EFFECT OF FISCAL DEFICIT FINANCING ON ECONOMIC GROWTH OF NIGERIA (1990-2022)

ABSTRACT This research work investigates the impact offiscal deficitfinancing on the economic growth ofNigeria. The explanatory variables were interest rates, inflation rate, internal borrowing, and external borrowing in Nigeria between the periods of 1990 through 2022 while the dependent variable is the Real Gross Domestic Product (RGDP) proxyfor economic growth using data from the CBN statistical bulletin. The methodolou employed includes the ADF test for unit root, the Johansen Test for Co-integration, and the Ordinary Least Square (OLS). The unit root test result shows that the variables are in the same order ofstationarity, they were all stationary at first difference. The Johansen Test for Co-integration shows that there is a long-run relationship between the variables in the model. The OLS results of this research suggest that internal borrowing positively stimulates economic growth in Nigeria, whereas external borrowing has a detrimental impact. In contrast, interest rates and inflation rates are observed to have an insignificant effect on economic growth. Moreover, the model exhibits a robust fit and an absence of autocorrelation in the error terms. Additionally, both external and internal borrowing financing are validated as influential determinants of economic growth. Based on the findings, Policymakers should consider utilizing internal sources of financing for projects and initiatives that promote economic development. However, it's important to manage internal borrowing prudently to prevent negative consequences like crowding out private investment or increasing debt burdens. Policymakers should exercise caution when considering external loans and carefully assess the terms and conditions associated with such borrowing. High external debt can lead to a drain on national resources and hamper long-term economic growth.