Budget Deficit and Inflation Dynamics in Nigeria: Empirical Evidence from 2010 to 2023

The relationship between fiscal deficits and inflation remains a contested topic in macroeconomic policy discourse, particularly in developing economies where government borrowing often occurs in contexts of underdeveloped bond markets and limited monetary policy independence. This study investigates the empirical relationship between budget deficits and inflation in Nigeria between 2010 and 2023, drawing on data from the Central Bank of Nigeria, the Budget Office of the Federation, and the National Bureau of Statistics. An autoregressive distributed lag model is applied to capture both short-term and long-term dynamics in the relationship, while controlling for money supply growth, exchange rate movement, and oil revenue volatility. The theoretical framework engages with the fiscal theory of the price level and the monetisation of deficits hypothesis, both of which are particularly pertinent in contexts where the Central Bank of Nigeria has historically financed government shortfalls through Ways and Means advances. Recent events including the securitisation of over N22 trillion in Ways and Means debts in 2023 provide a compelling backdrop for examining how fiscal imbalances translate into price instability. Existing literature on Nigeria confirms a positive long-run association between deficits and inflation, though the magnitude varies across different monetary regimes. This study contributes a contemporary update to this body of evidence, with direct relevance to the Federal Ministry of Finance, the Central Bank of Nigeria, and the National Assembly's appropriations committees. Keywords: budget deficit, inflation, fiscal policy, Nigeria, monetary financing