IMPACT OF BUDGET DEFICIT FINANCING ON ECONOMIC GROWTH IN NIGERIA (1981–2019)

Abstract

Despite the Nigerian government's various fiscal policy measures aimed at managing public expenditure, the expected results in terms of inclusive economic growth have remained elusive, as the majority of the citizens live in abject poverty, with an embarrassingly high rate of unemployment, macroeconomic instability, and general insecurity. The study therefore examined the impact of budget deficit finance on Nigerian economy growth. The Autoregressive Distributed Lag (ARDL) testing approach to co-integration was the main tool of analysis in this study. The co-integration test revealed the co-integration of the variables and
that the Error Correction Model is signed negatively and highly significant statistically at one percent, as anticipated. The estimated Error correction model showed that budget deficit and exchange rate are the key drivers of economic growth in the short-run. Similarly, only budget deficit appears to spur economic growth in the long-run. Further findings revealed that budget
deficit financing is an important source of economic growth to the country during the study period; as it positively affects economic growth in Nigeria. The study therefore recommended that the Federal Government should checkmate the level of deficits spending and boost the country's productive capacity, facilitate a favourable investment climate through appropriate
monetary policy transmission channels like interest rate spread. Also, the Federal Government should encourage exchange-rate regimes that attract domestic and foreign investment, create jobs and promote exports from non-oil, as well as revitalize industries that operate far below their capacity.