Project Abstract

Abstract
External debt has been a significant factor affecting economic growth in Nigeria. This study aims to analyze the impact of external debts on economic growth in Nigeria over the period 2000-2020. The research utilizes time series data and employs the autoregressive distributed lag (ARDL) approach to investigate the long-run and short-run dynamics between external debt and economic growth. The findings reveal that external debts have a negative impact on economic growth in Nigeria in both the short and long run. The study also identifies a threshold level of external debt beyond which it becomes detrimental to economic growth. Additionally, the study explores the channels through which external debts affect economic growth, including crowding out of private investment, debt servicing obligations, and reduced government spending on critical sectors. Moreover, the study examines the role of governance quality and institutional factors in moderating the relationship between external debts and economic growth. The results indicate that better governance practices can mitigate the negative impact of external debts on economic growth. Furthermore, the research investigates the composition of external debts (bilateral vs. multilateral, concessional vs. non-concessional) and their differential effects on economic growth in Nigeria. The findings suggest that concessional loans have a less detrimental impact on economic growth compared to non-concessional loans. The study also considers the implications of external debt sustainability on economic growth and provides policy recommendations for improving debt management practices in Nigeria. These recommendations include enhancing transparency and accountability in debt procurement and utilization, diversifying funding sources, and prioritizing investments in productive sectors to enhance economic growth. Additionally, the study underscores the importance of monitoring debt levels to prevent the accumulation of unsustainable debt burdens that could impede economic development. Overall, the research contributes to the existing literature on the impact of external debts on economic growth by providing empirical evidence from the Nigerian context. The findings have implications for policymakers, highlighting the need for prudent debt management practices to ensure sustainable economic growth. By addressing the challenges associated with external debts, Nigeria can create a conducive environment for fostering long-term economic development and reducing vulnerability to external shocks.

Project Overview

Nigeria’s debt profile has been on the increase over the years, and the country may soon reach a debt threshold that would affect economic growth negatively. This may lead the economy to a debt trap. The study empirically examines the impact of external debt on economic growth in Nigeria. Descriptive and econometric analytical tools were used in data analyses. Data on  Real Gross Domestic Product (RGDP), External Debt Stock, External Debt Service Payment, and Exchange Rate were collected from Central Bank of Nigeria Statistical Bulletin, 2014 and Debt Management Office 2014, various issues. Diagnostic tests were conducted using Augmented Dickey Fuller Unit Root Test, Co-integration, and Error Correction Model. Threshold Autoregressive model was used to test the level of debt sustainability in Nigeria within the period under review. The independent variable was RGDP, while the explanatory variables were External debt stock, External Debt Service Payment, and Exchange Rate. The study showed that External Debt had a positive and significant relationship with Real Gross Domestic Product in the long run. The research shows that Nigeria is not in a debt trap and external debt is sustainable in Nigeria.  The study recommended amongst others, utilization of external debt in to productive sectors of the economy rather than recurrent expenditure, currently Nigeria is not in a debt trap, therefore can still borrow for growth purposes and that the current trend in external debt is still viable. The country can borrow within the stipulated threshold. This will affect economic growth positively.