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.
Key words:
Public Sector, Deficit, Nigeria, Implications