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Nigerian Fiscal Policy And Foreign Debt Experience.

Globally, in most economies, the mounting difficulty of rising fiscal deficits and high levels of public debt combined with the Eurozone has particularly stirred up interest from macroeconomic policy makers in the direction of a transformed focal point on fiscal policy and sustainability of public debts both in advanced and developing countries.

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The Nigerian federal government in previous years has made use of fiscal and monetary policies to attain macroeconomic stability of the economy.

While monetary policies entail the procedure through which the apex monetary authority, for instance, the Central Bank of Nigeria regulates the supply of money, with the goal of controlling interest rates or inflation to realize price stability as well as improve the general condense of the public on our currency; in contrast, fiscal policy involves the utilization of government revenues mainly from taxes and expenditure to manipulate economic activities.

Nigeria’s fiscal deficit situation is not a new occurrence since the nation recorded its first fiscal deficit of N455.10 million in 1970 (CBN, 2019). Ever since then, the Nigerian economy has persistently been on a continuous course of deficit balancing employing the tool of public debt.

Though, it was in the early 1980s that the debt problems in the country became a serious issue when its foreign exchange earnings plummeted significantly as a result of the fall in crude oil prices in the international market. This became more noticeable because Nigeria is a mono-product economy with huge reliance on crude oil as a key source of revenue.

This means which the government utilizes in balancing its fiscal deficit is referred to as deficit balancing and its option via borrowing is deemed the most appropriate stimulant for the economy both in the short run and in the long run.

This is due to the fact that it represents a drag on the economy owing to the accrual of interest rate. Apart from balancing fiscal deficits through borrowing from domestic and external sources, other options include quantitative easing and withdrawal from the country’s external reserves.

In Nigeria and other developing nations, quantitative easing is not recommended for deficit balancing owing to the fact that these are consumption-based nations, and the employment of quantitative easing in the long run could lead to hyper-inflation and a rise in money supply.

Printing of money is extremely inflationary as well as the rise in the volume of money does not correspond to a rise in productive activities in the economy.

For most part, these constants deficit had been balanced by the government via borrowing from internal or external sources as explained above, and from time to time through external reserves reduction.

A number of the projects funded by debt included Port-Harcourt refinery, Ajaokuta Steel Company, Kaduna refinery, Delta Steel Company, etc. It is imperative to assert that the Ajaokuta and Delta Steel Companies, which were considered as forerunners for the process of Nigeria’s industrialization, were totally disposed of while the refineries capacity utilization till date is inadequate and due to greed, corruption as well as inconsistent macroeconomic policy alterations of the federal government.

These worthy projects would have guaranteed increase in productive activities, generated employment, reduced poverty as well as positioned the economy on the path of growth and development.

However, it was discovered that interest rate, real gross domestic product rate was statistically insignificant irrespective of the period and therefore had no impact on public debt. The findings from this write-upon provide economic policy makers with better understanding of the importance of an effective fiscal policy on public debt sustainability.

This is because fiscal policy is essential in ascertaining the limits of public debt which ought to reveal the presence of budget deficit. In addition, research into this subject matter increases the knowledge of improved public debt sustainability due to effective fiscal policy. Therefore, it is very important to strike a balance between effective fiscal policy and sustainability of public debt by economic policy makers.

Based on this, the following recommendations were proffered: the budgeting procedure at the federal and state levels need to reassessed to make sure that allocative efficiency is achieved in the budgeting system; budget deficit balanced through internal and external borrowing must be carried out in an objective and realistic manner; introducing zero based budgeting and planning programming budgeting system in our public sectors, both at the federal and state levels to replace the present system of incremental budgeting.

Content created and supplied by: FrankChukwu (via Opera News )

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