An Analysis of the Long-Run Relationship Between Corruption and Debt Sustainability in Nigeria

Abstract

Corruption and public debt have continued to increase in Nigeria despite the anti-corruption posture of governments over the years and justifications often advanced for accumulating debts. The rising tides of public sector corruption in Nigeria are pervasive with its debilitating effects on the economy. The government’s anti-corruption campaigns have produced minimal results than expected as the country’s performance on global ranking by Transparency International remains dismal. Coincidentally, the fiscal stability of the economy has been jeopardized by increased public debts without commensurate investments injected into the system.This paper examined the long-run relationship between corruption and debt sustainability in Nigeria from 1996-2019 and employed the Vector Error Correction Model (VECM) technique of analysis.The choice of the period covered was informed by the need for a large dataset which guarantees a robust outcome in time series analysis and to capture the year 1996 when Nigeria made its first appearance in the assessment of global perception of corruption by Transparency International. Findings revealed that corruption is negatively related to debt sustainability in Nigeria, suggesting that higher incidences of corruption make public sector debt unsustainable. The speed of adjustment of -0.7575869 is negative which is statistically significant at 5%. This shows that there is 75.76%-point adjustment taking place each period towards the long-run periods. There is, therefore, the need for effective anti-corruption institutions, revisiting of the whistleblower policy, and entrenchment of the culture of transparency in financial transactions in order to curtail the ravaging effects of corruption in Nigeria. KEYWORDS: Corruption, Debt Sustainability, Vector Error Correction Model (VECM)