THE IMPACT OF FISCAL POLICIES ON THE ECONOMIC GROWTH OF NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The growth and stabilization of the Nigerian economy has not been stable over
the years as a result, the country’s economy has witnesses so many shocks and disturbances both internally and
externally over the decades. Internally, the unstable investment and consumption patterns as well as the improper
implementation of public policies, changes in future expectations and the accelerator are some of the factors
responsible for it. Similarly, the external factors identified are wars, revolutions, population growth rates and migration,
technological transfer and changes as well as the openness of the country’s Nigerian economy are some of the
factors that could affect the implementation of fiscal policy.
The cyclical fluctuations in the country’s economic activities has led to the periodical increase in the country’s
unemployment and inflation rates as well as the external sector disequilibria (Gbosi, 2001). In other words, fiscal
policy is a major economic stabilization weapon that involves measure taken to regulate and control the volume, cost
and availability as well as direction of money in an economy to achieve some specified macroeconomic policy
objective and to counteract undesirable trends in the Nigerian economy (Gbosi, 1998). Therefore, they cannot be left
to the market forces of demand and supply as well as other instruments of stabilization such as monetary and
exchange rate policies among others, are used to counteract are problems identified (Ndiyo and Udah 2003). This
may include either an increase or a decrease in taxes as well as government expenditures which constitute the
bedrock of fiscal policy but in reality, government policy requires a mixture of both fiscal andmonetary policy
instruments to stabilize an economy because none of these single instruments can cure all the problems in an
economy (Ndiyo and Udah, 2003).
The Nigeria economy started experiencing recession form early 1980s that leads to a depression in the mid 1980s.
This depression continued until early 1990s without recovering from it. As such, the government continually initiated
fiscal policy measures that would tackle, stabilize and overcome the dwindling economy. Drawing the experience of
the great depression, government policy measure to curb the depression was in the form of increase government
spending (Nagayasu, 2003). According to Okunroumu, (1993), the management of the Nigerian economy in order to
achieve macroeconomic stability has been unproductive and negative hence one cannot say the Nigeria economy is
performing. This is evidence in the adverse inflationary trend, government fiscal policies, undulating foreign exchange
rates, the fall and rise of gross domestic product, un-favourable balance of payments as well as increasing
unemployment rates are all symptoms of growing macroeconomic instability. As such, the Nigeria economy is unable
to function well in an environment because there is low capacity utilization attributed to shortage in foreign exchange
as well as the volatile and unpredictable government fiscal policies in Nigeria (Isaksson, 2001).
1.2 STATEMENT OF THE PROBLEM
It is an established fact that market mechanism cannot solely perform all the economic functions in a country; and as
such public policy like fiscal policy is required to stabilize, correct, guide and supplement the market forces. Fiscal
policyis one of such policies that government uses to correct market imperfections and failure. In Nigeria,
governments at various times had used these policies to stabilize and manage the economy with a view to achieving
desired macroeconomic objectives such as promoting employment generation, ensuring economic stability,
maintaining price stability and balance of payment viability, ensuring exchange rate stability and maintaining stable
economic growth. The fiscal policy thrust used in manipulating the economy depends on the objectives that need to
be achieved at any time period. Government intervention in the economy through fiscal policy has been to manipulate
the receipt and expenditure sides of its budget in order to achieve certain national objectives. The reality however is
that often, there have been wastages, some spending has been politicized, and there has been high level
misappropriation, mismanagement and corruption. However, the researcher is examining the impact of fiscal policies
in stabilization of the Nigeria economy.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
- To examine the impact of fiscal policies in stabilization of the Nigeria economy.
- To examine the factors influencing the proper implementation of various fiscal policies in Nigeria.
- To identify the consequences of the implemented fiscal policies by the government of Nigeria.
- 1.4 RESEARCH QUESTIONS
- What is the impact of fiscal policies in stabilization of the Nigeria economy?
- What are the factors influencing the proper implementation of various fiscal policies in Nigeria?
- What are the consequences of the implemented fiscal policies by the government of Nigeria?
- 1.5 SIGNIFICANCE OF THE STUDY
The following are the significance of this study: - The outcome of this study will be a useful guide for the government of Nigeria, stakeholder in the financial sector
and the general public on how fiscal policies can be used as a tool for the stabilization of the Nigerian economy. - This research will also serve as a resource base to other scholars and researchers interested in carrying out
further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic. - 1.6 SCOPE/LIMITATIONS OF THE STUDY
This study on the impact of fiscal policies in stabilization of the Nigeria economy will cover various fiscal policies that
has been adopted by the government of Nigeria considering its effect on the stabilization of Nigerian economy. - 1.7 LIMITATIONS OF STUDY
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant
materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This
consequently will cut down on the time devoted for the research work.
THE IMPACT OF FISCAL POLICIES ON THE ECONOMIC GROWTH OF NIGERIA