BUDGET DEFICIT AND ITS IMPACT ON THE NIGERIAN ECONOMIC GROWTH AND DEVELOPMENT

Abstract

The policy of deficit budgeting had grown tremendously in Nigeria between 1985 and 2008.The essence was to help accelerate the growth of capital in Nigeria using the policy of deficit budgeting as formulated by Keynes. The statement of the problem is: To what extent is the policy of deficit spending applicable to Nigeria as a tool for economic growth and development bearing in mind that Nigeria is a newly emerging industrialized country and that the policy of deficit spending has prominence in the Keynesian macroeconomic model, which was developed for conditions appropriate for developed countries. Categorically in Nigeria, the reverse seems to be the case. This is given to the fact that the major policy focus or thrust of SAP was to divest government in the operations of the economy and promote private sector driven economy through privatization programme. Yeit the government is still prominent in deficit spending. We seem to focus on classical ideas but tenaciously hold on to Keynesian conduct. Want to evaluate the impact budget deficit has on the economic growth of the economy. The study found out that a high positive relationship exists between Government Expenditure and the Economic Growth of the Nigerian Economy. From the analysis of hypothesis one the result represents a high positive relationship. A high positive influence of the budget deficit on the Nigerian economic growth. The analysis of hypothesis two depicted a very high positive influence of budget deficit on Nigerian economic growth. It is recommended that: at the present time states can only use public loans in order to cover the surplus of public expenditures over current incomes. As it supposes temporary redistribution processes of disposable resources already existent in the economy, this way of financing budget deficits generally does not have an inflationary character; the continuous concern of contemporary governments to reduce or to maintain, within acceptable limits, the budget deficits is justified, in order to fight against inflation and its negative effects; effort should be made by the government to settle the outstanding domestic debt. This will give room for proper conduct of monetary policy in the economy; it will be healthy if the government strive to finance budget deficit by improving on the present revenue base rather than resulting to domestic borrowing. This can be achieved by improving its revenue sources and efficient pursuit of tax reforms.

CHAPTER ONE

INTRODUCTION

1.1             Background to the Study

It is important to understand budget deficit and its impact on the economic growth in Nigeria. The argument over the involvement of government in running the economic affairs of a country was put to rest by a renowned British economist, John Maynard Keynes.

Before Keynes, emphasis had been placed on the concept of æthe invisible handÆ where the economy is self adjusting. The role of the government as embodied in its fiscal operations in determining aggregate demand, income, prices and more recently, the balance of payments, is the outcome of Keynesian economists which came into being after Great Depression of the 1930’S. A major recognition by Keynes is that an economy could converge to a stable equilibrium which may be undesirable, since it might involve some involuntary unemployment and, in the Keynesian model, only government has the will and means through fiscal policy to move the economy towards a regulation of its revenue and expenditures.

There has been urgent need for rapid economic development in most developing countries. The need for the government to be involved in the process is more pronounced because the question of development cannot be answered without a conscious planning.