GOVERNMENT BUDGET DEFICITS AND MACROECONOMICS VARIABLES: NIGERIA EXPERIENCE

Abstract

Over the years the federal government of Nigeria's budget has been in deficit and this has been receiving attention as regards its effect on the economy and other macroeconomic variables in Nigeria. The study, therefore, examines the impact of government budget deficits on macroeconomic variables (interest rate, exchange rate, inflation rate, money supply, and gross domestic product) in Nigeria. The study employed a time series data between 1981 and 2019 which was subjected to unit root test adopting Augmented Dickey-Fuller to test the stationary of the variable. The result revealed that the variables are stationary at level and 1st difference at intercept. VAR lag order selection criteria test was conducted and most of the criteria suggested lag 2 which was used for the analysis. ARDL bounds test affirmed the existence of a long-run relationship among the variables, hence subjected to ARDL cointegration and long-run form test. The interest rate model indicated a positive and significant relationship between government budget deficits and interest rate while the exchange rate model specified a negative but insignificant relationship between government budget deficits and exchange rate. The study, therefore, recommended that government should minimize budget deficits by minimizing its recurrent expenditure and ensure strict government expenditure control to avoid possible corruption. Government support for local production should be improved to encourage export and minimize importation which will thereby appreciate Naira, and government should ensure a way of improving revenue generation to minimize deficits through tax collection and other levies.

Keywords

• government budget deficits
• interest rate
• exchange rate
• inflation rate
• gross domestic product