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 fiscal deficit.
The decade 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].
In Nigeria, 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.
According 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 facilities.
The major 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].
Several 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.
STATEMENTS 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.
Such fiscal 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
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.
There is 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.
When added 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].
Therefore, 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.
OF THE STUDY
objective of this study is to critically analyze the impact of fiscal deficit
on economic growth in Nigeria.
The specific objectives are as follows:
To provide solution to the government?s
extra-budgetary spending problems over the years.
To identify the impact of fiscal deficit on
economic development and performance in Nigeria.
To examine various strategies and policies
in relation to fiscal deficit and their effectiveness.
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.
The null hypothesis therefore includes:
Fiscal deficit has a significant effect on
economic growth and performance of any developing country even including
The fiscal deficit management strategies
adopted in developing countries including Nigeria have not been effective in
solving the country?s current deficit problems.
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
The fiscal deficit management adopted in
developing countries including Nigeria have been effective in solving the
country?s current account deficit problem.
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
OF THE STUDY
The study will
cover the period of 1990-2009 [both for the developing countries] and Nigeria
OF THE STUDY
limitation is finance [which is one of the major problems of this particular
study]. Data would be sourced but to get such information, money had to be
used. For example, going as far to Federal office of statistics [FOS] all in an
attempt to get information and materials and also other government agencies,
such trips requires money.