Impact of Fiscal Deficit and Inflation in Nigeria: 1990 – 2024

In investigating the impact of fiscal deficit and inflation in Nigeria from 19900to 2024, this study employed descriptive statistics, Ordinary Least Squares (OLS) techniques, Co-integration and Error Correction Mechanism (ECM). To facilitate our investigation of the subject matter, data were obtained from secondary sources on Inflation Rate (IP) Fiscal Deficit (FD), Exchange Rate (EXR). Money Supply (MS) and Real Gross Domestic Product (RGDP). Specifically, both Augmented Dickey-Fuller (ADF) approach and Phillips-Perron (PP) test were carried out to test the stationary relationship among the variables in the model. It was observed from the analyses that all the variables were integrated of order one, I(1). Also, the co-integration result revealed the existence of a long run relationship among the variables. Furthermore, the result of the Error Correction Model (ECM) analysis revealed the existence of long run insignificant negative relationship between Fiscal Deficit (FD) and Inflation rate (IP), insignificant positive relationship between Exchange Rate (EXR) and Inflation rate (IP), and significant positive relationship between Money Supply (MS) and Inflation Rate (IP) in Nigeria. This study further revealed a long run significant negative relationship between the current value of Real Gross Domestic Product (RGDP) and Inflation Rate (IP), while the previous value of Real Gross Domestic Product showed the existence of an insignificant positive relationship with Inflation Rate (IP).Based on these findings, the study therefore concludes that no real evidence of causality exists between fiscal deficit and inflation in Nigeria within the period under investigation. The foregoing therefore, suggests alternative control measure of effective management of the macro-economic variables that exhibit long run positive relationship with inflation, towards stemming inflationary pressure in Nigeria and that the overriding concern of policy makers in Nigeria with respect to the subject matter, should be the method of deficit financing and not the level of fiscal deficit.