Benue State University, Makurdi

A Note on the Measurement of Public Sector Deficit in Nigeria and its Implications

Ebele Amali and Moses Okpanachi

Abstract

The paper underscores the necessity of adopting an appropriate measurement basis of fiscal deficits. It has been noted that the cash accounting basis tends to understate the magnitude of the deficit in a situation where financial arrears are accumulated and overestimate the size of the fiscal problem whenever arrears are being decumulated. In Nigeria, official estimates of the deficits are based on cash, even though accumulation of financial arrears appears to be a dominant feature of the fiscal profile. In the process the magnitude of the fiscal problem is understated. The implication for policy is that the amount of required adjustment is unavoidably underestimated. This partly explains why the deficits have persisted. What is appropriate the circumstance is to treat arrears as a source of involuntary finance and to measure the deficit on an accrual basis.

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