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This work is based on the appraisal of budget deficit and current account
balance in the Nigeria economy between the periods of 1986-2010. The broad
objectives of the study isto examine the impact of budget deficit and current
account balance in the Nigeria economy, trend of budget deficit and current
account balance and also the impact of selected macroeconomic variables on the
current account. The potency of budget deficit in improving current account
balance in Nigeria need to be emphasized upon by policy makers with
caution.The ordinary least square (OLS) technique was adopted for the
evaluation of data obtained and the researcher used PC-GIVE 8.00 software
package. The result of the study shows that government expenditure on
education has a positive impact on budget deficit while unemployment and
government expenditure on health has negative impact on budget deficit, based
on this finding, recommendations were made to enhance proper policy
intervention by government and policy makers.
Title Page = = = = = = = = = = i
Approval page = = = = = = = = = ii
Dedication = = = = = = = = = iii
Acknowledgement = = = = = = = = = IV
Abstract = = = = = = = = = = vi
Table of Contents = = = = = = = = = vii
1.1 Background of the Study = = = = = = = 1
1.2 Statement of the Problem= = = = = = = 4
1.3 Objectives of the study = = = = = = = 5
1.4 Research Hypothesis = = = = = = = 5
1.5 Significance of the study = = = = = = = 6
16. Scope/Limitation of Study = = = = = = 7
2.1 Theoretical Framework = = = = = = = 8
2.1.1 Current Account Transaction = = = = = = 15
2.2 Empirical Literature = = = = = = = 17
2.3 Limitations of Previous Study = = = = = = 22
3.1 Methodology = = = = = = = = 24
3.2 Specification of the model = = = = = = 25
3.3 Analytical Techniques = = = = = = =26
3.4 Justification of the Model = = = = 28
3.5 Data Collection and Sources = = = = 29
3.6 Econometric Software Package = = = = = = 29
4.1 Presentation and Interpretationof Results = = = = 30
4.2 Economic Apriori Criteria = = = = = = 31
4.3 Statistical Criteria {First Order Tests}= = = = 32
4.3.1 Coefficient Of Multiple Determinants {R} = = 32
4.3.2 The Student’s T-test = = = = = = 33
4.3.3 F-Statistics = = = = = = = = = = 34
4.4 Economic Criteria = = = = = = = 35
4.4.1 Test for Autocorrelation = = = = = 35
4.4.2 Normality Test for Residual = = = = = = 37
4.4.3 Test for Heteroscedasticity = = = = = = = 37
4.4.4 Test for Multicollinearity = = = = = = = 39
5.1 Summary = = = = = = = 41
5.2 Conclusion = = = = = = = = 42
5.3 Policy Recommendation = = = = = 42Bibliography =
= = = = = = = 44
Appendix = = = = = = = = 46
Budgeting generally can be said to be a control device in an organisation
designed to ensure that activities pursued within the budget period are
such that contribute to the achievement of the organisation’s objectives.
For government, its objectives are the provision of services and
improvement of the living standard of the people.
Budget deficit is one of the most discussed economic issues in Nigeria.
Baiter (1985) states that deficit are bad, always and everywhere, regardless
of the country circumstance. There is a common believe among economist,
that budget deficit priori harmful for the total function of economy.
The budget deficit arises when a government outlays exceed revenue for
that fiscal year. In an attempt to reduce large budget deficit, government
usually recourse to deficit financing namely;
i) internal and external borrowing
ii) raising the level of taxation
iii)increasing money supply
iv)Draw down from government saving or what is called foreign reserve
A deficit is financed from government borrowing which may result to
accumulated debt burden or a debt overhang situation. Inflation may result
from increased money used to finance the deficit. There would be a
decrease in disposable income of the consumers if the deficit is financed by
raising the level of taxation,it could affect economic behaviour by changing
the financial rewards to various activities. Budget deficit is a fiscal
instrument used by government to affect increase in aggregate demand
during depression. Budget deficit has its theoretical background from the
proposition made by Keynes in the 1930s during the event of the great
depression;Keynes’s advocate increased government spending as a panacea
to the world economy.
Current account balance is the sum of net export goods and services, net
income and net current transfers. Current account balance consists of
transactions relation to trade in goods and services and unilateral transfers.
Secondly, current account balance is the different between the total
receipts from export ofgoods and services and grants of transfer payment
abroad. Current account balance tells us if a country has a deficit or supplies
The current account is in surplus when absorption is less than income and
in deficit when absorption exceeds income. Government expenditure is an
important component of aggregate demand. An increase in government
outlay that is not met the available revenue usually trigger a series of
development in the economy due to the budget deficit.
As in the case of budget deficit, there are also some negative effects on
the current account balance; when a country experiences deficit, its deficit
will cause increase in imports of goods and services and also affect
adversely the domestic industry and this indirect effect on employment and
income in the country. A striking feature of Nigeria’s fiscal operation since
the second halve of the 1970s is persistent and rising budget deficits.
Nigeria has recorded deficit and current account balance thereby
experienced twin deficit. From the 2008 annual report of the Central bank
of Nigeria (CBN), article 5.3 page71, it states that there was a notional
deficit of 47.4 billion Naira or 0.2% of GDP compared with the deficit of
117.2 billion naira or 0.6 GDP in 2007. Evidences suggests that government
deficit, notably in last 15 years has been financed largely through money
creation by the central bank. Consequently, monetary policy has been
vastly expansionary with direct implication for price inflation and exchange
rate. Finding from various comprehensive studies have generally indicated
that country withsuccessful trade reforms tend to pursue tight monetary
and fiscal policies.
The budget deficit and current account balance position in
Nigeria has recorded more deficit in her budget over the years and also the
current account balance has an unhealthy growth rate even to recording
deficit in some of the years. Most
importantly, the successive governments in Nigeria have devised many
strategies and means to control the unhealthy rise in the budget deficit and
improve current account balance such as in year 2009, there were initiative
to spend less on salaries, the establishment of monitoring committee who
would inspect project and further confirm proper utilization of funds before
disbursement and strict orders that disbursement should be made based on
proper utilization of previous ones and so on. Despite these measures, the
budget deficit continue to be on the increase and current account balance
keeps fluctuating. RESEARCH QUESTIONS
The following research question will guide the study.
1.) Is there any relationship between budget deficit and current account
balance in Nigeria?
2.) What are the causes of budget deficit and fluctuating current balance in
3.) What is the contribution of budget deficit to current account in Nigeria
following Keynesian argument that demand and productivity”?
4.) What are the measures to control budget deficit and improve current
account balance in Nigeria.
The broad objective of this study is to investigate the budget deficit and
current account balance in Nigeria and how it affects the economy.
Specifically the objectives are
i.) To empirically investigate the relationship between budget deficit and
current account in Nigeria.
Ii.)To investigate the causes of budget deficit and fluctuating accounting
balance in Nigeria.
Iii.)To identify the various measures necessary to control budget deficit and
improve current account balance in Nigeria.

Research hypothesis is proposition stated in a testable form to predict
particular relationships between two or more variables. Hypothesis of this
research are stated in both null and alternative form.
The hypothesis formulated for the analysis of this study and from which
to draw relevant conclusion are 1.) Ho:
Current account balance has no effect on budget deficit in Nigeria
This study is relevant since that it will inform the policy makers in Nigeria
the nature of the relationship between government budget deficit and
economic growth where in no small measure will aid in appropriate fiscal
policy measure.
The research work will provide insight to the policy makers in making
policies that is related to budget deficit and current account balance in the
entire economy.`
Further more it will contribute immensely in developing the the analysis of
budget deficit on macroeconomic variables and serve as useful platform
tool in policy making.
The study will be useful to future researchers who might be working on the
topic or other related topics.
1.6 SCOPE/LIMITATION OF THE STUDY This research work
will cover the period of 1987 to 2010 following the limited scope of this
research work, data will be sourced from secondary data.
The limited scope of this research work is necessitated by the changes
posed by the problem of limited time frame stipulated for this research
work, shortage of fund and high cost involvement in sourcing data on some
of the variables required as a result of problem of limited statistical
materials. Effort will be made to find out the relationship of budget deficit
and current account balance within this period.
Despite all this impediments, this research work will be relevant in
serving the purpose of which is intended.


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