1.1 Historical Background
An economy whether developing or developed is out to achieve certain objectives which include growth in the gross domestic product, reduction in the relit of inflation and unemployment, favorable balance of payment, and long term Socio-economic development. The growth of output of any economy depends on Capital accumulation; and capital accumulation requires investment and an equivalent amount of saving to match it. Two of the most important issues in development economics, and tor developing countries, are how to stimulate investment, and how to bring about an increase in the level of saving 10 fund increased investment.
To this end. many less developed countries’ government have made it a point of duties to ensure proper mobilization of domestic funds by manipulating both fiscal and monetary policy as a tool to achieve their set objectives For many countries, financial sector and balance of payment liberalizations have broadened access to foreign capital to finance domestic investment. However, many developing economies, in part because of their high level of external indebtedness cannot benefit from foreign sources of capital. For men. domestic savings remains the main source of funds to finance development and to promote economic growth.
However, due to low income per head in less developed countries, a perception that poor people are too poor to save has been prevailing for a long time and most financial institutions still do not cater to this type of clients. It is clear that poor people’s savings constitutes a potentially substantial source of savings and lapping into that source of funds is essential However in mobilization of saving, determinants such as income level, interest rates, economic growth level, inflation rate, fiscal balance, external debt, among other have come to play important roles.
If developing economies are to promote savings for the financing of investment, its determinants must be clearly identified, Until recently, financial development was assumed to enhance the saving rate. It consists of elimination of credit ceilings, interest rate liberalization, easing of entry for foreign financial institutions, enhanced prudential guidelines and supervision, and the development of capital markets. Loayza and Shankar (2000) find that financial development has led the private sector to increase the durable goods component of their assets. The effect of financial development on saving rates can be separated into a direct short-run impact, which is usually negative, and an indirect long-run impact, which is generally positive (See Loayza et al, 2000).
However, whether increased financial development itself significantly increases overall propensity to save depends on me extent of substitution between financial saving and other items in the household’s asset portfolio. Consequently, the expected signs of this relationship in the private saving function are ambiguous (Athukora) and Sen, 2004). This study attempts to determine the effects of fiscal and monetary policies on saving mobilization in Nigeria. It also attempts to find influence of other Macroeconomics variables on both domestic and mobilization as a means of attaining economic growth and development
1.2 Statement Of The Problem
Savings, a necessary engine of economic growth has been very low in Nigeria, Gross Domestic Savings as a percentage of GDI1 in less developed countries has been low; between 1980 and 2001, it averaged 6,4% in Ghana, 37.4% in Botswana, 2!.4% in Cameroon, 21.6% in Nigeria, 13.9% in Kenya and 7.3% in Malawi (WDTS 2003), He apparent low savings in Nigeria has been due to a combination of micro and macroeconomic and political factors such as high level of poverty, low income per head, high level of unemployment, inefficient financial institutions, and many more.
In order to overcome the problem of low savings in Nigeria, various monetary and fiscal policies have been pursued over the years but these have no! yielded the required results The objectives of monetary policy since 1986 have remained the same as in the earlier period − the stimulation of output and employment, and the promotion of domestic and external stability. In line with the general philosophy of economic management under SAP, monetary’ policy was aimed at inducing the emergence of a market-oriented financial system for effective mobilization of financial savings and efficient resource allocation. The main instrument of the market-based framework is the open market operations.
This is complemented by reserve requirements and discount window operations. The adoption of a market-based framework such as OMO in an economy that had been under direct control for the required substantial improvement in the macroeconomic. legal term regulatory environment . Fiscal policy is therefore a government policy that attempts to influence the direction of the economy through changes in government spending (expenditure) or taxes or simply put. fiscal policy refers to the overall effect of the budge! outcome on economic activity. With the other main type of economic policy, like the monetary policy which attempts to stabilize the economy by controlling interest rates and the supply of money, budgetary actions that raise the growth of government expenditures, reduce the growth of revenues and either increase the deficit or reduce the surplus are the sort of fiscal policies that tend to stimulate short-term growth and capital formation through savings mobilization in the economy.
Actions that reduce expenditures; increase government revenues and shrink the deficit or increase the surplus tend to dampen short-term economic growth. The three possible stances of fiscal policy are neutral, expansionary and Contractionary: A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending − Tax revenue). An expansionary stance of fiscal policy involves a net increase in government spending (G > T) through EL rise in government spending or a fall in taxation revenue or a combination of the two. Contractionary fiscal policy (G < T) occurs when net government spending is reduced either through higher taxation revenue or reduced government spending or a combination of the two. The findings of this study will provide answer to these and many more questions that would be raised in the count of the study.