Petroleum Revenue Fluctuations and Public Budget Deficits: An Empirical Assessment of Nigeria’s Fiscal Sustainability

The research was driven by Nigeria’s ongoing fiscal instability, unstable budget outcomes, and a persistent structural dependence on crude oil revenues, factors that repeatedly left government spending exposed to shocks in global markets. This study evaluated the impact of petroleum revenue fluctuations on public budget deficits and fiscal sustainability in Nigeria from 1981 to 2024. The study employed quantitative longitudinal research design. Key variables included petroleum revenue as independent variable, with global oil prices and government expenditure growth as controls. The Autoregressive Distributed Lag (ARDL) model was employed to analyze both short-run and long-run dynamics after unit root tests (Augmented Dickey-Fuller and Philip-Perron) confirmed a mix of stationary variables. The empirical findings showed that petroleum revenue substantially weakened budget balances over the long term, thereby confirming the existence of the resource curse. By contrast, increases in global oil prices and government expenditure growth placed significant upward pressure on fiscal deficits, indicating that higher public spending intensified budgetary imbalances. In the short run, the dynamics revealed a statistically significant error-correction term of -0.427, which implies that 42.7% of short-run deviations from equilibrium revert toward long-run equilibrium each year. The study concluded that unhedged dependence on volatile petroleum revenues posed a fundamental threat to national budget execution and long-term fiscal sustainability. Consequently, it recommended aggressive revenue diversification into non-oil sectors, the enforcement of strict expenditure controls, and the institutionalization of robust fiscal buffers to decouple public spending from international oil price volatility.