The Inflationary Effects of Budget Deficit in Nigeria

Abstract

Purpose. Chronic budget deficit and rising inflation have been the major problems of government in Nigeria with their implication for significant macroeconomic variables. The government’s efforts in curbing these problems have not yielded the expected result. Thus, this study investigated the inflationary effects of the budget deficit in Nigeria. Methodology. Augmented-Dickey Fuller test, Bound Test and Autoregressive Distributed Lag test (ARDL) were used for analysis. Data were sourced from Central Bank of Nigerian Statistical Bulletin from 1986 to 2019.Finding and Implication. A long-run dynamic relationship was established between the budget deficit and the inflation rate in Nigeria, Based on findings, long run movement was discovered between budget deficit and inflation in Nigeria. It was established that rising budget deficit lead to inflationary pressure in Nigeria. Thus, there is need for government to work assiduously and diligently in ensuring balance in national budget. Originality and Limitation. This study contributed to existing study by investigating the dynamic inflationary effects of budget deficit in Nigeria and the adoption of important deficit financing variables. This study mainly focused on inflation rate without looking at the effect of budget deficit on other macroeconomic variables. Thus, future studies should focus on other macroeconomic variables like unemployment rate and balance of payments.