Budget Deficit Financing and Economic Stability in Nigeria

Attainment of economic stability through budget deficit has remained the focal standpoint for the past successive governments in Nigeria. This paper empirically assessed the extent to which budget deficit financing has helped in economic stabilization in Nigeria. The study utilized time series data covering a span of 39 years (1985-2023). The data were obtained from diverse sources, including Central Bank of Nigeria (CBN), Budget Office of the Federation (BOF), National Bureau of Statistics (NBS), etc. The data include annual time series data on Gross Domestic Product (GDP), Government Budget Deficit (GBD), Inflation Rate (INF), Government Expenditure (GOVEXP), and External Debt (EXD). Method of evaluation include: Unit Root Test to examine stationarity of the variables, Augmented Dickey-fuller (ADF) to test for co-integration of the variables. Error Correction Method (ECM) was adopted to tie the short-run dynamics of the co-integration to their long-run static dispositions. Vector Autoregressive (VAR) estimation methods were used to analyze the data. From the data analyses, the study found that deficit budget financing had a negative and significant influence on real gross domestic product (RGDP). The result of the estimation showed a negative and significant relationship between budget deficit and real GDP; as well as negative relationship between fiscal deficit and real GDP. In view of these, the paper recommended that budget financing in Nigeria should be focused on the productive sectors of the economy. Government should be economical with borrowing by having recourse to deficit financing only when it is extremely necessary; and fiscal discipline should be imbibed as a norm in both private and public lives of Nigerians to effectively nip unsustainable fiscal deficits in the bud.