Nigeria’s Rising Debt Profile and Economic Growth Nexus

Abstract

Nigeria has been battling with rising domestic and external debts for over a decade now after her debt cancellation during the President Olusegun Obasanjo regime. Today, due to dwindling economic fortunes as a result of the deteriorating world prices of their primary exports, in Nigeria’s case, oil, the country has resorted to borrowing domestically and externally to run the government. This study therefore examines Nigeria’s rising debt profile and economic growth nexus. The study applied modern econometric analytical techniques namely: Co-integration, unit root test and ordinary least square (OLS) for the data analysis. The results revealed that external debt stock, domestic debt stock, inflation rate, exchange rate, gross capital formation, corruption perception index, interest rate had significant effect on economic growth in Nigeria. The results further revealed that with the exception of domestic debt stock, exchange rate and gross capital formation all the other variables had negative significant effect on growth in Nigeria. In line with the findings of the study, the following recommendations are made: To address the challenge of external debt stock, the government should implement sound macroeconomic policies that keep the accumulation of external debt within sustainable limits. They should also implement structural policies that ensure an efficient use of savings and investment. To address the challenge of domestic debt stock monetary policy tools, such as interest rates and money supply should be adjusted to manage the money market and the economy. The apex financial institution can increase can increase interest rates to reduce borrowing and control inflation. To address the challenge of other included variables in the model, the government should consider banning the use of foreign currency within the country; banning locals from possessing foreign currency; restricting currency exchange to government-approved exchangers; the use fixed exchange rates and restricting the amount of currency that may be imported or exported; Enabling and proactive laws should be put in place to check corruption and corrupt practices.