Impact of External Debt on Economic Growth:

Nigeria’s Empirical Evidence (2002 – 2023)

Abstract

It is common among developing countries like Nigeria that domestic sources of debt are insufficient for the required level of economic growth and development. As a result developing countries usually find themselves sourcing for funds from external source. Upon this premise, external debt is supposed to contribute positively to the growth of the economy. However, owing to excessive debt figures and misappropriation of debt, external debt servicing has often crowded out funds for productive investments. This study therefore, examined the impact of external debt on economic development in Nigeria from 2000 to 2023. In view of this, the study used gross domestic product as a measure of economic growth while external debt, external debt service and exchange rate were the independent variable. The data were sourced from Central Bank of Nigeria and analyzed using the Ordinary Least Square regression analysis and the Granger causality test. The findings of the study revealed that external debt has negative and significant effects on economic growth in Nigeria and that external debt service payments has negative but insignificant effects on economic growth in Nigeria while exchange rate has positive and significant effects on economic growth in Nigeria. The study recommended that the monetary authorities should limit the contraction of external debt to ensure that it does go beyond sustainability thresholds and that external debt should be channeled to productive sources to ensure that the servicing of these debts are sourced from funds generated from the use of external debt.