Deescalating The Crises of Government Borrowing: Can Fiscal Retrenchment Redress Public Debt Constraints in Nigeria?

Abstract

The extraordinary rise in public debt in many nations during the recent global recession has reignited interest in the mechanisms of debt buildup. This circumstance has been especially disturbing in the Eurozone, where markets have questioned the viability of debt for those nations facing higher borrowing costs because of rising bond rates. Governments and supranational organisations implemented concerted fiscal consolidation measures in response to the perceived threats of contagion, with the goal of gaining control and solvency over stretched public budgets. Fiscal retrenchment is designed for governments to manage their public finances in times of economic/financial crises. This study examines the potency of fiscal retrenchment as an instrument of public debt management in Nigeria. The theory of Expansionary Fiscal Contraction (EFC) was adopted for the study. A documentary research design was used in the study. Findings of the study revealed that government borrowing to fund deficit-budgets has not corrected Nigeria’s fiscal problems but rather led to a vicious cycle of debts, that have spillover effects on present and future revenue prospects. The study recommends a reduction in government spending and an increase in taxes as appropriate fiscal measures to resolve the public debt crises in Nigeria.

Keywords

• debt management
• deficit-budgets
• fiscal policy
• fiscal retrenchment
• public debts

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