The Implication of Deficit Financing on Economic Recovery of Nigeria

Emmanuel Isaac John, PhD
Department of Accounting and Finance
Arthur Jarvis University, Akpabuyo, Cross River State, Nigeria

The study analysed the effect of deficit financing on economic recovery of Nigeria using annual
time series data covering 1986 – 2020. Autoregressive Distributed Lag Model (ARDL) was the
technique of analysis employed. The results of the study revealed that deficit financing (using
domestic borrowing and external borrowing) has no significant effect on economic recovery of
Nigeria as measured with gross domestic product growth rate (GDPGR). Thus, the paper
recommended, among others, that the federal government of Nigeria should set up an independent
institution, made up of professionals, charged with the responsibility of executing projects and
monitoring of the overall budget implementations. This will ensure prudent use of the borrowed
funds and enhance the recovery of the economy. Also, internally generated revenue should be
prudently utilised to execute productive projects and take care of governance/administrative costs.
If this is done, the need for further borrowings to fund budget deficits will reduce, consequently
causing a reduction in debt service and enhancement of economic recovery.
Keywords: Deficit Financing, Domestic Borrowing, External Borrowing, Economic Recovery,

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