Journal of Applied Finance & Banking

Impact of Deficit Financing on Economic Stability in Nigeria: Analysis of Economic Growth

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  • Abstract

    Nigeria has been financing budget deficit overtime but their implications on economic stability have not been fully ascertained. This study sought to investigate the implications of deficit financing on economic stability in Nigeria between 1970-2013. The study adopted regression analysis. The study revealed that External Source of Deficit Financing (EXF), Non-banking Public Source of Deficit Financing (NBPF) and Exchange Rate has significant and positive implications on Economic Stability proxy for Gross Domestic Product (GDP), while Ways and Means Source of Deficit Financing (WM), Banking System Source of Deficit Financing (BSF) and Interest Rate (INTR) has negative implications on economic stability in Nigeria. The implication is that government deficit financing through External Source of Deficit Financing (EXF) and Non-banking Public Source of Deficit Financing (NBPF) will maintain economic stability while government deficit financing through Banking System Source of Deficit Financing (BSF) and Ways and Means Source of Deficit Financing (WM) will reduce economic growth thereby causing instability in the economy. We, therefore, recommend that deficit financing in Nigeria should be focused on the productive sectors of the economy. This is because deficit financing has merely resulted in economic instability indicating that sound policies are needed to achieve economic stability in Nigeria.