Derisking the Risk: Ways and Means Financing Versus Austerity Measures in Management of Fiscal Imbalances in Nigeria

Andrew Aondohemba Chenge

doi:10.18778/2391-6478.1.49.02

Authors

Andrew Aondohemba Chenge Department of Public Administration, Federal University Wukari, Nigeria https://orcid.org/0009-0002-5568-1694

DOI:

https://doi.org/10.18778/2391-6478.1.49.02

Keywords:

Austerity measures, fiscal deficits, fiscal imbalance, public debts, Ways and Means

Abstract

The purpose of the article. The study analyses two prominent fiscal adjustment measures – Ways and Means financing, and austerity measures – to determine the most appropriate strategy for managing fiscalimbalances and economic crisis in Nigeria.

Methodology. Documentary research design was used as the methodology. Data was derived from reports and publications of government agencies. Data analysis was done using mixed methods content analysis.

Results of the research. Findings of the study highlighted that Ways and Means financing is justified since it provides the government with short-term funding to cover budgetary deficits. Nevertheless, if Ways and Means is applied without caution, it is likely to induce unchecked spending and money supply surges, resulting in inflation and currency devaluation. The study maintained that fiscal austerity, which advocates a policy of significant decrease in government deficits and stabilization of government debt through either tax hikes, spending cutbacks, or both, is a more effective measure in managing fiscal imbalances in Nigeria.

Downloads

Download data is not yet available.

References

Adegboyega, A. (2024). CBN issues new guidelines on Ways and Means to FG. Premium Times, September 17, 2024. http://www.premiumtimesng.com/business/business-news/735564-cbn-issues-new-guidelines-on-ways-and-means-to-fg.html.

Adrian, T., Erceg, C., Kolasa, M., Linde, J., McLeod, R., Veyrune, R. & Zabczyk, O. (2024). New perspectives on quantitative easing and central bank capital policies. International Monetary Fund (IMF) Working Paper, WP/24/103, 1–26.

Ahmad, N. (2013). The role of budget deficit in the economic growth of Pakistan. Global Journal of Management and Business Research Economics and Commerce, 13(5), 1–4.

Aldasoro, I. & Seiferling, M. (2014). Vertical fiscal imbalances and the accumulation of government debt. International Monetary Fund (IMF) working Paper, WP/14/209, 1–38.

Alesina, A., Favero, C. & Giavazzi, F. (2019). Austerity: When it works and when it doesn’t. Princeton University Press. https://doi.org/10.2307/j.ctvc77f4b.

Alpino, M., Asatryan, Z., Blesse, S. & Wehrhofer, N. (2022). Austerity and distributional policy. Journal of Monetary Economics, 131, 112–127. https://doi.org/10.1016/j.jmoneco.2022.07.006.

Anudu, O. (2023). Explainer: How “Ways and Means” affects ordinary Nigerians. Dataphyte. https://dataphyte.com/topic/explainer-can-tinubu-resolve-the-ways-and-means-problem.

Auerbach et al. (1991). Generational accounts: A meaningful alternative to deficit accounting. In D. Bradford (ed), Tax policy and the economy, 5, (pp. 55–110). National Bureau of Economic Research (NBER).

Augustt, R. M., Adu, G. & Frimpong, P. B. (2015). The nexus between output fluctuations and fiscal deficits: Empirical evidence on Ghana. International Journal of Sustainable Economy, 7(2), 100–117. https://doi.org/10.1504/IJSE.2015.068676.

Beker, V. A. (2014). The European debt crises: Causes and consequences. Journal of Stock and Forex Trading, 3(2), 1–9. https://doi.org/10.4172/2168-945801000115.

Bird, R. & Tarasov, A. V. (2002). Closing the gap: Fiscal imbalances and intergovernmental transfers in developed federations. International Studies Program working Paper, 02-02, 1–54. Georgia State University.

Biten, M., Kuhu, T. & Van der Brug, W. (2023). How does fiscal austerity affect trust in the European union? Analyzing the role of responsibility attribution. Journal of European Public Policy, 30(6), 1033–1050. https://doi.org/10.1080/13501763.2022.2060282.

Biza, R. A., Kapingura, F. M. & Tsegaye, A. (2015). Do budget deficits crowd out private investment? An analysis of the South African economy. International Journal of Economic Policy in Emerging Economies, 8(1), 52–76. https://doi.org/10.1504/IJEPEE.2015.068248.

Blanchard, O. & Fischer, S. (1989). Lectures on macroeconomics. MIT Press.

Boariu, A. & Bilan, I. (2007). Inflationary effects of budget deficit financing in contemporary economies. Scientific Annals of the University, Alexandru Ioan Cuza” of Iași, Economic Sciences, 54, 77–82.

Boccia, R. & Lett, D. (2025). Reducing spending now: The key to growth, not austerity. CATO at Liberty.

Born, B., Muller, G. J. & Pfeifer, J. (2014). Does austerity pay off? Paper prepared for the SAFE Research Conference themed “Austerity and Growth: Concepts for Europe”, June.

Calvo, G. & Vegh, C. (1999). Inflation stabilization and BOP crises in developing countries. In J. Taylor, M. Woodford (eds.). Handbook of Macroeconomics, 1, part C (pp. 1531–1614), Elsevier. https://doi.org/10.1016/S1574-0048(99)10037-5.

Campoy-Munoz, P., Cardenete, M. A., De Miguel-Velez, F. J. & Perez-Mayo, J. (2022). How does fiscal austerity impact on poverty and inequality? The Spanish case. Economia Politica, 39, 715–737. https://doi.org/10.1007/s40888-021-00253-5.

Catao, L. & Terrones, M. E. (2003). Fiscal deficits and inflation. International Monetary fund (IMF) Working Paper, WP/03/65.

Cebula, R. J. (1995). The impact of Federal Government budget deficit on economic growth in the United States: An empirical investigation, 1955–1992. International Review of Economics and Finance, 4(3), 245–252. https://doi.org/10.1016/1059-0560(95)90042-X.

CBN (2007). Central Bank of Nigeria Act, 2007. Federal Republic of Nigeria.

CFI (2023). Austerity: Government policies that aim to reduce public sector debt. Corporate Finance Institute (CFI).

CFI (n.d.). Quantitative easing. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/economics/quantitative-easing.

Chadha, J. S. (2024). Quantitative easing, fiscal policy and central bank recapitalization. National Institute Global Economic Outlook, 15, 41–43. https://niesr.ac.uk/publications/quantitative-easing-fiscal-policy-and-central-bank-recapitalisation?type=global-economic-outlook-box-analysis.

Chenge, A. A. & Oigbochie, A. E. (2023). Pitfalls of fiscal deficits and public debts in Nigeria. International Journal of Public Finance, Law and Taxation, 7(1), 1–13. https://management.eurekajournals.com/index.php/IJPFLT/article/view/740.

Chenge, A. A. (2025). Deescalating the crises of government borrowing: Can fiscal retrenchment redress public debt constraints in Nigeria? Journal of Public Finance Studies, 73, 18–32. https://doi.org/10.26650/mcd2025-1582825.

Chenge, A. A. (2026). Inflation and the cost-of-living crisis: What public policy options for Nigeria to weather the economic storm? Journal of Public Administration and Policy, 7(1) (Forthcoming). https://dergipark.org.tr/en/pub/kaypod.

Effiong, U. & Okijie, S. (2021). Fiscal imbalance and macroeconomic instability in Nigeria: Implications for national development. Acta Universitatis Danubius ECONOMICA (AUDOE), 17(3), 118–139.

EPSU (n.d.). Austerity and the alternatives. European Federation of Public Service Unions (EPSU).

Fatima, G., Ahmed, M. & Rehman, W. U. (2012). Consequential effects of budget deficit on economic growth of Pakistan. International Journal of Business and Social Science, 3(7), 203–208.

Fieldhouse, E., Green, J., Evans, G., Mellon, J., Proser, C., Schmitt, H. & Van der Eijk, C. (2019). Electoral shocks: The volatile voter in a turbulent world. Oxford University Press. https://doi.org/10.1093/oso/9780198800583.001.0001.

Filip, G. H. (2002). Public Finances. Junimea Publishing House.

Fischer, S., Sahay, R. & Vegh, C. (2002). Modern hyper – and high inflations. Journal of Economic Literature, 40, 837–880.

Ghura, D. (1995). Effects of macroeconomic policies on income growth, inflation, and output growth in Sub-Saharan Africa. Journal of Policy Modelling, 17(4), 367–395. https://doi.org/10.1016/0161-8938(94)00037-G.

Glomm, G., Jung, J. & Tran, C. (2018). Fiscal austerity measures: Spending cuts vs. tax increases. Macroeconomic Dynamics, 22(2), 501–540. https://doi.org/10.1017/S1365100516000298.

Goddard, J., Molyneux, P. & Wilson, J. O. S. (2009). The financial crises in Europe: Evolution, policy responses and lessons for the future. Journal of Financial Regulation and Compliance, 17(4), 362–380. https://doi.org/10.1108/13581980911004352.

Hassan, M., Nassar, R. & Liu, C. (2014). Effect of Government deficit spending on the GDP in the United States. Journal of Economic and Economic Education Research, 15(3), 103–112.

House, C., Proebsting, C. & Tesar, L. (2020). Austerity in the aftermath of the great recession. Journal of Monetary Economics, 115, 37–63. https://doi.org/10.1016/j.jmoneco.2019.05.004.

Hulsewig, O. & Steinbach, A. (2021). Monetary financing and fiscal discipline. International Review of Law and Economics, 68, 106004. https://doi.org/10.1016/j.irle.2021.106004.

IMF (2014). Public Expenditure Reform: Making Difficult Choices. Fiscal Monitor. International Monetary Fund (IMF).

Kahongeh, J. (2024). Austerity measures: To resuscitate or choke economies? Power Shift Africa. http://www.powershiftafrica.org/blog/austerity-measures-to-resuscitate-or-kill-economiesnbsp.

Karras, G. (1994). Macroeconomic effects of budget deficits: Further international evidence. Journal of International Money and Finance, 13(2), 190–210. https://doi.org/10.1016/0261-5606(94)90015-9.

Kenton, W. (2024). Fiscal imbalance: Definition, types, and example. http://www.investopedia.com/terms/f/fiscalimbalance.asp.

Konzelmann, S. (2012). The economics of austerity. Centre for Business Research (CBR), University of Cambridge, Working Paper, No. 434, 1–39.

Kuranga, A. (2021). A beginner’s guide to CBN’s Ways and Means to the Federal Government of Nigeria. https://giftedanalysts.com/a-beginners-guide-to-cbns-ways-and-means-to-the-federal-government-of-nigeria.

Ljungqvist, L. & Sargent, T. (2000). Recursive macroeconomic theory. MIT Press.

Marcel, M. (2014). Budgeting for Fiscal Space and Government Performance Beyond the Great Recession. OECD Journal on Budgeting, 9(15), 9–47. http://dx.doi.org/10.1787/budget-v13-2-en.

Matier, C., Wu, L. & Jackson, H. (2001). Analysing vertical fiscal imbalance in a framework of fiscal sustainability. Department of Finance Working paper, 2001-23.

MCmahon, M. & Macchiarelli, C. (2020). Monetary financing: Is it happening and what are the dangers? Economics Observatory. https://economicsobservatory.com/monetary-financing-it-happening-and-what-are-dangers.

Nairametrics (2022). CBN ‘Ways and Means’ loan to the FG rise to N20 trillion as of June 2022. Nairametrics. https://nairametrics.com/2022/08/05/cbn-ways-and-means-loan-to-the-federal-government-rise-to-n20-trillion-as-of-june-2022.

Nayab, H. (2015). The relationship between budget deficit and economic growth of Pakistan. Developing Country Studies, 5(11), 79–84.

Olowo, J. (2024). Understanding Ways and Means in government financial operations. The Nation, January 17. https://thenationonline.net/understanding-ways-and-means-in-government-financial-operations.

Omogbolagun, T. & Adaji, D. (2024). Ways and Means hike: CBN may loan over N746bn to FG. Punch, August 4. https://punch.com/ways-means-hike-cbn-may-loan-over-n746bn-to-fg.

Omorogbe, P. (2021). Thwarting monetary policy goals through Ways and Means. Nigerian Tribune, May 10. https://tribuneonlineng.com/thwarting-monetary-policy-goals-through-ways-and-means.

Papadopoullos, C. (2020). Ways and Means is not monetary financing... yet. Official Monetary and Financial institutions Forum (OMFIF).

Pelagidis, T. & Desli, E. (2014). Deficits, growth, and the current slowdown: What role for fiscal policy? Journal of Post Keynesian Economics, 26(3), 461–469.

Posner, P. & Blondal, J. (2012). Democracies and deficits: Prospects for fiscal responsibility in democratic nations. Governance: An International Journal of Policy, Administration, and Institutions, 25(1), 11–34.

Posner, P.L. (2015). The politics of fiscal austerity: Democracies and foresight. Indiana Journal of Global Legal Studies, 22(2), 433–485. http://www.jstor.org/stable/10.2979/indjglolegstu.22.2.433

Rahman, N.H.A. (2012). The relationship between budget deficit and economic growth from Malaysia’s perspective: An ARDL Approach. International Conference on Economics. Business innovation IPEDR, 38, 54–58.

Reinhart, C. M., & Sbrancia, M. B. (2015). The liquidation of government debt. International Monetary Fund (IMF) Working Paper, WP/15/7, 1–47.

Reinhart, C. M., Kierkegaard, J. F. & Sbrancia, M. B. (2011). Financial repression redux. Finance & Development, 48(1), 23–27.

Ruggeri, G. C. & Howard, R. (2000). On the concept and measurement of vertical fiscal imbalances. SIPP Public Policy Paper, No. 6, 1–29.

Ruggeri, G.C. (2000). A federation out of balance. University of New Brunswick Department of Economics manuscript.

Ruggeri, G.C., Van Wart, D. & Howard, R. (1993a), Structural imbalances in the Canadian fiscal system. Canadian Tax Journal, 41, 453–472.

Ruggeri, G.C., Van Wart, D., Robertson, G. K. & Howard, R. (1993b). Vertical fiscal imbalance and the reallocation of tax fields of Canada. Canadian Public Policy, 19(2), 194–215.

Sharma, C. K. (2007). Rescuing the concept of vertical fiscal imbalance. Munich Personal RePEc Archive (MPRA) Paper, No 39343. https://mpra.ub.uni-muenchen.de/39343.

Sharma, C. K. (2012). Beyond gaps and imbalances: Restructuring the debate on intergovernmental fiscal relations. Public Administration – An International Quarterly, 90(1), 99–128.

Smith, J. (2020). Ways and Means of paying government’s growing bills – financing or cash flow? Prime. https://primeeconomics.org/articles/ways-amp-means-of-paying-governments-growing-bills-financing-or-cashflow.

Tung, L. T. (2018). The effect of fiscal deficit on economic growth in an emerging economy: Evidence from Vietnam. Journal of International Studies, 11(3), 191–203.

Van, V. B. & Sudhipongpracha, T. (2015). Exploring government budget deficit and economic growth: Evidence from Vietnam’s economic miracle. Asian Affairs: An American Review, 42, 127–148.

Varoufakis, Y. (2016). And the weak suffer what they must?: Europe, austerity and the threat to global stability. Random House.

Velnampy, T. & Achchuthan, S. (2013). Fiscal deficit and economic growth: A study in Sri Lankan economic perspective. Developing Country Studies, 3(3), 166–174.