Abstract
This study investigates the effect of external debt stock on economic growth in Nigeria for the period of 1981-2017. The paper used Augmented Dickey Fuller to test the unit root test and Autoregressive Distributed Lagged Model (ARDL) to find the long-run relationship and estimate both short and long run estimates. Real GDP was regressed on external debt stock, debt service payment, exchange rate, gross capital formation and labour force. The result found that the short-run parameter of the external debt stock and labour force was found positive and statistically significant at 5% indicating their influence on output growth in the short-run, whereas debt service payment, exchange rate and gross capital formation were also significant in the period but has a negative effect on output growth in the short-run. The result also found that in the long-run external debt stock has a negative impact on economic growth while debt service payment , exchange rate, gross capital formation enhances economic growth. Thus, there is need for government to ensure that funds sourced from external borrowings were used for capital investment that can pay itself back with its interest and not recurrent expenses in order to ensure sustainable and pro-poor growth. Keywords: External debt stock, debt service, investment, labour, exchange rate, real income DOI : 10.7176/JESD/10-12-08 Publication date :June 30 th 2019
Highlights
This paper unravels the nature of the relationship existing between external debt and economic growth in Nigeria
It implies that the government reliance on external debt only support output growth within the shortest time period but fails to in the long-run because they fail to channel the fund into capital project that are able to pay itself back in the future
This is reflected on the high recurrent expenditure spending of the country and low spending on capital project
Summary
The country’s debt stock is increasing at an alarming rate as her external debt stock presently increased by 42.69% from N4.527 trillion in 2017 to N6.46 trillion in 2018 (Debt Management Office, 2019). The total debt as at September 2018 stood at N22.43 trillion with a growth rate of 85.06% compared to her outstanding in 2015 which stood at N12.12 trillion (Leadership, 2019). The Central Bank of Nigeria (CBN) reported that the cost of servicing public debt increased by 37.04% from N687.37 billion in June, 2017 to N941.99 billion in June 2018 (The Cable, 2019). The CBN Governor after a two-day Monetary Policy Committee warned the Federal Government on its rising debt portfolio against the real GDP which stood at 1.8% in the 3rd quarter of 2018 (Leadership, 2019) and an estimate 1.9% in 2018 (African Development Bank, 2019)
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