THE EFFECTS OF DEFICIT BUDGETING ON NATIONAL DEVELOPMENT OF NIGERIA, 1999 - 2010

This study is an empirical analysis of deficit budgeting and the national development of Nigeria. Its purpose is to examine the relationship between deficit budgeting, macroeconomic and development variables of Gross Domestic Product (GDP), Inflation, Unemployment and Human Development Index (HDI). The data were collected from both primary and secondary sources, namely the National Bureau of Statistics, Debt Management Office (DMO), Budget Office of the Federation, Central Bank of Nigeria and the Federal Ministry of Finance using appropriate instruments. Regression analysis was used as the primary tool of analysis, employing the ordinary least squares (OLS) method and the spear man product moment correlation coefficient to examine the relationship between the variables of interest. The t-statistic was employed to test and validate the stated hypotheses. The study found that budget deficit as a policy option is not inherently defective. However, in Nigeria’s case, it did not significantly influence the achievement of GDP growth rate and that it had an adverse effect on the level of unemployment and inflation, especially because decision makers in the years in which the expenditure were made, used the deficit to finance recurrent expenditure items which did not create long-term productive capacity for the economy. Similar, relationship was also observed with regard to human development index, which accounts for life expectancy, literacy level, access to healthcare. The adverse relationship observed between the budget deficit and GDP, unemployment, inflation and human development is consistent with the proposition of the Neo-classical school The study recommends that policymakers should observe fiscal prudence by keeping the budget deficit to a minimal level, not exceeding 3% of the GDP in line with the prescription of the Fiscal Responsibility Act 2007, that deficit is not financed by monetization and in addition ensure that the deficit is used to finance long-term investments in the productive sector of the economy rather than consumption, which escalates inflation, slows economic growth and exacerbates unemployment and poverty