a nation. Fiscal policy and monetary policy are used relatively to achieve macroeconomic goals in a nation. These goals include price stability, full employment, reduction of poverty levels, high and sustainable economic growth, favourable balance of payment, and reduction in a nation’s debt.
Monetary policy is the combination of measures designed to control the supply of money and credit conditions in an economy for the purpose of achieving macroeconomic goals. Monetary policy could either be expansionary or contractionary, depending on the prevailing economic conditions and circumstances. Monetary policy instruments can be classified into two categories. These include the quantitative tools such as open market operation (OMO), discount rates, cost tools, stabilization securities, direct regulation of interest rates, liquidity ratio, etc. The second category includes the direct tools; moral suasion, credit guideline etc.
The agricultural sector remains an essential sector to the economy of any country when considering its roles for sustainable development, in terms of employment potentials, export and financial impacts on the economy. Increased agricultural production is vital to the reduction of poverty and the growth of the overall economy (Thirtle et al. 2003).
Agriculture has played a very important role in the development of the Nigerian economy for many decades now. Record has it that, before the discovery of oil in the country in the late 1950s and early 1960s, agriculture was the dominant sector of Nigeria economy. It constituted over 65% of the country’s Gross Domestic Product (GDP) and provided the bulk of the foreign exchange earnings through the export of cash crops.
The agricultural sector holds a lot of potentials for future economic development of the nation, having played dominant role in the remote past. With the emergence of oil as a major source of government revenue and foreign exchange earner the sector was neglected and hence led to the decline (Ukpong and Malgwi, 1991).The impact of agriculture in the development of Nigeria in the last decade may not have been so prominent because of the dominating effect of the oil sector which annually contributed not less than 96% of the nation’s total export earnings (CBN, Annual Report and Statement of Accounts, various Issues). The population involved in farming is between 60 and 70% (Nwajiuba, 2012). The sector contributed an average of 36.6% to the GDP during the years of study 1980-2011, it was highest in 1992, 43.6% and 2002, 43.9% and lowest in 1980, 20.6%. The total federal expenditure that was allotted to agriculture during 1980 to 2011 was less than 4% (CBN, 2010; JFR, 2012).
However, inadequate funding of the agricultural sector has been re-echoed by several experts as an obstacle to increased agricultural output (CBN, 2007; Bernard, 2009). However, from a nominal point of view, it is evident that in Nigeria, government spending and tax revenue generated from agriculture continue to increase over the years while empirical evidence have revealed that the performance of the agricultural sector has been inadequate (CBN,2000; Ekerete, 2000). There was a sharp decline in export crop production, while food production increased only marginally. Thus, domestic food supply had to be augmented with large imports. Food import bill rose from a mere N513.88 million annually in 1990-1999 to N6,964 million in 2011 (CBN,2012). Also, in 2011, the agricultural sector performed below the projected 7.2% of budgetary output (Lawal, 2012). This present study tends to find out if there is a significant relationship between fiscal policy, monetary policy and agricultural growth in Nigeria.
1.2 Statement of the Problem
The Nigerian agricultural sector has encountered several emerging challenges which constrained the full realization of its full potentials. These problems include; inadequacies in the supply and delivery of farm inputs, shortage of working capital, low level of technology, diseases and pest infestation, poor post-harvest processing, poor storage facilities, inconsistent and poorly conceived government policies, problems of pests and diseases, negative attitude of people towards farming due to low reward, inadequate agricultural education and extensions, poor transportation, lack of credit facilities, irrigation problems, lack of investment, lack of basic infrastructure, inadequate fertilizers and farm implements, environment hazards, labour and land use constraints. Most of these problems could be solved if appropriate fiscal and monetary policies are implemented. A prevailing challenge has been the recent conduct of macroeconomics, particularly fiscal and monetary policies. This has led the researcher to embark on a study on fiscal policy, monetary policy and agricultural growth in Nigeria.
1.3 Objectives of the Study
The primary objective of this study is to examine the impact of fiscal policy, monetary policy and agricultural growth in Nigeria from 1990-2018. The researcher intends to look into the following sub objectives:
- To assess the effectiveness of fiscal and monetary policies in promoting agricultural development in Nigeria.
- To determine the extent to which the Nigerian fiscal policy, monetary policy has impacted on the economy with emphasis on the impact of various components of public expenditure on the economy.
- To examine the influence of fiscal and monetary policies in boosting economy stability with respect to inflation in Nigeria.
- To ascertain the relationship between fiscal policy, monetary policy and agricultural growth in Nigeria.
1.4 Research Questions
The following research questions will guide the study;
- Are fiscal policy measures effective as instrument of economic stabilization?
- Has the agricultural sector in Nigeria been able to meet the requirements of marketers and consumers yearly demands?
- Has fiscal and monetary policies boosted economy stability in Nigeria from 1990-2018 with respect to inflation, interest and exchange rates?
- Has the Nigerian fiscal policy, monetary policy impacted on the economy with emphasis on the impact of various components of public expenditure on the economy?
1.5 Research Hypothesis
Hypotheses are testable tentative and problem explanation of the relationship between two or more variable that credits a state of affairs of phenomenon. It may be reviewed as a conjectural proposition, an informed intelligent guess about the solution to a problem. The researcher therefore deemed it necessary to establish the following hypotheses that.
Ho: Fiscal and monetary policies has not boosted the Nigerian economy stability from 1990-2018.
H1: Fiscal and monetary policies has boosted the Nigerian economy stability from 1990-2018.
H0: The agricultural sectors in Nigeria have not been able to meet the requirements of marketers and consumers yearly demands.
H2: The agricultural sectors in Nigeria have been able to meet the requirements of marketers and consumers yearly demands.
1.6 Significance of the Study
This study provides insight into fiscal and monetary policy measures as an instrument of agricultural growth and economic stabilization. Therefore, it will be of immense use to the following categories. To student, it will provide a compliment to the fair existing literature on fiscal policy, monetary policy and agricultural growth. To bankers, it will also find a valuable tool toward analyzing the effect of government action on their activities whether it is valuable or not. To agricultural marketers, promoters and farmers, it will serve as a guideline on the effect of monetary policy on various agricultural products in which their fund can be invested
To the ordinary reader, this work will serves as an open eye and a valuable store of knowledge. It is believed that at the completion of the study, the findings will be of benefit financial institution and government of Nigeria. This study will act as a source of information on various ways of adopting fiscal policy, monetary policy and its instruments for stabilizing the economy. Finally, it will guide the policy makers towards policy initiation.
1.7 Scope and Limitation of the Study
This research work covers the fiscal and monetary policies records from (1990 – 2018). This study will cover the relationship between fiscal policy, monetary policy and agricultural growth in Nigeria, and it is believed that it will go a long way to solve some of the economic problems as regards to fiscal and monetary policies and its measure as an instrument of economic stabilization. In the cause of the study, the researcher encounters some limitations which limited the scope of the study;
Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.
Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.8 Definition of Terms
Fiscal policy: In economics and political science, fiscal policy is the use of government revenue collection and expenditure to influence the economy. Fiscal policy is often used to stabilize the economy over the course of the business cycle.
Monetary policy: Monetary policy is the process by which the monetary authority of a country, typically the central bank or currency board, controls either the cost of very short-term borrowing or the money supply, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.
Economic growth: Generally, growth is the process of increasing in size. Economic growth is the increase in the inflation–adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.
Agricultural productivity: Agricultural productivity is measured as the ratio of agricultural outputs to agricultural inputs. While individual products are usually measured by weight, their varying densities make measuring overall agricultural output difficult.
Monetary Instruments: Monetary instruments are products provided by banks and include cashier’s checks, traveler’s checks, and money orders. Monetary instruments are typically purchased to pay for commercial or personal transactions and, in the case of traveler’s checks, as a form of stored value for future purchases.
Monetary Policy Shock: Monetary policy shocks occur when a central bank departs, without proper advance warning, from an established pattern of interest rate increase or decrease, or money supply control. A fiscal policy shock is an unexpected change in government spending or tax levels.
Agriculture: Agriculture is the science and art of cultivating plants and livestock. Agriculture is the process of producing food, feed, fiber and many other desired products by the cultivation of certain plants and the raising of domesticated animals (livestock).
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