Deficit as a means of financing was introduced in nigeria after the civil wars, oil crisis and current financial and economic issues. Deficit financing, inflation and capital formation. In order to understand whether or not deficit financing impacts on economic growth. Deficit financing, practice in which a government spends more money than it receives as revenue, the difference being made up by borrowing or minting new funds. Solving nigerias 22 million housing deficit with the blockchain. This situation has prompted the researcher to assess its impact on the economy. The study adopted the expost facto research design. Deficit financing is a method of meeting government deficits through the creation of new money. Assessment of impact of government budget deficits on. Demand for affordable housing in nigeria is large and growing in the face of a sizable deficit and there is a dearth of existing interventions to support closing this gap. Deficit financing in nigeria, 196570 volume issue 1 f. Pdf deficit financing and economic growth in nigeria. The analysis performed revealed that deficit financing has positive but insignificant effect on nigerian economic growth. The main objective of the study is to empirically examine the.
A landscape of evolution and innovation, examines the gap in the level of development alongside the huge finance deficit and many other challenges in africas infrastructure. Deficit financing and trade balance in nigeria abstract. Secondary data emanated from the publication of the central bank of nigeria statistical bulletin, vol. Abstract the general objective of the study is to analyze the effect of deficit financing on nigeria s economic growth. Fiscal deficit, financing options and macroeconomic. Deficit financing is a recurrent decimal in nigerian economy. When there is a budget deficit, government finds ways of financing the deficit through borrowing from commercial and merchant banks or from the nonbanking public and through the issue of shortterm bonds and monetary instruments. Effects of budget deficit on economic growth in kenya. Our shortrun dynamic result indicates a positive relationship between deficit financing and trade balance surplus. Nigeria has been financing budget deficit overtime but their implications on economic stability have not been fully ascertained. Anyanwu 1997 shows that budget deficit in developing countries are heavily influenced by the degree of political instability as well as public finance considerations with no apparent direct effect of elections. However, onuorah and ogbonna, 6 opined that mix match of internal and external debt has led to failure of deficit financing in. Available formats pdf please select a format to send. Financial market development and fiscal deficit financing in nigeria.
The study examined the effect of deficit finance on nigeria economic growth. However, in nigeria the reverse is the case as the economy has perpetually being at disadvantages in terms of macroeconomic performance, making it a contentious phenomenon. This study examines the implications of financing fiscal deficit from domestic sources on the development of the nigerian financial markets. An empirical analysis of fiscal deficits and inflation in nigeria. Deficit financing in the process of economic development. From the middle of the 1980s up to the present, the federal government has consistently overspent its actual revenue accruals and have even borrowed in the pursuit of projects for which she has too little revenue backing. Effect of external budget deficit financing on economic. A granger causality approach 19862012 to order for a complete project material, pay the sum of n3, 000 to.
Akin olaloku skip to main content accessibility help we use cookies to distinguish you from other users and to provide you with a better experience on our websites. Nov 01, 2012 what is deficit financing when a government spends more than what it currently receives in the form of taxes and fees duringa fiscal year, it runs in to a deficit budget. Deficit budget is a famous instrument of fiscal policy used to increase the rate of economic performance of a country. Annual time series data for 44years were collected from central bank of nigeria statistical bulletin, federal office of statistics and world bank handbook of statistics for the period of 197020.
In this article we will discuss about the role of deficit financing in developing countries. Role of deficit financing in developing countries economics. It is commonly held that deficit financing may lead to an inflationary rise in prices. Prolong deficit financing have an overall negative impact on the economy by crowding out private investment isah 5. In the last thirty years, deficit financing has become a major impediment to fiscal balance in the administration of public expenditure in nigeria. Jul 31, 2017 in june, the nations 2017 fiscal bill of n7. With the gdp rebasing in april 2014, nigeria is now also the largest economy in africa. Vector autoregressive estimates was used in estimating the model. This study sought to investigate the implications of budget deficit financing on economic stability in nigeria between 197020. Department of economics, abia state university, uturu. This study investigates the implications of financing fiscal deficit from domestic sources on the development of the nigerian financial markets and seeks to establish whether domestic debt crowds out private sector investment in nigeria covering the. The head of the federal mortgage bank in nigeria, ahmed dangiwa, put the countrys present housing deficit at 22 million units. Generally, the government uses this source in form of loans from cbk i.
An empirical analysis of fiscal deficits and inflation in. Deficit financing in nigeria dates back to 1961, and appeared justified during the immediate postindependence era. Evidences from deficit financing in nigeria shows that fiscal operations have been characterized by poor policy implementation, inconsistency of government macroeconomic policy, low growth of private investments, decline in real sector growth, and fiscal indiscipline. This study sought to investigate the implications of deficit financing on economic stability in nigeria between 197020. This study sought to investigate the implications of budget deficit financing on economic stability in nigeria between 1970. Deficit financing in ghana has become an annual phenomenon mainly as a result of the countrys inability to raise enough revenue to finance its budget. The study recommends that policies that will promote consecutive borrowing in order to reduce the negative effect of external budget deficit financing on the economy should be adopted. What is deficit financingwhen a government spends more than what it currently receives in the form of taxes and fees duringa fiscal year, it runs in to a deficit budget. When the budget deficit is financed by borrowing from thepublic and banks, it is called deficit financing. When there is a budget deficit, government finds ways of financing the deficit through borrowing from commercial banks or from nonbanking public and through the issue of short term bonds and monetary instrument. Since deficit financing increases the total volume of outlay, hence the monetary aggregate demand for existing goods and services rises which poses a potential inflationary gap, causing prices to. Deficit financing in nigeria, 196570 the journal of modern.
The experience of unsustainable deficits in most developing countries like nigeria, leaving heavy debt burden and poor economic performance as well as substantial deterioration in social welfare suggests that financing of budget deficit in nigeria need to be reexamined. Public disclosure authorized nigeria developing housing. The general objective of the study is to analyze the effect of deficit financing on the economy. Nwanne 20 investigated the implications of budget deficit financing on economic stability in nigeria between 197020 using the econometric tool of ols. The study utilized data from publications of the central bank of. There exist controversies in the literature as to whether budget deficit is inflationary or not. Impact of deficit financing on economic stability in. Deficit financing refers to the creation of new money for filling up. Deficit financing in nigeria, 196570 the journal of. Prior to this time, deficits and its financing were not considered as a major threat to monetary management for two reasons.
Over the fy1969fy2018 period, the government generated a surplus on five. The expenditure includes disbursement on revenue as well as on capital account. Deficit financing and the growth of nigeria economy by. Financial market development and fiscal deficit financing in.
While the longterm result posits that an increase in deficit financing diminishes trade deficit in nigeria. Deficit financing in ghana and its impact on the economy. The study revealed that external source of deficit financing exf, nonbanking public. The study examines empirically the relationship between fiscal deficits and macroeconomic stability in nigeria from. Deficit financing seems to present a positive inflationary impact on developing economies particularly nigeria. This study examines the implications of financing fiscal deficit from domestic sources on the. Full text views reflects the number of pdf downloads. Another source of deficit financing involves oney printing which entails increasing the m supply of money in the economy by printingmore notes or coins. Deficit financing and its inflationary impact on developing.
Financial market development and fiscal deficit financing. Nigerias debt market have been more robust and innovative than most and there is no reason to believe it cannot help support the financing needs of government for the successful implementation. Deficit financing in the process of economic development in nigeria. Nigerias budget deficit and borrowing strategies the. The study utilized data from publications of the central bank of nigeria statistical bulletin between 1981 2012. Budget deficit financing and the nigeria economy nwaeke. The main objective of the study is to empirically examine the effect of deficit financing on nigeria s economic growth. Although budget deficits may occur for numerous reasons, the term usually refers to a conscious attempt to stimulate the economy by lowering tax rates or increasing government expenditures. Pdf deficit financing and the growth of nigeria economy.
The housing deficit has been estimated at up to 17 million1, and is growing at about 20 percent a year. Aug 05, 2019 bridging nigerias infrastructure deficit. Deficit financing refers to the borrowing undertaken by the. The study examined the sources of financing the overall budget deficits and their impact on the selected variables. Deficit financing causes, consequences and potential cures. This paper is an attempt to provide empirical evidence on the relationship between deficit financing and selected macroeconomic variables in nigeria. The main objective of the study is to empirically examine the effect of deficit financing on nigerias economic growth. The federal republic of nigeria has experienced stable economic growth, averaging 8 percent, over the past decade.
Deficit financing in the process of economic development in. In nigeria, fiscal deficits were generally financed from. Fiscal deficit, financing options and macroeconomic stability. Impact of deficit financing on economic growth in nigeria. Since 2001, nigerias nonoil economy has grown by more than 8 percent, more than twice the rate of growth over the previous fiveyear period. Pdf financial market development and fiscal deficit. The interest in the level of national debt accumulated by countries has peaked recently due to difficulty in repayment of maturing debt experienced by a number of countries current efforts in. From the literature, it was discovered that deficit financing has become an important tool to correct distortions in an economy if it is put into the most judicious use. Deficit financing seems to present a negative impact on investment on developing economies especially nigeria.
The deficit is the gap caused by the excess of government expenditure over its receipts. Prior to this time, deficits and its financing were not considered as a major. Solving nigerias 22 million housing deficit with the. Deficit financing in advanced countries is used to mean an excess of expenditure over revenuethe gap being covered by borrowing from the public by the sale of bonds and by creating new money. Pdf nigeria has been financing budget deficit overtime but their implications on economic stability have not been fully ascertained.
While taxes and borrowing remain main sources of financing federal and state governments budgets, central government can also use monetary policy borrowing from the banking system as an alternative means to finance its deficit. Pdf the study examined the effect of deficit finance on nigeria economic growth. Investigations show that nigeria was caught in the deficit trap since early 1980s when the world. Fiscal deficit, financing options and macroeconomic stability in nigeria. If the usual sources of finance are inadequate for meeting public expenditure, a government may take resort to deficit financing particularly in a developing country like india. From fy1969 to fy2018, the average net deficit equaled 2.
Sep 11, 2014 deficit financing and economic growth in nigeria. Specifically, the study attempts to establish whether there is a significant relationship between fiscal. Bridging nigerias infrastructure deficit punch newspapers. The study utilized data from publications of the central bank of nigeria. Analysis from the research indicates that ghanas budget deficit financing and economic growth are negatively correlated. Because of the scale of this deficit, innovative investment solutions are allimportant right now. Since independent, over 85% of nigerian budget are on deficit akinmulegun 1. Deficit financing in nigeria dates back to 1961, when the first deficit financing exercise.
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