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ECONOMICS

FISCAL DEPOSIT AND ECONOMIC DEVELOPMENT OF NIGERIA

FISCAL DEPOSIT AND ECONOMIC DEVELOPMENT OF NIGERIA

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FISCAL DEPOSIT AND ECONOMIC DEVELOPMENT OF NIGERIA

Chapter one

Introduction

Background of the study.

The fiscal deposit or deficit is the difference between the government’s total receipts and total outlays. It acts as a barometer for the government’s total borrowing requirements. ”

A budget deficit is the excess of government outlays over collections received through taxes, fees, and charges levied by government authorities,” states the public finance literature (Hyman, 1996).

Budget deficit measurements are used to assess the sustainability of fiscal policy. A budget deficit suggests an expansionary approach. The budget deficit as a percentage of GDP reflects how the government sector influences the economy over time.

In general, a fiscal deficit is defined as the financing of loans and the use of cash reserves. As a result, it refers to the difference between budget receipts and budget expenditures paid for using cash reserves and state borrowing (Nwaogwugwu, 2005).

“In 1990, Faith and Yunus defined fiscal deficit as the difference between revenue and budget expenditure.” Budget revenue is divided into three key components: tax revenue, tax-exempt revenue, and private revenue.

Tax revenue is the largest component of the budget’s revenue. However, budget spending has four critical components. These include current expenditure, investment expenditure, real expenditure, and transfer payments.

Current expenditure is a type of expenditure related to non-durable commodities. It is typically utilised for short-term expenditures. Investment expenditure is defined as expenses related to investment and the efficient use of resources.

Transfer payments are unrequited payments that have an indirect impact on GDP. Real expenditure is made up of both production variables and production expenditure.

If the budget deficit indicates a disharmony and imbalance between revenue and spending, both the revenue and expenditure sides of the budget should be thoroughly examined.”

According to Onwioduokit (1994), fiscal deficits emerge when public spending increases while income remains constant, when tax revenue falls while public spending rises, or when tax revenue fails but public spending remains constant.

In the majority of emerging economies, the public sector is responsible for initiating and financing economic growth. Public income from taxes and other sources is intended to pay for the resulting increase in public spending, but because revenues are never sufficient to cover the level of spending, large deficits are the primary worry.

Many factors limit the growth of public revenue in developing countries, including low per capita income, a limited base on which direct taxes can be imposed, income tax exemptions in the form of tax holidays, accelerated depreciation rates and tax credits typically provided to the manufacturing sector, and deficiencies in tax administration.

On the other hand, public spending continues to rise, owing primarily to mismanagement, growing public participation in production and control of economic variables, and an inability to limit spending.

However, despite the fact that the Nigerian government has issued several deficit budgets to boost economic growth, little has been accomplished in this regard. One of the fundamental aims of budgeting is to achieve long-term economic growth.

It is hardly an exaggeration to say that Nigeria’s massive debt burden was one of the tight knots in the Babagida administration’s Structural Adjustment Programme (SAP), which was implemented in 1986.

The high level of debt service payment prohibited the country from making huge amounts of domestic investment, which would have boosted growth and development. Nigeria’s economic process is expected to improve as a result of the debt forgiveness provided to it.

However, given the number of years she has been independent and the significant debt she has incurred, combined with the current situation, one can argue that the entire spectrum of the economy has not been sufficiently active

and that deficits sustain these negative consequences with their rippled costs over a long period of time, even after the deficits have stopped.

Ongoing fiscal deficits significantly diminish national savings, and thus domestic investment. The result is greater foreign borrowing, which, in addition to their chronic budget imbalance, can damage local and international economic confidence.

Statement of the Problem

Industrialization is required for an economy to grow rapidly, and for a country to become industrialised, there must be adequate investment to support output. As a result, industrialised countries appear to be the world’s most advanced.

To gain the benefits of economic expansion, investment and production must expand. To support productive activity, a nation requires a significant inflow of capital, which can most likely be gained by taxes and borrowing.

Keynes felt that government borrowing was logical and that it had no detrimental impact on economic performance on this basis.

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