Deficit Financing Grill: Theoretics and Reflections on Nigeria's Transitional Military Dispensation: 1989-2000

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IntroductionGenerally, a nation's budget is a planning document containing government's projected income matched with projected expenditure. As such, it is susceptible to variations that could affect the variables upon which estimates were derived. This gives rise to two discernable scenarios where a budget is largely under-estimated or over-estimated, leading to unintended deficit or surplus, (i.e. structural deficit or surplus respectively) and where there is an intentional policy directive to incur deficit or allow surplus (i.e. discretionary deficit or surplus respectively). It is in this light that this study sets out to evaluate the social consequences of government deficit financing in Nigeria, particularly in the years preceding the return to civil rule. Thus, the study purposed to distinguish between a daring need for deficit financing as a social contingency on one hand, and as legitimized traditional fiscal tool on the other hand. Without analytically over-stressing the iconic instruments of deficit financing (which are debt and tax), it is imperative to justify its essence and efficacy as a tool for implementing social policy.The idea of deficit financing in particular has its root in fiscal policy. Therefore understanding deficit financing should normally begin with the understanding of fiscal policy, which is a major instrument of macroeconomic stability. Attempts by economists to explain fiscal policy efficacy on macroeconomic management began with the classical and Keynesian schools of thought, as the former underscores the invincible hand that regulates the market, and that government needs not to tamper with the economy. The latter, on the other hand, recognizes the need for government intervention to correct the potential instability in the economy, which the market system is incapable of adjusting. The belief in this philosophy especially in the post depression years sprouted the use of fiscal policy measures to achieve full employment, which used to be the ultimate goal of macroeconomic policy. Keynes1 argued that potential instability exists in the market economy because:The aggregate demand schedule has shown periodic deficiency tendencies of demand in an economy and the attendant decline in production. ... these deficiencies that surround demand and the subsequent decline in production and employment could be eliminated through government intervention. This can be done by way of government expenditures on public works that will stimulate the economy to further activities through the multiplier and the accelerator.PreludeThis new turn in economic event formed a new era in economic thinking and policies. The uses of fiscal policy therefore brought into focus the government's active participation in the regulation and manipulation of aggregate economic activities. To this end Keynesian devotees contend that changes in savings and investments are responsible for changes in business activity and employment in an economy. They thus, advocate for the use of fiscal policy by government through deficit financing to tackle economic depressions (Gbosi243; Fubara4). Against this backdrop, two issues are discernable:* First, the departure from a supposed private sector-driven economic system towards a government-reliant economic system aimed at strengthening the potentially incapable market mechanism; and* Second, the advocacy for government intervention as an aid agency for the private sector, procuring deficit finance to strengthen the base of the private sector (ignoring the opportunity cost of real social services in the short term), from which, ceteris paribus, a commensurate level of taxes must be collected to liquidate the deficit in the long run.In that event, more industries and employment could be created. Impliedly, both arguments are pro-private sector integration as they recognize that if government engages in the provision of goods and services, it would be stretched too thin to provide its primary service of governance. …