Fiscal Forecasting Errors in Nigeria

The Ministry of Budget and Economic Planning's budget implementation reports reveal large fiscal forecast errors over the 2011-2023 period, for a range of fiscal aggregates including total revenues, expenditures, and the fiscal deficit. Revenues forecasts errors are driven by optimistic budget projections for oil production which consistently exceed actual outturn. Capital expenditures are also subject to systematic optimism bias, with outturn falling short of budget allocations. Large fiscal forecast errors limit the usefulness of the budget in providing a framework for the authorities' fiscal policy intentions. Cross-country experience suggests that the quality of budget forecasts can be improved by enhancing the capacity of the macro-fiscal unit responsible for forecasting, publishing internal and external forecast performance reviews, and enhancing political commitment to budget targets. By improving the quality of fiscal forecasts, the authorities can enhance the credibility of the budget in serving as a guide to fiscal policy in Nigeria.