International Journal of Academic Accounting, Finance & Management Research (IJAAFMR)   Year: 2022 | Volume: 6 | Issue: 7 | Page No.: 1-9 Deficit Financing (DF) and Sustainable Growth (Sg) In a Small Open Economy Download PDF EHIEDU, Victor C. Ph.D. Abstract: This study investigated deficit financing (DF) and growth inside a small modern economy with specific focus on Nigeria from 1986-2020. The explanatory variable, deficit financing gauged domestic borrowings (DOB), foreign borrowings (FOB), Foreign exchange reserve (FXR), external debt servicing (XDS), exchange rate (EXR). The explained variable, sustainable growth was measured by real Gross Domestic Product (RGDP). It applied the fully modified least square (FMOLS) in testing the research hypotheses. The study found that DOB has a depressing but considerable effect on sustainable growth. Meanwhile, FOB and FXR have an affirmative and a considerable outcome on sustainable growth. However, XDS) has a depressing and inconsequential effect on sustainable growth. More so, EXR being the control variable reported a depressing but considerable effect on both DF and growth. Hence, the research opines that DF is and still remains the surest way for enhancing Nigerian economy provided the cost of servicing loan is relatively low. As such, policy makers must ensure that borrowed funds by state owned and local government enterprises should be well accounted. Again, central government must maintain most advantageous echelon of foreign debt (FD) as surest way of achieving high sustainable growth. Lastly, the federal governments in Nigeria should ensure that all efforts towards reducing her foreign reserve should be abhorred.