To activate idle resources as well as divert resources from unproductive sectors to productive sectors with the objective of increasing national income and, hence, higher economic growth iv. In Nigeria, for example, high incidence of projected budget deficit persists and the risk of severe adverse consequences must be taken very seriously, although it is impossible to predict when such consequences may occur. In spite of these problems, efforts were put in place to enhance the quality of this study. The researcher encountered a number of constraints in the course of this work to include; data sourcing or data inconsistence due to poor nature of information management in Nigeria. Investment Opportunities :- The government should increase the investment opportunities in the country and there should be no fear of nationalization. Hence, the existing inequality in a developing country will be widened more by deficit financing thereby defeating the ultimate purpose of in bringing about equality. However, all types of deficit expenditure, not necessarily tend to disturb existing social justice.
Effect on Deficit Financing :- When the government expenditure is financed by the created money, it lead to inflation in the country. Some of these studied, such as Prechand 1993 , Miller 1983 asserts that financing the budget deficit by borrowing from public implies an increase in the supply of government bonds. This can be arranged for in different ways. Definitely deficit financing is capable of promoting economic development in developing economies. Finally, it would provide policy recommendations to policymakers on measures to ensure price stability and basis for further research.
These countries are using the deficit financing for the construction of roads, railways, canals and factories. Fourthly, deficit financing may not yield good result in the creation of employment opportunities. However, it is not an unmixed blessing. The specific objectives of the study were to examine the trend of deficit financing and economic growth in the developing economies how it affects economic growth and to examine various government policies towards correcting fiscal imbalance in the economy. If the government borrows runs a deficit to deal with a severe recession or depression , to help self-defense, or spends on public investment in infrastructure, education, basic research, or public health , the vast majority of economists would agree that the deficit is bearable, beneficial, and even necessary. The development of a budget deficit is often traced to the Keynesian-inspired expenditure-led growth theory of the 1970s.
For example, public borrowing only means addition to the financial burden of the government and the pubicin terms of debt servicing or payment of interest on public debt. Most countries of the world adopted this theory that government has to motivate the aggregate demand side of the economy in order to stimulate economic growth. They areliberally using the delicate tool of deficit financing for paying back the domestic and foreign loans,meeting the government consumption expenditure etc. When growth of economy gains momentum, deficit financing fills the gap where money is required to meet the demanding needs of economic development. When new projects buildings and factories are constructed a large number of people are engaged in these projects.
Factors like market imperfection structural rigidities, inelastic supply of working capital etc. Formulation of Import and Export Policy :- A country should frame its import and export policy in such a manner that the supply of an essential goods may not fall. To lift the economy out of depression so that incomes, employment, investment, etc. Public administration should be efficient and honest. A 100% rise in the money supply may create only 10% rise in the prices of the commodity. In the advanced private enterprise countries, deficit financing is resorted to ensure continued high levels of economic activity and to offset the occasional tendencies to a decline in private spending, especially private domestic investment.
Technically, a deficit would arise whenever expenditure surpasses revenues. The classical economists say that in a capitalistic economy there is always a tendency for the economy to operate at the level of full employment. How to reduce inflationary pressure of deficit financing? Government adopts two method in this regard : 1. Lewis visualizes a three stage impact of deficit financing in an economy. Thus, the effect of increased output can only be felt after a long time gap. Deficit financing is understood in different ways in different countries.
This in turn raises the demand for the goods and services. Thirdly, financial resources required for financing economic plans that a government can mobilize through deficit financing are certain and known beforehand. Fiscalindiscipline has resulted in the rise of public debt. Keynes popularized deficit financing as an effective fiscal instrument to control the economic fluctuations and to raise the level of the employment and output. Efforts to restrict imports may lead to greater rise in prices by bringing excessive pressure on domestic supplies. A very little is saved by people because of poverty.
Nigeria's economic growth rests on quality of expenditure. Since most of these infrastructures cannot be left in the hands of the private sector judging from the experience of market failures in different countries where this has been experimented, the public sector is then seen as the one better at handling issues of social overheads or infrastructural facilities. On the other hand if the time is shorter between the consumption and completion of development schemes, then inflationary pressure will be slow. Ironically, despite the first plan document, highlighting the important role of the central bank, the Reserve Bank also took a rather modest and self-effacing view about its own part in the planning process during these years, insisting that while it was entitled to be consulted by the government regarding the dimensions of the plan effort, the final decisions rested with the latter. Therefore, the countries concerned should take the following steps to avoid facing the above consequences. Hence, does promote economic growth, provided the inflationary pressure is held under complete control.