Impact of Debt and Debt Servicing on Nigeria’s Economic Growth

Abstract

This study examined the impact of debt and debt servicing on Nigeria's economic growth, using data for the period of 1981-2020. The objectives of this study were: To examine the effect of domestic debt, external debt and debt servicing on economic growth of Nigeria. The data for the study were sourced from Central Bank of Nigeria Statistical Bulletin. The variables domestic debt, external debt, debt servicing and real gross domestic product. Ordinary least squared (OLS) method of data analysis was adopted, including the unit root test, co-integration approach, as well as Error Correction Mechanism. E- View software was used for the analysis. The study found that debt servicing has a negative sign and it’s statistically insignificant. External debt has a positive sign and it’s statistically significant. Domestic debt has a negative sign and it’s statistically significant. The study underscore the need for policymakers to limit excessive domestic borrowing to avoid crowding out private sector investment, by adopting alternative non-debt financing strategies such as Public-Private Partnerships (PPPs); as well ensure that domestic borrowing is targeted toward capital projects with measurable economic returns. The government should sustain and improve the efficiency of external borrowing by focusing on concessional loans and using borrowed funds for infrastructure, health, education, and industrial development. More so, The government should negotiate better repayment terms or restructure existing debt to ease the fiscal burden, create and maintain a sinking fund dedicated to future debt repayments.