Abstract
In this study we reviewed and analyse the effect of external debt service payment practices on sustainable economic growth and development with particular emphasis on Nigeria. To achieve the objective of this research, we use debt payment to Multilateral Financial creditors, Paris club creditors, London club creditors, Promissory notes holders and other creditors (Non-Paris Creditors) as variables to statistically determine whether they have inverse relationship with gross domestic product (GDP) and gross fixed capital formation at current market prices (GFCF). Data pertaining to 1981 through 2004 were used with the ordinary least square multiple regression method. We found that debt payment to London club creditors, Paris club creditors, promissory notes holders and Other creditors have significant impact on the GDP and GFCF. Debt payment to Paris club creditors and debt payment to promissory notes holders are positively related to GDP and GFCF, while debt payment to London club creditors and Other creditors shows a negative significant relation to GDP and GFCF. We therefore recommend among others that government should ensure that any loan deal with either London club or Other creditors should be deal that will open Nigeria to greater trade and investment and can stimulate the private sector, since debt payment to these two creditors impact negatively on our economic growth. KEYWORDS: Debt Management, Creditors, Debtors, Gross Domestic Product
Highlights
The origin of Nigeria’s external debts dates back to 1958 when a sum of US $28 million was contracted for railway construction
4.4 Discussion of Findings Our study shows that debt payment to Nigerian creditors affect the economic growth both positively and negatively
This is partially consistent with the work of ALI and Mshelia (2007) who found a mixed outcome; the influence of the value of intercept and debt service payment to Paris club creditor (PC) and promissory note holders(PN) showed some level of positive relationship while debt payment to London club of creditors(LC) and Other creditors(OTHERS) indicated a negative relationship with both GFCF and gross domestic product (GDP); but with difference in parameters sign in both study
Summary
The origin of Nigeria’s external debts dates back to 1958 when a sum of US $28 million was contracted for railway construction. From1978, following the collapse of oil prices, which exerted considerable pressure on government finances, it became necessary to borrow for balance of payments support and project financing. This led to the promulgation of Degree No 30 of 1978 limiting the external loans the federal government could raise to 5 billion Naira. The first major borrowing of US $1 billion referred to as jumbo loan was contracted from the international capital market (ICM) in 1978 increasing the total debt to US $2.2 billion. The total debt outstanding at the end of 1999 was US $28.0 billion with Paris club constituting the highest source with a share of 73.2 percent in 1999 prior to the canvass made for debt
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