CHAPTER ONE

INTRODUCTION

This research is set out to explore the nature of fiscal deficit and the

impact it has on economic growth by carrying out a critical examination on

Nigeria within 1990-2013.

The history of fiscal deficit in Nigeria dates as far back as the 1970s.

Several researches conducted to find out the reason for these deficits

suggested that, it was prompted by the oil shock which induced public

spending that increased government total recurrent expenditure from N3,

819.20 million in 1977 to N4, 805.20 million in 1980 and further to N36,

219.60 million in 1990 (CBN 2007, 2008); and the huge public debt which

grew beyond the debt-service ability of the economy (Oluba 2014).

However, the sustained impact of these factors, coupled with a few others

resulted to a sharp increase in fiscal deficits which turned out to be a

recurring issue (Oluba 2014).

The government resulted to deficit financing which implies that

government expenditure exceeds government revenue over a period of

time. (Anyanwu, 1997). In a bid to overcome the rising level of macroeconomic

instability, Nenbee (2009) suggests that government in various

countries have resorted to fiscal deficits in their spending.

As a result of these recurring deficits, national savings is drastically

reduced and consequently, domestic investment. Inflation and

unemployment keep rising. Needless to say fiscal deficits creates macroeconomic

imbalances. The expansion of the public sector naturally leads to

the contraction of the private sector which reflects in a decrease in private

consumption (Oluba, 2014).

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