Abstract
An excessive increase in public debt characterizes the contemporary development of the global economic and financial system. The paper aims to examine the short- and long-run impact of state debt on economic growth in Nigeria. The model was estimated using an autoregressive distributed lag (ARDL) bounds testing method to co-integration for the long-run investigation. At the same time, the contemporaneous dynamics were explored using an unrestricted error correction model. The data were collected from the Central Bank of Nigeria’s statistical bulletins and annual reports, and it spanned the years from 1990 to 2020. The study uncovers evidence of a long-term link between the study variables. In addition, the study finds that all the explanatory is statistically significant. Specifically, economic growth is significant and negatively responsive to changes in external debt by 0.19% and debt servicing by 0.07%, contrary to its positive response to changes in domestic debt and exchange rate by 0.27% and 0.18%, respectively. The paper, therefore, recommends that government may consider more domestic borrowings to foreign borrowings that should only be resorted to when it is indispensable. Moreover, the government should also strive to balance loan servicing and the economic sustainability.
Highlights
IntroductionThe use of public loans can be explained by the lack of state financial resources necessary to cover the balance of payments and state budget deficits, finance programs and projects, maintain the stability of the national monetary unit, etc
Some people believe that as long as the debt is being judiciously utilized, it will bring about the usual benefits. It is against the view of others who submit that the current borrowing should be controlled; the creditor countries among which China is most pronounced shall take over major assets, thereby resulting in economic colonization
The model is specified in line with Muhammad and Abdullahi (2020), who assess the impact of external debt on economic growth in Nigeria by: GDP = f (EDT, DDT, DSP, EXR). (1)
Summary
The use of public loans can be explained by the lack of state financial resources necessary to cover the balance of payments and state budget deficits, finance programs and projects, maintain the stability of the national monetary unit, etc. The effective use of loans can become a positive factor in economic development. Some people believe that as long as the debt is being judiciously utilized, it will bring about the usual benefits It is against the view of others who submit that the current borrowing should be controlled; the creditor countries among which China is most pronounced shall take over major assets, thereby resulting in economic colonization. This situation is currently happening in Uganda, where the country’s only major airport is on the verge of being taken over by the Chinese
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