Macroeconomic Stabilization and the Policy Mix: Evaluating the Fiscal Consequences of Central Bank Deficit Financing Under Nigeria’s FRA 2007 Framework

This study evaluates the macroeconomic policy mix in Nigeria by analyzing the fiscal consequences of Central Bank of Nigeria (CBN) direct deficit financing under the constraint of the Fiscal Responsibility Act (FRA) of 2007. Utilizing an uninterrupted annual time-series dataset spanning from 1999 to 2026, the study specifies an Autoregressive Distributed Lag (ARDL) Bounds Testing framework driven by fiscal theory of the price level (ftpl), unpleasant monetarist arithmetic and new keynesian policy mix framework theoretical lenses. Macro-fiscal metrics were compiled from the Debt Management Office (DMO), the CBN, and International Monetary Fund (IMF) country desk updates. Descriptive statistics reveal intense fiscal pressures, with Nigeria's Fiscal Deficit-to-GDP Ratio averaging -2.936% and peaking at an expansionary breach of -6.10%. The ARDL Bounds test confirms a highly significant long-run level relationship among the variables F-statistic = 7.421, exceeding the 1% upper critical bound of 5.61). Long-run structural coefficients demonstrate that central bank direct monetization exerts an outsized, positive effect on liability accumulation ("β" _"1" = 1.145, p < 0.0000), proving that a 1% increase in securitized Ways and Means advances expands the formal public debt stock by 1.145%. This elastic transition captures the institutional regularisation of converting ₦22.7 trillion in unbacked overdrafts into formal domestic bonds. Short-run innovations demonstrate multi-period liquidity distortion impacts, while the Error Correction Coefficient (Ф) = -0.412, p = 0.0000) establishes a system stabilization speed of 41.2% per fiscal year. Post-estimation diagnostics (CUSUM/CUSUM-squared) confirm parameter stability across changing legislative oversight cycles. The study concludes that procedural budget alignment without oversight rigor deepens structural debt vulnerabilities. It recommends an urgent review of the FRA 2007 to codify criminalized penal sanctions for executive deficit violations and expanding the independent funding of the National Assembly Budget and Research Office (NABRO) to eliminate executive data dependency.