Deficit has being found to be one of the most important aspects of fiscal
policy management. The main focus of this study is to analyze the effects of
fiscal deficit on economic development in Nigeria using simple percentage to
analyze the variables.
tables was used to determine the effect of fiscal deficit on the growth rate of
the Nigeria economy, money supply, inflation and fiscal deficit.
therefore recommended that fiscal deficit should be reduced effectively so that
the Nigeria economy can develop to very high standard. Hence fiscal reforms
will need to be decisive, transparent and equitable if they are to receive
public support if they are to be successful.
1.1.Background of the study
1.3.Objectives of the study
1.5.Significance of the study
1.6.Scope of the study
1.7.Limitation of study
2.3.Macroeconomic Framework of Fiscal deficits
2.4.Fiscal deficit and inflation
2.5.Overview of Nigeria’s fiscal performance
2.6.Towards sustainability of deficits an
macroeconomic stability in Nigeria.
3.1.Population of the study
3.2.Sample size of the study
3.3.Sources of data
3.4.Method of data collection
3.5.Method of data analysis
5.1.Summary of findings
1.1.BACKGROUND OF THE STUDY
One of the most important aspects of fiscal policy is the
management of fiscal deficit, such fiscal deficit refers to the excess of the
public sector spending over its revenue; such fiscal deficit has been at the
forefront of macroeconomic adjustment. However, fiscal adjustment was
recommended to developing countries [including all African countries] during
the 1980’s, as being able to lead them out of their economic problems. It is
broadly noted that fiscal deficit – a key fiscal indicator influences economic
growth. Good fiscal management preserves access to foreign lending and avoids
the crowding out of private investment while economic growth stabilizes the
budget and improved the fiscal state of the countries. The virtuous circle of growth
and good fiscal management is one of the strongest argument for a policy of low
of the 1960’s and 1970’s are often called “Golden years” for developing
countries in most economic development history. This is because of the fact
that the growth rate of these countries was not only high, but was internally
generated mostly and it increased their investment with least reliance on
external sources. From 1970s and early 1980s most of the economic growth of
less developed nations was debt laden as they gradually maintained current
account deficit [World Bank 1999].
to speed up economic growth after experiencing internationally oil glut, made
government to spend more of it revenue. This made the country to join other
countries like Columbia and Ghana, which also experience fiscal deficit.
to Anyanwu , the Nigeria deficit was contracted for different reasons,
such as financing of trade, execution of projects and provision of social and
economic needs of the citizens including infrastructure, education and health
source of revenue has been through taxation, oil and other sources of revenue.
The experiences of the countries like Mexico in 1982 and Nigeria since 1981
have however marked the end of an era of belief in the non-detrimental nature
of an unrelieved current account deficit has assumed critical dimension. Slow
growth in sub-Sahara Africa in general and Nigeria in particular has been
blamed on a number of factors including constantly deteriorating terms of
trade, high rate of inflation, poor investment, inappropriate domestic policies
as well as subsequent credit rationing [Mankin and Ball, 1998].
attempts have been made to reserve this deteriorating trend, this has led to
the introduction of various domestic economic policies and management of fiscal
policy applied by Nigeria. Various programmes has been initiated by the
International Monetary Fund and the World Bank eg. Structural Adjustment
programme [SAP]. Despite all these attempts, the Nigeria economy has continue to
experience over heating from the growth of fiscal deficit.
In the case of Nigeria, it is clear that lack of fiscal discipline
is the bane of the economy with the fact that realized revenues are often above
budgetary estimate, extra-budgetary expenditure has been rising so fats and
resulting to large fiscal deficit. The unhealthy situation is attributed
largely to the huge debt service duty, expenditures including the financing of
ECOMOG in Liberia and Sierra Leon etc.
deficit has become unsustainable. There is an increasing concern about the
unfavourable. There is an increasing concern about the unfavourable effect on
the productive capital stock of persistent and large government deficits, which
has invariably led to increased government debt as a ratio of GDP and total
private wealth. Indeed it is feared that an increase in public debt will
continue to feed upon itself since the government borrows the government to
finance the interest payment incurred and debt eventually becomes excessive
relative to macro-economic variables.
Unsustainability has become a very important problem as deficit continue to
increase due to debt accumulation. The government is biased towards
overspending due to the political economy in existence which makes
sustainability an issue.
also the problem of unpleasant fiscal arithmetic being used by the federal
ministry of finance since 1995, to manipulate fiscal operation. This is to
ameliorate fiscal surplus and convince the International Finance Institutions
that its fiscal position is healthy. According to CBN , “iin arriving at
N1, 100.0m budget surplus in 1995 as announced in the 1996 budget statement,
the Federal Government utilized its statutory share of N38, 000.00M in the AFEM
International profits to offset part of its indebtedness to the CBN, although
no such mandate was issued. However, the N38, 000.00M was N1010.00M lower that
net credit from the banking system to government.
to N5, 682.6m [US $258.3M] external financing. The overall deficit of the
Federal Government would add up to N6, 752.6M. This represent a deficit crop
ratio of –0.5 in 1995. However, given public reprimand from the Federal
Ministry of Finance, The CBN in its 1996 annual report reversed itself and gave
a fiscal surplus of N1, 000M or 0.1% GDP. Also, in 1996 a fiscal manipulation
surplus as N37, 049M or 1.6% of GDP. This is made up of operational surplus of
N11 billion and retained unutilized excess crude oil sales over the budgeted
price amounting to N2 billion. The government went further, in its 1997 budget,
to explain that the operational surplus was arrived at after taking into
consideration on extra-budgeting expenditure, in spite also of N15 billion
short fall in Federal Government independent revenue and an increase of N8
billion in respect of domestic debt charge [see Anyanwu 1997].
the question of exactly how much fiscal deficit negatively affects the economy
of Nigeria or rather, what is the impact of fiscal deficit on the economy. What
impact has fiscal management policies made to the economy? These are some of
the questions this study attempts to answer.
1.3.OBJECTIVE OF THE STUDY
The main objective of this study is to critically analyze the
impact of fiscal deficit on economic growth in Nigeria.
specific objectives are as follows:
1.To provide solution to the government’s
extra-budgetary spending problems over the years.
2.To identify the impact of fiscal deficit on
economic development and performance in Nigeria.
3.To examine various strategies and policies in
relation to fiscal deficit and their effectiveness.
4.To determine the effects of fiscal deficit on
various sectors of the economy.
The hypothesis of this study is formulated to facilitate the study
and also to form a foundation on which the study is based.
hypothesis therefore includes:
1.Fiscal deficit has a significant effect on economic
growth and performance of any developing country even including Nigeria.
2.The fiscal deficit management strategies adopted
in developing countries including Nigeria have not been effective in solving
the country’s current deficit problems.
The alternative hypotheses are:
1.Fiscal deficit does not have adverse effect on
economic growth and performance of any developing countries including Nigeria
have been effective in solving the country’s current account deficit problem.
2.The fiscal deficit management adopted in
developing countries including Nigeria have been effective in solving the
country’s current account deficit problem.
1.5.SIGNIFICANCE OF THE STUDY
This study will throw more light into the fact that fiscal deficit
siphon funds from the private sector investment retarding growth and ultimately
reducing the standards of living. Fiscal deficits also create potentially large
burdens on future generations, as workers may be rapidly expanding elderly
population. Fiscal deficit can trigger disruptive movement in interest rates
and exchange rates, as highly indebted countries become increasingly vulnerable
to global market forces.
1.6.SCOPE OF THE STUDY
The study will cover the period of 1990-2009 [both for the
developing countries] and Nigeria in particular.
TERMS AND CONDITIONS APPLY
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