An analysis of external debt and economic growth in nigeria

Project Abstract

<p> </p><p>External borrowing is a source through which many countries source revenue for development and economic growth of their countries. But this revenue can only help solve the problems of gross under – development when judiciously utilized.</p><p>The burden of Nigeria’s external debt is more than the country can bear and the state of economic growth in the country is hampered due to debt crisis.</p><p>The debt problem facing Nigeria is concerned on how to stop incurring more debts and device a way of servicing the existing debt without causing some distortions in the economy. For effective and efficient debt servicing, factors that hiders it has to be taken care of i.e. domestic financing policies, debt management and external economic environment.</p><p>External debt affects the economic growth, the level of money supply and employment in the country. So, Nigeria can solicit for debt cancellation from it’s creditors and also adopt debt management as pat of it’s macro economic policies of the nation and finally engage in productive projects.</p> <br><p></p>

Project Overview

<p> </p><p><strong>INTRODUCTION</strong></p><p><strong>BACKGROUND OF STUDY</strong></p><p>Every country in the world aim at achieving economic growth and development. However, this is only possible if a country has adequate resources. In developing countries, especially those in sub Sahara Africa, the resources to finance the optimal level of economic growth and development are in short supply. This is as a result of the economies ploughed with problems of low domestic savings, low tax revenues, low productivity and meager foreign exchange earnings.</p><p>Basically, for these reasons, many developing countries yearning for economic growth inevitably resort to external financing to bridge the gap between their savings and investments. In the process of obtaining finance from abroad, a country may consider several options: grants, foreign investment and loans (concessional and non – concessional) in that order. However, mix of these capital in – flow in varying proportion could be obtained depending on the socio – economic and political situation in a country.</p><p>Nigeria like most developing countries borrowed from external sources mainly for investment purposes. The country’s external debt was sustainable up to mid 1970’s. From the late 1970’s because of poor macro – economic management and declining prices of crude oil, the country’s external debt began its upward movement. Thus from an external debt of &nbsp;US $ 557.74 million in 1975. Nigeria debt peaked at US $33.1 billion in 1990 before declining to US $27.1 billion in 1997 and rose to US $ 28.8 billion in 1998. However, one of the greatest problems facing African countries basically classified as the amount of their external indebtedness. The external debt problem is becoming more and more for many reasons. This problem of increasing rate of the external debt is threatening the development programmes embarked upon by these countries: thereby retarding their economic growth and development. The reason being that the size of the debt relative to size of the economy’s GNP is enormous. Also, the current system of debt management has a serious macro – economic impact on an economy’s output: as such, there is an urgent need to reduce Africa’s total outstanding debt service payments as well as accumulating of arrears on payments.</p><p>In 1986, the Federal Government introduced the Structural Adjustment Programme (SAP) to address the problem of structural imbalance in the economy and create an atmosphere for the achievement of macro – economic stability. It is obvious that one of the integral part of the SAP is to reduce Nigeria huge debt. It is a fact that if the enormous amount spent on debt service payment could be reduced greatly, the country will be able to finance a large volume of domestic investment which would enhance growth and development.</p><p>The problem of the rising external debt of the less developed countries (LDCs) is giving nightmares not only to the debtor nations that is worrying about how to earn enough foreign exchange to at least service their huge external debts but also to the creditors that are worried about the tendency of the debts becoming bad and irrecoverable.</p><p>To most debtors nations, the adage “ to go a borrowing is to go assorrowing” is a biting truism. This is not to say that the researcher is against borrowing either internally or externally. In fact, from the on set, the researcher strongly believes that external funds if judiciously utilized will go a long way to help solve or at least alleviate the problems of gross under – development confronting most of the LDCs. Getting out of the “debt trap” is now the major concern of both the creditors and the debt nations. The debtors should not be made to bear the burden of miscalculation of botgh the creditors ( who were reckless in the approach to lending during this peak of the “ petro dollar boom” for being too short sighted as not to see the strings and traps attached to the loans.</p> <br><p></p>