Public Debt Sustainability in Nigeria

Abstract

Public debt is a vital instrument for governments to fund public expenditure. This paper examined the public debt sustainability and economic growth in Nigeria using annual time series data from 1981 to 2021 and the generalized method of moments (GMM) technique. The variables used in the study include; Real GDP, external debt, domestic debt, debt servicing and government consumption. To capture the period the country was given debt relieve fund we used debt relief dummy. The effect of recession on the economy was captured using recession dummy. The empirical result showed that debt overhang exists with inverted U-shaped debt Laffer curve. The optimum public debt threshold range is 30% – 40% while the threshold benchmark is 36% for composite debt stock and 33% for external debt stock. Based on the findings, the paper recommends that Nigerian government should ensure optimal utilization of external debt to avoid crowding out of investments and also the existence of debt overhang.