Macroeconomic Deficits and Public Debt Sustainability in Nigeria
IOSR Journals
Sign up for access to the world's latest research
checkGet notified about relevant papers
checkSave papers to use in your research
checkJoin the discussion with peers
checkTrack your impact
Abstract
The paper examined the sustainability of Public debt as well as the causal relationship between fiscal and trade deficits in Nigeria from 1960-2019. The unit root, cointegration and granger causality were employed for the test of sustainability of budget and trade deficits in the framework of Non-Ponzi Game. The paper sourced data from Debt Management Office, Central Bank of Nigeria and World Development Indicators Bulletins. Results from the analysis shows that the Nigerian public debt policies are not sustainable. This implies that revenue have performed far below expectation leading to advances of the government to depend on internal and external debt to meet expenditure demand; it also shows that import exceeds export in real goods as such weaken the domestic currency. In addition, the result shows that there is no causal relationship between fiscal and trade policy in Nigeria. it implies that the rising trade deficit and fiscal deficit has no implication on each other in the recent time. Hence, the paper suggested among others that the managers of the Nigerian economy should institute stringent fiscal reforms, put in place a seamless and efficient tax return filing procedures to raise tax receipts and vigorously address the corruption pathogen ubiquitous in the facets of the country to ease the effect deficit financing.
Related papers
Fiscal Policy and Sustainability of Public Debt: The Nigerian Experience
2021
This paper examines the relationship between fiscal policy and public debt sustainability in Nigeria within a multivariate framework from 1970–2019. The autoregressive distributed lag (ARDL) bounds test is employed to determine the long run relationship among the variables. The results of the ARDL test reveal that there is a long run relationship between the variables used in this study. Specifically, the result shows that budget deficit has a positive and significant impact on public debt both in the short run and long, while interest rate, real gross domestic product and inflation rate were statistically insignificant irrespective of the period and thus had no impact on public debt. Thus, it was recommended that the budgeting procedure at the federal and state levels in Nigeria need to reassessed to make sure that allocative efficiency is achieved in the budgeting system.
Managing the Nigerian Economy through Fiscal Deficit
International Journal of Management, Finance and Accounting
This study examined how fiscal deficit, exchange rate, and inflation rate impacted the economic growth of the Nigerian economy from 1980 to 2019. The cointegration connection in the study was discovered using the autoregressive distributed lag (ARDL) bound test. The analysis found that, while inflation and the exchange rate have a positive and significant relationship with the Nigerian economy, the fiscal deficit has a negative but relatively insignificant effect on the country's GDP. The Nigerian government should stabilise the currency's external value and prevent it from falling in value in the short term. Such policies should be developed to encourage people to pay taxes while providing incentives to those who abide. The government should lower lender interest rates to boost small domestic investors to make investments and create jobs while increasing government revenue. Government agencies should reduce luxuries and wasteful spending to avoid a fiscal deficit.
Une Enquete De La Relation Causale Entre Le Deficit Budgetaire, La Croissance Economique et La Masse Monetaire Au Nigeria
2012
This study posits to investigate the relationship between fiscal deficits, economic growth and money supply in Nigeria. In Nigeria, huge fiscal deficits had been recorded over some years. What has been the nature of the relationship between fi scal defi cits, economic growth and money supply in Nigeria? To answer this question, Granger causality test was conducted to see whether fi scal defi cits granger cause economic growth and money supply or economic growth and money supply granger cause fiscal deficits. The results show that fiscal deficits granger causes economic growth and broad money supply in Nigeria. This implies that fiscal deficits positively affect economic growth and money supply in Nigeria. It is therefore recommended that fiscal deficits should be undertaken with efficient and well-executed plan for economic development. Furthermore, fi scal and monetary policies should be coordinated in such a way that both the public or private sector of the economy should not be h...
Relationship between Fiscal Deficit and Public Debt in Nigeria: an Error Correction Approach
Journal of Economics and Behavioral Studies
The paper examined the nexus between fiscal deficit and public debt in Nigeria. Public debt was disaggregated into domestic and external debt with a view to analyzing the causal relationship and relative effect of both categories of debt on fiscal deficit. Time series data were collected from Statistical Bulletins published by the Central Bank of Nigeria from 1970 to 2011. Except for inflation rate that was I(0), the unit root test results revealed stationarity of fiscal balance, public debt and its components, income, exchange rate and rate of interest series at their first difference; they are I(1) series. Pair-wise Granger causality results support bi-directional relationship between fiscal balance and public debt as well as its domestic component while causality run only from external debt to fiscal deficit. Johansen cointegration results also confirmed the existence of cointegrating relationships at 5 per cent level of significance. In addition, error correction estimates revea...
Fiscal Deficit, Debt Dynamics and Economic Growth in Nigeria
The paper employs annual time series data from 1970-2011 to determine the relationship between fiscal deficit, debt dynamics and the growth rate of GDP in the Nigerian economy. The empirical evidence indicates a significant and positive relationship between total public debt (TPD), fiscal deficit(FD), crude oil price(OP), current account balance(CAB) on GDP growth. However, this result should be interpreted with restraint given the detrimental effects of debt accumulation in an economy. The estimated coefficient of the error correction term is statistically significant and appropriately signed indicating that about 27.6 percent of disequilibrium in the economy is eliminated annually. The coefficient of determination (R 2) was high and robust indicating that about 56.4 percent of the variations in the dependent variable are explained by the regressors in the model. In order to avoid the debt overhang of the past, the current fiscal consolidation strategy should be sustained to reduce fiscal deficit and debt accumulation. Overall, all the debt dynamic indicators were significantly below the official threshold of the IMF/ World Bank ratings indicating that the Federal Government's total public debt was sustainable. Moreover, government expenditure should focus on capital spending to address infrastructural deficiency in the economy.
DEFICIT FINANCING AND ECONOMIC DEVELOPMENT: THE NIGERIA'S EXPERIENCE Christian Gbarawae NWIKINA 1 (PhD); Joseph J. MEEKOR 2 (PhD Scholar); Sunny Chekiri Monday COOKEY 3 (PhD Scholar) and
There has been increasing concern among scholars on the effect of budget deficit on economic growth in Nigeria. Some scholars argue that it portends positive effect, some other group insist that it has negative effect while others classify the effect as neutral. In the face of these arguments and within the context of persistent deficit financing in Nigeria, we set out to examine the effectiveness of deficit financing as a veritable instrument to enhance economic development in Nigeria. While human development index was used to measure economic development, budget deficit and government expenditure were used to proxy deficit financing. Data sourced from Central Bank of Nigeria Statistical Bulletin for the period 1986 to 2019.Employing the Autoregressive Distributive Lag and Granger Causality Test techniques, the results revealed that budget deficit and government expenditure exert positive but marginal influence on economic development in Nigeria. Also, the study shows a unidirectional causality, indicating that deficit financing through government expenditure promotes economic development in Nigeria. Although, the study supports the Keynesian theory with a positive influence, deficit financing value in Nigeria is not substantive enough to drive the needed century-development desired in the economy. Therefore, the study recommended establishment of an institutional framework to monitor the application of budgeted funds. Also, oversight function of state and national assemblies be further be strengthened. Finally, all borrowed fund should be channeled into productive projects capable of enhancing the people's economic well-being as well as servicing the debt. These measures will enhance value for money spent.
THE EFFECTS OF FISCAL DEFICITS IN DEVELOPING COUNTRIES: IMPLICATIONS ON THE ECONOMIC GROWTH OF NIGERIA
This study examines the effects of fiscal deficits on economic growth of the Nigerian economy. The study explore the trend of fiscal deficits over the three decades and showcase its implications on output growth and other macroeconomic indicators. While the issue of fiscal balance remain a prime macroeconomic objective of the Nigerian economy, fiscal deficit has serious implications on the economic and social welfare of a given economy. The study adopts the VAR technique and Johansen cointegration test to determine the possible existence of long-run relationship and other impacts among the variables. Estimated result from the Johansen cointegration test indicates two cointegrating relations between the variables as revealed by both the trace statistics and the maximum eigen value, while the error term is found to be negative and significant indicating a moderate convergence to the long-run equilibrium. It is established by the trend analysis that fiscal deficit adversely affects output growth rates and this situation has been prominent in the domestic economy from the last three decades. Other empirical results show evidence in favour of the negative effect of deficits on economic growth within the sample period. This result is consistent with the epistemological approach of neo-classical theory which established that deficit has growth-retarding effects on the economy. There is need for appropriate accountability in the public sector such that all spending are justified, and government activities are directed in accordance with the principles of equity and efficiency.
Central Bank of Nigeria An Examination of the Relationship between Government Revenue and Government Expenditure in Nigeria: Cointegration and Causality Approach
Fiscal policy, which entails an appropriate alignment in government revenue and expenditure, is of crucial importance in promoting price stability and sustainable growth in output, income and employment. It is one of the macroeconomic policy instruments that can be used to prevent or reduce short-run fluctuations in output, income and employment in order to move an economy to its potential level. However, for sound fiscal policy, a good understanding of the relationship between government revenue and government expenditure is very important, for instance, in addressing fiscal imbalances. Thus, the causal relationship between public revenue and public expenditure has been an issue that has generated heated debates globally, over the years, among economists and policy analysts. Four major hypotheses have emanated from the debates namely: the revenue-spend hypothesis (where there is a unidirectional causality from government revenue to government expenditure); the spend-revenue hypothe...
An Empirical Investigation of Budget and Trade Deficits: The Case of Nigeria
The Journal of Developing Areas, 2006
This paper uses cointegration and vector error-correction techniques, Granger-causality tests and, generalized impulse response analysis to examine the "twin deficits" phenomenon in Nigeria-a small open but oil dependent economy in Africa. We find evidence of positive relationship between trade and budget deficits in both the short-and long-run. This finding supports the conventional Keynesian twin deficits proposition and refutes the Ricardian Equivalence Hypothesis. Contrary to the conventional proposition that budget deficits cause trade deficits, our results indicate unidirectional causality from trade deficits to budget deficits for Nigeria. An implicit policy implication of our findings is that attempts to reduce budget deficits in Nigeria must begin with reductions in trade deficits which could be achieved through indirect monetary channels.
Analysis of fiscal deficits and interest rates in Nigeria
Journal of Economics and …, 2011
This study investigates the effect of fiscal deficits on nominal interest rate in Nigeria. Cointegration techniques and structural analysis were adopted for the study. Empirical evidence emerges that the coefficient of fiscal deficit variable is positive and statistically significant. This indicates that the elasticity of fiscal deficit with respect to income is 0.114, an indication that large deficit causes higher interest rates. In addition, money supply has an inverse relationship with interest rates in Nigeria, but there exist a positive and significant relationship between inflation and interest rate. The coefficient of government expenditure is positive with a short run effect of 0.229. It is recommended that government should consider the option of bond financing of budget deficit as an alternative to monetary financing.
Related papers
Public Deficit, Trade Deficit and Macroeconomic Performance in Nigeria
The consequences of deficits depend on how they are financed. For example, money creation leads to inflation, domestic borrowing leads to credit squeeze probably through higher interest rate or with fixed interest rate through credit allocation and ever more stringent financial repression resulting in the crowding out of private investment and consumption. External borrowing leads to a current accounts deficit and appreciation of the real exchange rate and something to a balance of payment crisis if foreign reserve is drawn down or an external debt crisis if debt is too high. In the light of these instances, this study set out to investigate the influence of public deficit on macroeconomic performance in Nigeria between the periods 1981 to 2016 using a structural analysis of vector auto regression. The result shows that interest rate and inflation rate respond to fiscal deficit in a direct manner such that rise in fiscal deficit is capable of fuelling inflationary gap and interest rate imbalances while exchange rate also react in a direct manner to public deficit and trade deficit. The economic implication of this is that rise in trade deficit could result into unfavourable balance of trade and payment as this will upshot the exchange rate in favour of dollar and thus dampens the Nigerian economy. Based on these findings, this study recommended that Policymakers must pay close attention to the compensation of government spending when fashioning an accommodating exchange rate policy.
Budgetary Gap and Public Debt Sustainability in Nigeria
BINGHAM JOURNAL OF ECONOMICS AND ALLIED STUDIES (BJEAS) , 2024
This study analysed the effect of budgetary gap on public debt sustainability and also evaluated the transmission from budgetary gap to public debt sustainability through the revenue channel in Nigeria using annual data from 1970 to 2022. The study implemented a Structural Vector Autoregressive model which was estimated using impulse response functions. The findings indicate that budgetary gap produced a negative effect on public debt sustainability while a positive effect of budgetary gap on revenue was established. Results however, further indicate that the positive effect of budgetary gap on revenue was not conveyed to public debt sustainability. Based on these findings, the study concludes that Nigeria's public debt is not sustainable. The study thus recommends, among others, a fixed exchange rate policy that would restore the value of the naira and reduce the burden of external debt service using the local currency.
Effect of Fiscal Deficit on Selected Macroeconomic Variables in Nigeria: A Time Series Analysis, 1986-2018
International Journal of Academic Research in Economics and Management Sciences, 2019
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.
Persistence of fiscal deficits in Nigeria: examining the issues
Investment Management and Financial Innovations, 2019
Due to a huge financing gap in many developing nations, governments use budget deficit to facilitate growth and development. However, deficit financing deepens the economic woes of these economies, leaving them in a vicious cycle of deficits. In Nigeria, for instance, fiscal deficits cause country’s bad performance and ranking both in global growth and development indicators. Thus, the use of fiscal deficit to enhance economic performance has proved to be futile and also has left bad economic consequences. Based on the econometric method of Autoregressive Distributed Lag, this study examines how selected macroeconomic indicators influence fiscal deficits in the budgetary policy of Nigeria. Historical data between 1981 and 2017 were used for the study. The study shows a significant positive effect of inflation, oil revenue, and lagged exchange rate on fiscal deficits. There is also evidence that external debt and current exchange rate decrease the level of fiscal deficits. However, t...
External Debt, Inflation and Fiscal Performance in Nigeria (1981 and 2020)
Faculty of Financial Studies, Osun State Polytechnic Iree, 4th National Conference (Virtual); 26th - 28th Jan, 2021, 2021
This study examined the nexus between external debt, inflation and fiscal performance in Nigeria between 1981 and 2020. Annual time series data on fiscal deficit, external debt, inflation, exchange rate and interest rate was sourced from the Central Bank of Nigeria Statistical Bulletin. The Phillip-Peron unit root test and the Engle-Granger cointegration test established that all the variables are stationary at their first difference and cointegrated respectively. The result of the Dynamic Ordinary Least Square (DOLS) regression showed that the interaction of external debt and inflation positively and significantly complement each other to influence fiscal performance in Nigeria. However, without interacting them together, external debt has a significant and positive relationship with fiscal performance while inflation has a negative and significant relationship with fiscal performance in Nigeria. The paper suggests proper and efficient management of external debts and inflation simultaneously in Nigeria if the desired level of fiscal performance is to be achieved.
Relationship Between Budget Deficit Financing and Macroeconomic Variables in Nigeria
The study investigates the relationship between budget deficit and macroeconomic variables like interest rates, inflation rates and exchange rates in Nigeria, with a view to establishing causality between the variables. Historical longitudinal data collected from CBN Statistical Bulletin, the National Bureau of Statistics (NBS) and journals covering the years 1981 to 2015 were analyzed using Augmented Dickey-Fuller (ADF) Unit Root Test, to test for the stationarity of the variables of the study, Johansen Cointegration Technique, to test for long-run integration of the data, and Granger Causality test in the Vector Auto-Regression (VAR) Model to establish the causal relationship among the variables of the study. All the variables became stationary at first difference, with the exception of inflation rates, which became stationary at levels, and there was no Cointegration in the variables of the study. All the variables were not found to Granger cause one another, except that there was a unidirectional causation from exchange rates to deficit financing to real GDP ratio, without any feedback effect. Government is advised to be mindful of the effect of exchange rates on budget deficit financing in Nigeria when it is deciding on deficit budgeting for economic development. This is based on the fact that Nigeria is an import oriented economy, and any exchange rate imbalances may defeat the objective of deficit budgeting and have an adverse effect on the economy. Keyword: Budget Deficit Financing, Interest Rates, Inflation Rates, Exchange Rates, Macroeconomic Variables.
CORRECTED Relationship Between Budget Deficit Financing and Macroeconomic Variables in Nigeria
The study investigates the relationship between budget deficit and macroeconomic variables like interest rates, inflation rates and exchange rates in Nigeria, with a view to establishing causality between the variables. Historical longitudinal data collected from CBN Statistical Bulletin, the National Bureau of Statistics (NBS) and journals covering the years 1981 to 2015 were analyzed using Augmented Dickey-Fuller (ADF) Unit Root Test, to test for the stationarity of the variables of the study, Johansen Cointegration Technique, to test for longrun integration of the data, and Granger Causality test in the Vector Auto-Regression (VAR) Model to establish the causal relationship among the variables of the study. All the variables became stationary at first difference, with the exception of inflation rates, which became stationary at levels, and there was no Cointegration in the variables of the study. All the variables were not found to Granger cause one another, except that there was a unidirectional causation from exchange rates to deficit financing to real GDP ratio, without any feedback effect. Government is advised to be mindful of the effect of exchange rates on budget deficit financing in Nigeria when it is deciding on deficit budgeting for economic development. This is based on the fact that Nigeria is an import oriented economy, and any exchange rate imbalances may defeat the objective of deficit budgeting and have an adverse effect on the economy.
Determinants of Budget Deficit in Nigeria
Journal of International Business, Economics and Entrepreneurship, 2021
This paper investigates the factors governing the determination of budget deficit in Nigeria from 1981q1 through 2016q4. Our methodology is based on Johansen cointegration and Vector Error Correction model (VECM) approach. The result from the Johansen cointegration test suggests one cointegrating vector, which indicates the existence of a long run cointegrating relationship. Evidence from the long run and short run parameters suggest that exchange rate, interest rate and one year lag of budget deficit are the major determinants of budget deficit. Therefore, to achieve a realistic fiscal surplus, the government should determine a high level of accountability in its fiscal operations. In addition, any fiscal surplus should be channeled into productive investments to diversify the economy and reduce the likelihood of potential budget deficits.
Public Debt and Public Expenditure in Nigeria: A Causality Analysis
Research Journal of Finance and Accounting, 2016
This study investigated the causal relationship between total public debt and public expenditure in Nigeria from 1980 to 2015.The focus of the study is to determine if government borrowing in Nigeria is based on the need to provide social services and infrastructure as provided in the budget or by mere reason of privileged access to financial institutions both domestically and internationally as posited by Adam Smith (1776) in his theory of public debt. Applying co integration, vector error correction model and Wald test econometric tools of analysis to public debt, government capital expenditure, government recurrent expenditure and interest rate variables within the study period, the study obtained the following results. The trace statistics indicates two (2) co integration equations at five percent (5%) level of significance, suggesting that there is a long run relationship among the variables tested and that the results can be relied upon in taking long run policy decisions in t...
Loading Preview
Sorry, preview is currently unavailable. You can download the paper by clicking the button above.