Impact of increasing debt profile on economic growth in Nigeria

Abstract

Over time, Nigeria's national debt profile has been alarmingly rising. With no evidence of its productivity, the budget deficit has been funded annually by both local and foreign loan. Long-term sustainability of Nigeria's national debt is called into doubt by the country's likely incapability to repay its present debts. This study examined the effect of rising debt profile on the Nigerian economy using secondary data from World Bank Development Indicators and Central Bank of Nigeria's statistical bulletin from 2000 to 2022. The research employed the Autoregressive Distributive Lag (ARDL) technique as the method of analysis. From the outcome of the investigation, the estimated model shows that in Nigeria, external debt stock and foreign exchange rate is statistically significant and have an adverse impact on economic growth in Nigeria. It also discovered that there is a positive and significant relationship between other variables such as the domestic debt stock, Gross Capital formation, and labor force participation and economic growth. The study suggests that the Nigerian government uses its borrowing of external debt for worthwhile projects, manages and maintains debt service at a minimum level, encourages the export of domestic goods by depreciating the currency, and impacts economic growth through diversification and job creation to fill the labor force's looming shortage.