AN ASSESSMENT OF THE EFFECTS OF EXTERNAL DEBT ON NIGERIA’S ECONOMIC GROWTH
Abstract
This study assesses the effects of external debt on Nigeria’s economic growth from 1980 to 2024. The persistent rise in Nigeria’s external borrowing, despite the 2005 Paris Club debt relief, has ignited critical debates regarding fiscal sustainability and macroeconomic stability. Using secondary time-series data sourced from World Bank, the study employed the Autoregressive Distributed Lag (ARDL) model to analyze the relationship between external debt stock, debt servicing, exchange rates, inflation, and GDP. The findings revealed a dual-effect "debt paradox": while external debt stock exhibits a positive and significant relationship with economic growth in the long run, the immediate burden of debt servicing and currency depreciation exerts a statistically significant negative pressure on growth. The Error Correction Term indicates a relatively slow adjustment speed of 14.4% toward long-run equilibrium. The study concluded that while borrowing is necessary for infrastructure, the current cost of servicing exceeds the productive benefits in the short term. It recommends aggressive debt-servicing management, diversification of the export base to stabilize the exchange rate, and a shift towards concessionary long-term loans to mitigate the crowding-out effect on public investment.
References
Adegbite, E. (2020). External debt management and economic growth in Nigeria: Historical perspectives and contemporary issues. Journal of African Finance and Economic Development, 12(3), 45–62.
Adeniji, S. O., Taiwo, J. N., & Ashiru, M. A. (2024). Asymmetric effects of external debt and debt servicing on economic growth in Nigeria. International Journal of Accounting, Finance and Applied Research, 5(2), 45–62.
Ajayi, L. B., & Oke, M. O. (2012). Effect of external debt on economic growth and development of Nigeria. International Journal of Business and Social Science, 3(12), 297–304.
Akinola, A. O., & Ohonba, N. (2024). External debt, debt servicing and foreign direct investment nexus in Nigeria. Economies, 12(6), 142. https://doi.org/10.3390/economies12060142
Albert, W., Brain, L., & Palitha, S. (2005). External debt and economic growth: A cross-country analysis. World Development, 33(10), 1601–1615.
Babbie, E. (2021). The practice of social research (15th ed.). Cengage Learning.
Berensmann, K. (2004). New ways of achieving debt sustainability beyond the enhanced HIPC initiative. World Institute for Development Economics Research (WIDER) Discussion Paper No. 2004/14.
Binuyo, B. O., Afolayan, O. T., & Adekunle, W. A. (2024). External debt and economic growth in Nigeria: Evidence from ARDL bounds testing approach. Asian Journal of Multidisciplinary Social Sciences, 6(1), 33–49.
Budina, N. (2019). Debt sustainability in developing countries: Challenges and policy options. International Economics Review, 65(2), 201–225.
Central Bank of Nigeria (CBN). (2022). Annual statistical bulletin 2022. Abuja: CBN. https://www.cbn.gov.ng
Central Bank of Nigeria (CBN). (2024). Statistical bulletin. Abuja: CBN. https://www.cbn.gov.ng
Debt Management Office (DMO). (2023). Nigeria’s total public debt stock as at June 30, 2023. Abuja: Federal Government of Nigeria. https://www.dmo.gov.ng
Debt Management Office (DMO). (2024). Nigeria’s public debt profile. Abuja: Federal Government of Nigeria. https://www.dmo.gov.ng
Eberhardt, M., & Presbitero, A. F. (2015). Public debt and economic growth: Heterogeneity and non-linearity. Journal of International Economics, 97(1), 45–58.
Ejaigbe, E. F., Adeghe, E. T., & Aguwamba, S. M. (2024). External debt, debt servicing and economic growth in Nigeria. BW Journal of Economics and Finance, 8(1), 1–15.
Elwasila, E. (2018). External debt and economic performance: Evidence from sub-Saharan Africa. African Development Review, 30(4), 389–403.
Forgha, N. G., Mbella, M. E., & Ngangnchi, A. B. (2014). External debt and economic growth: The case of CEMAC countries. African Economic Research Journal, 26(2), 75–91.
Inna, H., & Viktoriia, H. (2018). External debt and economic growth: A panel analysis of developing countries. Economic Annals, 63(219), 85–100.
International Monetary Fund (IMF). (2006). Nigeria: Selected issues and statistical appendix (IMF Country Report No. 06/392). Washington, DC: IMF.
International Monetary Fund (IMF). (2024). World economic outlook database. Washington, DC: IMF. https://www.imf.org
Iyoha, M. A. (1999). External debt and economic growth in sub-Saharan African countries: An econometric study. African Economic Research Consortium Research Paper No. 90.
Kerlinger, F. N., & Lee, H. B. (2020). Foundations of behavioral research (5th ed.). Cengage Learning.
Krugman, P. (1988). Financing vs. forgiving a debt overhang. Journal of Development Economics, 29(3), 253–268.
Maghyere, H., & Hashemite, F. (2003). Debt crisis and economic reforms in Africa. African Economic Studies, 18(2), 101–118.
National Bureau of Statistics (NBS). (2024). Annual abstracts of statistics. Abuja: NBS. https://www.nigerianstat.gov.ng
Odusola, A. (2022). Nigeria’s debt sustainability: Challenges and policy options. African Development Policy Review, 14(1), 55–73.
Okeukwu, I. C., & Adejoh, L. C. (2024). External debt burden and economic growth in Nigeria: An ARDL approach. Journal of Economic Analysis and Research, 9(2), 77–95.
Okonjo-Iweala, N. (2021). Fighting corruption is dangerous: The story behind the headlines. Cambridge, MA: MIT Press.
Olasehinde, O. A., & Afolabi, B. (2023). Public debt and economic growth in Nigeria: Evidence from ARDL approach. Journal of Applied Social Sciences, 4(1), 101–118.
Onakoya, A. B., & Ogunade, A. O. (2017). External debt and economic growth in Nigeria: An empirical analysis. Journal of Applied Economic Sciences, 12(3), 718–728.
Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review: Papers & Proceedings, 100(2), 573–578.
Sachs, J. D. (1989). The debt overhang of developing countries. In G. A. Calvo, R. Findlay, P. Kouri, & J. B. de Macedo (Eds.), Debt, Stabilization and Development: Essays in Memory of Carlos Diaz-Alejandro (pp. –). Blackwell Publishing.
Sanusi, L. S. (2003). Management of Nigeria’s domestic debt. Central Bank of Nigeria Economic and Financial Review, 41(1), 13–25.
Siddique, A., Selvanathan, E. A., & Selvanathan, S. (2015). The impact of external debt on growth: Evidence from highly indebted poor countries. Journal of Policy Modeling, 37(5), 874–894.
Sulaiman, L. A., & Azeez, B. A. (2012). Effect of external debt on economic growth of Nigeria. Journal of Economics and Sustainable Development, 3(8), 71–79.
World Bank. (2004). Debt sustainability in low-income countries: Proposal for an operational framework and policy implications. Washington, DC: World Bank.
World Bank. (2023). International debt statistics 2023. Washington, DC: World Bank. https://data.worldbank.org
World Bank. (2024). World development indicators. Washington, DC: World Bank. https://data.worldbank.org
