THE IMPACT OF FISCAL
POLICIES IN STABILIZATION OF THE NIGERIAN ECONOMY
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 and monetary 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, unfavourable 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 policy is 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:
1. To
examine the impact of fiscal policies in
stabilization of the Nigeria economy.
2. To
examine the factors influencing the proper implementation of various fiscal
policies in Nigeria.
3. To
identify the consequences of the implemented fiscal policies by the government
of Nigeria.
1.4 RESEARCH
QUESTIONS
1. What
is the impact of fiscal policies in stabilization of the Nigeria
economy?
2. What
are the factors influencing the proper implementation of various fiscal
policies in Nigeria?
3. What
are the consequences of the implemented fiscal policies by the government of
Nigeria?
1.6 SIGNIFICANCE OF THE STUDY
The
following are the significance of this study:
1. 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.
2. 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.
1.7 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.
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.
REFERENCES
Gbosi, A.N.
Contemporary Macroeconomic Problems and Stabilization Policies in Nigeria,
(2001), Antovic Ventures, Port Harcourt.
Gbosi, A.N.
Banks, Financial Crisis and the Nigerian Economy Today, (1998),
Corporate Impression Publishers, Owerri.
Isaksson,
A. Financial liberalization, foreign aid and capital mobility: Evidence from 90
developing countries, Journal of International Financial Markets,
Institutions and Money, 11(2001), 309-338.
Nagayasu,
J. The efficiency of the Japanese equity market, IMF Working Paper, No.
142 June, (2003).
N.A. Ndiyo
and E.B. Udah, Dynamics of monetary policy and poverty in a small open economy:
The Nigerian experience, Nigerian Journal Economics and Development Matters,
2(4) (2003), 40-68.
Okunrounmu,
T.O., Fiscal policies of the federal government strategies since 1986, Central
Bank of Nigeria, Economic and Financial Review, 31(4) (1993), 340-350.