Deficit Financing and Economic Growth in Nigeria

ABSTRACT 

Deficit Financing is a government policy of financing large public expenditure by borrowing money rather than by raising taxes. This started way back in 1961; it is used to stimulate the economy. Deficit financing has not accelerated the growth of the economy, but has created more economic crises. Government finds ways of financing the deficit through borrowing from domestic sources such as the issuing of treasury bills, FGN bonds, treasury certificates, treasury 

bonds and development stocks. Also depending on developmental projects or situations, government could resort to borrowing from external sources like multilaterals, Paris club, London club and others. This study examines the impact of deficit financing on the economic growth of Nigeria. In this research, 

the dependent variable is economic growth and it is measured by the Gross Domestic Product (GDP) while the dependent variable is the deficit financing and the proxies for public, domestic and external debts. The empirical relationship between domestic debt and economic growth and also that of external debt and economic growth of Nigeria were examined with a view to bringing out the impact of deficit financing on the Nigerian economy. The 

analysis was guided by Simple Correlation of Pearson Product Movement Correlation Model with the Statistical Package for Social Science (SPSS 20.00). The study covers thirty-four years spanning from 1981 to 2014. Secondary data from the CBN statistical bulletin, Bureau of statistics bulletin and debt management office 2014 were used. The results show a positive relationship between public and domestic debts; and Gross Domestic Product 

and a negative relationship between external debt and Gross Domestic Product. In light of the findings, the researcher recommended that Government domestic public and domestic borrowed funds should be judiciously used and Government should increase her revenue base through tax reform programmes, and make viable agricultural and mineral resources policies.