The economic implications of Nigeria’s foreign debt servicing and sustainability
Abstract
Despite extensive literature examining the role foreign debt plays in the growth of the Nigerian economy, seldom do they simultaneously consider the effect of external debt servicing and sustainability. Accordingly, this study examined the impact of external debt servicing and sustainability on the economic growth of Nigeria for the period between 1980 and 2022. The auto-regressive distributed lag (ARDL) model was adopted to measure the effect of the explanatory variables on the dependent variable. Empirically, the study demonstrated that the impact of debt sustainability was insufficient on the economy; notwithstanding being positive in the long run. Thus, suggesting the presence of a sovereign Ponzi finance in Nigeria’s debt management. However, the effects of external debt servicing and foreign debt interest payment were significant and negative on the economy in the short and long run periods. Thus, showing that resources being used to service the debt of the nation, crowd-out funds that could have been used to spur growth of the economy. Generally, the study affirmed the applicability of the debt-overhang hypothesis for the country. Conversely, exchange rate significantly and positively impacted the economy, indicating that an improvement in the value of the Naira, will be indicative of an improvement in the economy. Hence, the study recommends amongst others that effective external debt management strategies such as the debt for equity swap programme should be adopted by fiscal authorities in the country.
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