Pitfalls of Fiscal Deficits and Public Debts in Nigeria

Abstract

The recent global financial crisis has put governments at strain. The notion that financial crises tend to be associated with a significant deterioration of government balance sheets is not new. The combination of weaker economic growth and lower revenues as well as an increase in government expenditures linked to direct bailout costs and stimulus programmes widens deficits and thereby increases the existing government debt. The study aims to assess the consequences of fiscal deficits and public debts in Nigeria. The Ricardian Equivalence theory of fiscal deficits is used as the theoretical framework of the study. A mixed research method comprising of both quantitative and qualitative techniques was adopted for the study. Data collection was based on secondary sources while data analysis was done using descriptive statistics and content analysis. The study established that Nigeria’s fiscal deficit to GDP ratio has been on the rise and in most instances exceeded the 3% threshold stipulated by the FRA 2007.  It also revealed that increasing fiscal deficits have resulted to spiraling debt and consequently, slow national income growth, low government revenues, high inflation rate, unfavorable foreign exchange rates, low investment, and low national savings. The study recommends approaches, such as bold fiscal reforms, fiscal tightening, improved tax revenues and orderly debt restructuring, in managing fiscal deficits and public debts to realize positive economic outcomes in Nigeria.