Effect of Fiscal Deficit on Selected Macroeconomic Variables in Nigeria: A Time Series Analysis, 1986-2018

Chinyere Rose Obinabo,Bertram Onyebuchi Agu

doi:10.6007/ijarems/v8-i2/6276

Abstract

This study investigated the effect of fiscal deficit on selected macroeconomic variables in Nigeria. Specifically the study examined the effects of fiscal deficit on Nigeria’s gross domestic product, determine the impact of fiscal deficit on the level of Money Supply in Nigeria, and ascertain the relationship between fiscal deficit and Inflation Rate in Nigeria. To achieve these objectives, the study employed various econometric techniques such as unit root test, Johansen co-integration, ordinary least square and granger causality test in which variations in the independent variables were regressed on the dependent variable using time series data from 1986-2018. Secondary data casing the time frame were collected from Central Bank of Nigeria statistical bulletin. The results of the analysis indicates that (i) Fiscal Deficit (FD) has positive and no significant effect on Gross Domestic Product (GDP) (ii)Fiscal Deficit (FD) has negative and no significant impact on Money Supply (MS) (iii) Fiscal Deficit (FD) has negative and no significant relationship with Inflation Rate (INFR).The study recommended among others that government should set its priority rights, be more committed to budget implementation and to pay more attention to capital expenditure geared towards growth. Systemic corruption which is the main reason why fiscal deficit has not positively impacted on macroeconomic indicators should be dissuaded in Nigeria. The study further recommended that key government institutions should mount programs that are directed towards restoring the value system, norms and mind-set of Nigerians which corruption has destabilized and made weak to be strong again, otherwise, Nigeria will systematically drift into extinction.

Highlights

An economic situation where expected current expenditure exceeds expected current income is known as Fiscal Deficit
The study concludes that fiscal deficits have contributed to macroeconomic instability measured in terms of inflation, money supply and gross domestic product (GDP) in Nigeria
Fiscal deficit objectives may be well intended to stimulate economic growth and employment, its negative impact on inflation, Money Supply and Gross Domestic Product (GDP) eroded the possible expansionary impact on output, thereby, resulting into poor macroeconomic performances in Nigeria. These findings may not be unconnected with the nature of Nigeria’s fiscal operation which is characterized by fiscal indiscipline, wastes, systemic corruption and unsustainable debt burden, given that deficits are financed through public borrowing in Nigeria

Summary

Introduction

An economic situation where expected current expenditure exceeds expected current income is known as Fiscal Deficit. The end in this situation is ensuring the stabilization of prices, economic development and enhances improvement in the standard of living Given that it is not an end in itself; its usefulness depends on its ability to achieve the goals which the policy architects set out (Anyanwu and Oaikhenan 1995) In Nigeria, government has always relied more on fiscal policy as a key to solving her economic issues. Worse among them are the continued heavy reliance on the oil sector as the main source of foreign income inflow and government revenue, the twin evils of inflation and unemployment, the burden of both external and internal debts, the disturbing issue of low productivity in agriculture, manufacturing and the economy in general This has been attributed to some factors which include social and religious crisis, mismanagement of available resources, corruption, fall in the price of oil in the world market and unprecedented increase in economic activities. From the fore going, it becomes necessary to appraise the effect of fiscal deficits on selected macroeconomic variables in Nigeria since 1986 to 2018 with a view to finding out its contributions in the development efforts of the nation

Objectives

Methods

Findings

Conclusion