Risk of Geometric Increase in Debt Servicing on Public Investments in Nigeria

Abstract

The study investigated the risk of geometric increase in debt service on public investments in Nigeria using a time series data from 1985 – 2021. The study employs ARDL model in analyzing the behavior of the variables. The findings show that there is a significant direct relationship between domestic debt stock and public investment. Similarly, it also shows same non-risky relationship between external debt and public investment in the past two years as shown from lagged values of last year and the year preceding it. External debt servicing has non-risky relationship with public investment in the current year as it avoid crowding out effect of private investment. But it shows a risk relationship in the two years before. The results also visualize that there is a direct relationship between FDI and public investment in the current year and indirect relationship in the preceding years. It can also be seen that a negative relationship exists between inflation and public investment, while a negative relationship exists between exchange rate and public investment in the current year, a positive relationship exists between exchange rate and public investment for Nigerian economy which suggests that exchange rate volatility matters as it affects debt servicing in the long run.