SUMMARY OF FINDINGS
What relationship should we expect
to find between budget deficit and economic growth in Nigeria? Because budget
deficit entails spending more income than that received by the government in
order to achieve economic growth in Nigeria, increase in Real Gross Domestic
Product should be associated with increase in budget deficit if the expenditure
is not controlled in the fiscal manner. The positive relationship between RGDP
and budget deficit is justified by the argument of the Keynesian economist. However,
this positive relationship is temporal though it shows a statistically
significant effect on the level of budget deficit incurred.
It was discovered that there are
other macroeconomic indicators which greatly influence budget deficit in Nigeria.
They are Real Exchange Rate, Federal Government Capital Expenditure and Current
Account Deficits. Real gross domestic product was also discovered to have
strong statistical
relationship with budget deficit in Nigeria. Real gross
domestic and current Account Deficits were found to be positively related to
budget deficit in Nigeria, whereas, real exchange rate, federal government
capital expenditure and real interest rate were found to be negatively related
with budget deficit in Nigeria. However, the entire explanatory
variables, is statistical significant which means that 1% increase in RGD,
FGCE, RER and RIR will lead to 1% increase in budget deficit.
RECOMMENDATIONS
This study recommends that the
relationship between budget deficit and economic growth in Nigeria implies that
though the two variables are positively related, active government policy
should be used to ensure that budget deficit does not exceed it maximum limit. In
order to keep budget deficit at a minimal level, means of generating national
revenue should be directed towards achieving the given target while the ways by
which federal government capital expenditure is generated are checked.
Prior to recommending some necessary
policy thrust, it will be important for the researcher to outline a summary of
the factors influencing or determining budget deficit in Nigeria. They include:
- Current account deficit
- Real exchange rate
- Real interest rate
- Federal government capital expenditure
- National savings
- Money supply
- Inflation
Given the
factors enumerated above, the researcher therefore recommends the following: government
should check the level of deficit for effective control of current account
deficit in Nigeria. The need arises because as budget deficit increases,
current account deficit increases which negatively affect economic growth.
As a matter of urgency, government
should adopt fiscal management actions that will aim at reducing fiscal
deficits that often result in large chunk of transfer payment and extra budgetary
expenses.
Government should adopt fiscal
adjustment mechanism that increases revenue through improved taxes rather than
borrowing to finance deficit and over-dependence on crude oil.
There is need to check the growth of
federal government capital expenditure because of its likely contractionary
impact on economic growth.
The growth of Nigerian economy largely
depends on ensuring that the relationship between budget deficit and economic
growth are maintained at this given level. Measures should be taken to ensure
that adverse effects of budget deficit in Nigeria are eliminated. Budget deficit financed principally
through the central bank and external debt with high service rate should be discouraged.
Government should adopt adequate
exchange rate policies to ensure that even when these deficits are being paid
for, the exchange rate for our domestic currency will not be affected.
CONCLUSION
There is need to emphasize that in Nigeria,
we are not insisting that the government should not be financed from the CBN
resources because this in itself is inflationary. Although fiscal deficits can
also be financed through external borrowing, it may also lead to inflation.
The direction of deficits spending
in Nigeria has been on unproductive transfer payment and extra budgeting expenses
of questionable dimension. This results in deficit trap. As a result, deficit
spending which goes against achieving the stated goals should be discouraged.
There are other important factors
that need to be rightly considered in achieving faster economic growth even in
the face of budget trade, coordination of monetary and fiscal policies, a
sustained effort to enhance private savings, measures focusing on efficiency
improvement as well as the exchange rates, which will complement the budget cut
policy.
The Nigerian economy should create
conducive economic conditions such as creating avenues of returning to other
sectors that has been neglected. This will help the government to reduce fiscal
deficit through reduction of extra budgetary expenses on wasteful federal
government public expenditure.
Finally, economist and policy makers
should not focus on the level of budget deficit but on the source of financing
it to ensure that economic growth in Nigeria is not retarded.
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