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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.
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