External Bankrolling of Fiscal Deficit: Pragmatic Analysis of its Bearing on Macroeconomic Environment in Nigeria
Abstract
External financing of fiscal deficit implies a situation where funds will be solicited out of the country to finance the deficit budget in Nigeria. The study, therefore, examined the impact of external financing of fiscal deficit on some selected macroeconomic variables, Interest rate, Real Gross Domestic Product, exchange rate, and unemployment rate in Nigeria. The National Bureau of Statistics Bulletin and the Central Bank of Nigeria Statistical Bulletin provided the secondary data for the study. From 1987 until 2020, the statistics were available. The data were analysed using; trend analysis, descriptive statistics, correlation matrix, unit root test co-integration test, long-run coefficient, auto-regressive distributed lag error correction model post estimation, and stability test. According to the study, foreign debt has a negative effect on Nigeria's unemployment rate, while the exchange rate has a positive and substantial link with the long coefficient. However, the Real Gross Domestic Product and the interest rate were not influenced by external debt. The short-run result indicated that current year external debt and lag three have a positive impact on the underlined macroeconomic variables, while, the current year Real Gross Domestic, current year exchange rate, current year interest rate, and current year unemployment rate indicate a negative significant relationship by external debt in Nigeria. The paper recommended among others that the Nigerian government should regulate interest rates, more investment in the production sector by government and private investors, and consequently, increase Gross Domestic Product in Nigeria.
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