Universal Journal of Accounting and Finance Vol. 9(6), pp. 1510 - 1523
DOI: 10.13189/ujaf.2021.090628
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Fiscal Deficit, Economic Uncertainty and Macroeconomic Performance in Nigeria


Peter Ubi *, Bassey Ebi , Enang Udah
Department of Economics, University of Calabar, Nigeria

ABSTRACT

Fiscal deficit, economic uncertainty and macroeconomic performance have gained currency in recent public discussion among policy analysts and economists. The scale of the debates raises a question of whether or not economic uncertainty dampens the ability of deficit financing to achieve its desired objectives. This paper investigated the impact of budget deficit in an uncertain economic environment on gross domestic product (GDP) and inflation. Measures of macroeconomic performance are real GDP and inflation. Other explanatory variables include credit to financial sector (proxy for financial sector development), fiscal deficit, capital and recurrent expenditure. The paper measures economic uncertainty using exchange rate volatility through GARCH model and adopted the Auto-Regressive Distributed Lag (ARDL) bounds methodology. This approach allows the splitting of the variables into expected and unexpected variations which could be estimated using VAR. The results showed that economic uncertainty has an adverse effect on economic performance by creating passive expectation about the future. Uncertainty erodes the confidence of both foreign and domestic investors about future cash-flows and the stability of the economic environment as well as the safety of investors' assets. This impact would be visible in the existence of substantial sunk cost. The results approximate the submission that conducive economic environment along with appropriate mix of fiscal policy promotes real economic activity and stabilizes the price level. Improved economic conditions builds confidence in economic agents to invest in real productive activity, enables fiscal deficit to achieve its desired objective of stimulating economic activity and signals great optimism in the financial transaction system leading to improved funding of the private sector.

KEYWORDS
Fiscal Deficit, Economic Uncertainty, ARDL and Macroeconomic Performance

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Peter Ubi , Bassey Ebi , Enang Udah , "Fiscal Deficit, Economic Uncertainty and Macroeconomic Performance in Nigeria," Universal Journal of Accounting and Finance, Vol. 9, No. 6, pp. 1510 - 1523, 2021. DOI: 10.13189/ujaf.2021.090628.

(b). APA Format:
Peter Ubi , Bassey Ebi , Enang Udah (2021). Fiscal Deficit, Economic Uncertainty and Macroeconomic Performance in Nigeria. Universal Journal of Accounting and Finance, 9(6), 1510 - 1523. DOI: 10.13189/ujaf.2021.090628.