The Dynamics of External Debt and Growth: The Nigerian Experience

Ibori, Uruemu Helen and Akroh, Ojevwe Theresa
Keywords: Debt and Growth, Nigerian
Journal of Inter-Disciplinary Studies on Contemporary Issues 2019 5(1/2), 43-59. Published: June 14, 2022


Abstract

The primary objective of this study is to evaluate and assess external debt-growth dynamics in Nigeria. Groups of low-income countries have continued to experience difficulties in managing and servicing huge stocks of external debts. Most of these LDCs countries including Nigeria are within the Sub-Saharan region. The relatively high level of Nigeria?s external debt and rising debt burden has serious implications on the country?s development and debt sustainability initiatives. While economic performance continues to deteriorate, there has been significant net outflow of resources to meet debt obligations thus far. The study employed the Autoregressive Distributed Lag estimation technique covering the period 1981 to 2017, using secondary data sourced from World Bank Development Database. The findings of the study indicate that Nigeria?s debt accumulation has been rising over the years with the debt burden increasing steadily over the period under consideration. The result also indicates that external debt accumulation has a negative impact on economic growth in Nigeria and on private investment. This confirms the existence of debt overhang problem in Nigeria. However, results also indicate that current debt inflows stimulate private investment. Debt servicing does not appear to affect growth adversely but has some crowding-out effect on private investment. Several policy implications emanated from the study. The simultaneous attainment of sustainable levels of economic growth and dynamics of external debt appear difficult at the moment and could remain elusive if aggressive .Based on findings, the study recommends that government should ensure that the external debt (money borrowed) is put into productive investment to achieve the desired result