The Nexus between Fiscal Deficit and Domestic Credit in Nigeria (1981-2017)
The continuous planned budget deficit in order to stimulate growth and reduce unemployment rate, among other goals was expected to bring about massive turnaround in the Nigeria economic fortune. On the contrary, fiscal deficit and debt has continue to worsen and cother macroeconomic variables like inflation, exchange rate, net export, savings and investment have all failed to improve. This study examined the nexus between fiscal deficit and domestic credit in Nigeria over the period of 1981 to 2017. The study based on descriptive survey research design utilised Keynesian approach in theoretical framework upon which an econometric model where domestic credit was the dependent variable while fiscal deficit, inflation and total debt were the independent variables. Annual time series data covering the period between 1981 and 2017 obtained from Central Bank of Nigeria Statistical Bulletin was utilised and the result was estimated through the Dynamic Ordinary Least Square (DOLS) technique. The result shows that fiscal deficit ( = -0.001099, t=-8.110295, p<0.05) and inflation ( = -0.029994, t=-5.614297, p<0.05) exert a significant negative effect on domestic credit in Nigeria while total debt ( =0.056289, t=3.875317, p<0.05) showed a positive significant effect on domestic credit in Nigeria. The study submitted that fiscal deficit has a significant negative effect on domestic credit in Nigeria. Among others the study recommended that government should implement policy that will enhance her revenue generation drive and cut down all her unproductive expenditure to stimulate a balanced budget.
Keywords: Fiscal deficit, Domestic credit, Debt, Inflation, Nigeria