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 andmonetary
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 lowcapacity
utilization attributed to shortage in foreign exchange as well as the volatile
andunpredictable 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 policyis 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.