Budget Deficit, Budget Reform Index and Macroeconomic Performance in Nigeria

This study examines the relationship between budget deficit, budget reform index and macroeconomic performance in Nigeria between 1981 and 2023. The study adopts the Budget Reform Index (BRI) measure as a proxy for budget reform as against previous work that adopts dummy variable as a measure for BRI. The budget reform index is a more rigorous, comprehensive and quantitative measure; giving credence to this work and value addition. Therefore, the novelty of this work is the introduction of Budget Reform Index which previous studies ignored. The study employed the Auto regressive distributed lag model (ARDL) method to analyze the time series data. The reason for adopting the ARDL is to test for both short run and long run parameters of the models. Findings from the ARDL analysis showed that the impacts of budget deficit on output and employment are positive and significant in the short run and long run periods. In the short run budget deficit increases outputs and employments by 0.003 and 0.0001 per cents respectively while in the long run it raises outputs and employment by 0.096 and 0.008 per cents respectively. Similarly, in the short run, budget reform index increases outputs and employments by 0.032 and 0.004 per cents respectively whereas in the long run it increases outputs and employment by 1.096 and 0.097 per cent respectively. Further findings indicated positive and insignificant impacts of budget deficit on current account balance (balance of payments) in both short run and long run. The short run and long run effects of budget reform index is also consistently positive and statistically insignificant. While budget deficit raises the balance of payment position by about 0.62 per cent in the short run, it increases it by about 1.1 per cent in the long run. On the other hand, the fiscal reform index raises the balance of payment position by about 3.55 per cent in the short run and increases it by about 6.19 per cent in the long run but the effect was insignificant in both the short and long run periods. The study recommends that budget reform policies should contain quantifiable expectations/benchmarks to facilitate proper monitoring and evaluation of budget performance. Furthermore, the study calls for fiscal policy and budget administration that encourages improvement in the country’s balance of payments position, etc.