Government Budget Deficit and Economic Performance in Nigeria
Abstract
This study examined the influence of government budget deficit on economic performance in Nigeria. The study captures government budget deficit with budget deficit ratio (Bdr) and economic performance with real domestic product (RGDP).
Budget deficit ratio measures the ratio of Nigeria’s national debt to its gross domestic product while real GDP measures the value of economic output adjusted for price changes.
To estimates the influence of government budget deficit on economic performance, the study employed simple Keynesian model which was modified to capture variables of interest using annual data that span the periods 1970 to 2013.
The study further investigates if there is any causal relation and significant correlation between government’s budget deficit and economic performance.
From the investigations on the influence of government budget deficit on economic performance in Nigeria, we observed that government budget deficit (Bdr) has significant and positive impact on economic performance (RGDP),
Indicating that increase government deficit financing result to increase in economic performance instead of a fall in output, which may have resulted from crowding-out investment.
Furthermore, the results on the causality test reveal a unidirectional causality running from government budget deficit to economic performance, which implies that government deficit financing granger causes Nigerian economic performance.
In like manner, further investigation also show a positive and significant correlation between government budget deficit and economic performance in Nigeria. Hence, from the findings, deficit financing is not a bad policy option.
Introduction
Background Of Study
The relationships between government budget deficits and macroeconomic performance have received tremendous attention amongst researchers and policy makers around the globe.
Persistent increases in budget deficits have assumed greater height in many emerging economies like Nigeria (Oladipo and Akingbola, 2011).
However, evidence has shown that government budget deficit has been an issue of discuss in Nigeria because of the persistent increase recorded since 2000 till date as shown on the figure 1 below.
For example, budget deficit was about N 2 billion and N 3.9 billion in 1980 and 1981 respectively. In 1986, it rose to N8.2 billion and later fell to N5.8 billion in 1987.
Notwithstanding the significant recorded fall from 1987 to 1999, between 2000 and 2004, there was an amazing increase which led to a record of about N 101 and N 609.2 billion in 2006 and 2007 respectively.
However, considering the international financial crisis that eroded world economy in 2008, its ugly consequence which result to a sharp fall in demand for the nation’s crude oil, witnessed N0.56 trillion increases which stand to be over 2.5% of GDP.
In addition, during the 2009 and 2010 fiscal years, Nigeria recorded about N249 billion and N1.1trillion respectively. Thus, in 2011 and 2012, it rose from N9, 152.5 billion to N9, 905.6 billion respectively (NBS, 2012).
However, according to Keynesian theory on budget deficit, there is nothing wrong in government borrowing if it is properly channeled to boast economic performance of a country (Olusoji and Oderinde, 2011).
The development of deficit financing is often traced to adoption of the Keynesian inspired public expenditure which Nigeria adopted to motivate economic performance.
Keynes recommended deficit spending to moderate or end a recession. To him, when an economy is recording high unemployment, an increase in government purchases will help a market for business output thereby creating income which through multiplier effect encourages the demand for business output.
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