IMPACT OF EXTERNAL DEBT ON ECONOMIC GROWTH IN NIGERIA: EVIDENCE FROM RECENT DATA

Abstract

This study aimed to evaluate the impact of external debt on economic growth in Nigeria from 1991 to 2022. The study primarily focused on the macroeconomic effects of external debt on GDP, leaving a gap in understanding its specific impact on various industrial sectors within Nigeria. Further research could explore how external debt influences different sectors of the economy, particularly in manufacturing and services. Additionally, there is a need to investigate the role of government policies in mitigating the negative effects of debt servicing on industrial growth and performance. An ex-post facto research design was employed, utilizing data on Gross Domestic Product (GDP), External Debt Stock, and External Debt Service Payments sourced from the World Bank International Debt Statistics, with Exchange Rate data obtained from the Central Bank of Nigeria's Statistical Bulletin (2022). The analysis was conducted using the Ordinary Least Squares (OLS) method, alongside diagnostic tests such as the Augmented Dickey-Fuller Unit Root Test, Co-integration, and the Error Correction Model (ECM). The dependent variable was GDP, while the explanatory variables included External Debt Stock, External Debt Service Payment, and Exchange Rate. The results indicated that external debt had a positive relationship with GDP in the short term but a negative relationship in the long term. External debt service payments exhibited a negative relationship with GDP, while exchange rates positively correlated with economic growth. The study concluded that while exchange rate fluctuations have a positive impact on Nigeria's economic growth, external debt stock and debt service payments adversely affect GDP. It was recommended that the Debt Management Office (DMO) ensure loans are used for intended purposes and establish borrowing limits based on clear criteria for both state and federal governments.