BUDGET DEFICIT AND CURRENT ACCOUNT BALANCE IN NIGERIA (1986-2010)

ABSTRACT

This work is based on the appraisal of the budget deficit and current account balance in the Nigerian economy between the periods of 1986-2010. The broad objectives of the study are to examine the impact of the budget deficit and current account balance in the Nigerian economy, the trend of the budget deficit and current account balance and also the impact of selected macroeconomic variables on the current account. The potency of the budget deficit in improving current account balance in Nigeria need to be emphasized upon by policymakers with caution. The ordinary least square (OLS) technique was adopted for the evaluation of data obtained and the researcher used the PC-GIVE 8.00 software package. The result of the study shows that government expenditure on education has a positive impact on the budget deficit while unemployment and government expenditure on health has a negative impact on the budget deficit, based on this finding, recommendations were made to enhance proper policy intervention by government and policymakers.

CHAPTER ONE
1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Budgeting generally can be said to be a control device in an organization designed to ensure that activities pursued within the budget period are such that contribute to the achievement of the organization’s objectives. For the government, its objectives are the provision of services and improvement of the living standard of the people.
The budget deficit is one of the most discussed economic issues in Nigeria. Baiter (1985) states that deficit are bad, always and everywhere, regardless of the country circumstance. There is a common belief among economists, that budget deficit prior to harmful for the total function of the economy.
The budget deficit arises when a government outlays exceed revenue for that fiscal year. In an attempt to reduce the large budget deficit, the government usually recourse to deficit financing namely;
i) internal and external borrowing ii) raising the level of taxation iii)increasing money supply iv)Drawdown from government saving or what is called foreign reserve A deficit is financed from government borrowing which may result to
accumulated debt burden or a debt overhang situation. Inflation may result from increased money used to finance the deficit. There would be a decrease in disposable income of the consumers if the deficit is financed by raising the level of taxation, it could affect economic behavior by changing the financial rewards to various activities. The budget deficit is a fiscal instrument used by the government to effect an increase in aggregate demand during the depression. The budget deficit has its theoretical background from the proposition made by Keynes in the 1930s during the event of the great depression; Keynes’s advocate increased government spending as a panacea to the world economy.
The current account balance is the sum of net export goods and services, net income and net current transfers. The current account balance consists of transactions related to trade in goods and services and unilateral transfers. Secondly, the current account balance is the difference between the total receipts from export of goods and services and grants of transfer payment abroad. The current account balance tells us if a country has a deficit or supplies budget.
The current account is in surplus when absorption is less than income and in deficit when absorption exceeds income. Government expenditure is an important component of aggregate demand. An increase in government
outlay that is not met the available revenue usually triggers a series of development in the economy due to the budget deficit. As in the case of the budget deficit, there are also some negative effects on the current account balance; when a country experiences deficit, its deficit will cause an increase in imports of goods and services and also affect adversely the domestic industry and this indirect effect on employment and income in the country. A striking feature of Nigeria’s fiscal operation since the second half of the 1970s is persistent and rising budget deficits. Nigeria has recorded deficit and current account balance thereby experienced twin deficit. From the 2008 annual report of the Central bank of Nigeria (CBN), article 5.3 page71, it states that there was a national deficit of 47.4 billion Naira or 0.2% of GDP compared with the deficit of 117.2 billion nairas or 0.6 GDP in 2007. Evidence suggests that government deficit, notably in the last 15 years has been financed largely through money creation by the central bank. Consequently, monetary policy has been vastly expansionary with direct implications for price inflation and exchange rate. Finding from various comprehensive studies have generally indicated that countries with successful trade reforms tend to pursue tight monetary and fiscal policies.

1.2 STATEMENT OF THE PROBLEM

The budget deficit and current account balance position in Nigeria has recorded more deficit in her budget over the years and also the current account balance has an unhealthy growth rate even to recording deficit in some of the years. Most importantly, the successive governments in Nigeria have devised many strategies and means to control the unhealthy rise in the budget deficit and improve current account balance such as in the year 2009, there was an initiative to spend less on salaries, the establishment of monitoring committee who would inspect the project and further confirm proper utilization of funds before disbursement and strict orders that disbursement should be made based on proper utilization of previous ones and so on. Despite these measures, the budget deficit continues to be on the increase and current account balance keeps fluctuating.

RESEARCH QUESTIONS
The following research question will guide the study.
1.) Is there any relationship between budget deficit and the current account balance in Nigeria?
2.) What are the causes of the budget deficit and fluctuating current balance in Nigeria?
3.) What is the contribution of budget deficit to current account in Nigeria following Keynesian argument that demand and productivity”?
4.) What are the measures to control budget deficit and improve the current account balance in Nigeria?

1.3 OBJECTIVES OF THE STUDY

The broad objective of this study is to investigate the budget deficit and the current account balance in Nigeria and how it affects the economy. Specifically, the objectives are
i.) To empirically investigate the relationship between budget deficit and current account in Nigeria.
Ii.)To investigate the causes of the budget deficit and fluctuating accounting balance in Nigeria.
Iii.)To identify the various measures necessary to control budget deficit and improve the current account balance in Nigeria.

1.4 RESEARCH HYPOTHESIS

The research hypothesis is a proposition stated in a testable form to predict particular relationships between two or more variables. The hypothesis of this research is stated in both null and alternative forms.
The hypothesis formulated for the analysis of this study and from which to draw a relevant conclusion is 1.) Ho: Current account balance has no effect on the budget deficit in Nigeria

1.5 SIGNIFICANCE OF THE STUDY

This study is relevant since that it will inform the policymakers in Nigeria the nature of the relationship between government budget deficit and economic growth wherein no small measure will aid inappropriate fiscal policy measures.
The research work will provide insight into the policymakers in making policies that are related to the budget deficit and current account balance in the entire economy.`
Furthermore, it will contribute immensely in developing the analysis of budget deficit on macroeconomic variables and serve as a useful platform tool in policymaking.
The study will be useful to future researchers who might be working on the topic or other related topics.

1.6 SCOPE/LIMITATION OF THE STUDY This research work will cover the period of 1987 to 2010 following the limited scope of this research work, data will be sourced from secondary data.
The limited scope of this research work is necessitated by the changes posed by the problem of a limited time frame stipulated for this research work, shortage of funds and high-cost involvement in sourcing data on some of the variables required as a result of the problem of limited statistical materials. An effort will be made to find out the relationship between the budget deficit and the current account balance within this period. Despite all these impediments, this research work will be relevant in serving the purpose of which is intended.

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