Abstract
The study seeks to determine the impact of external debt on Nigeria using annual data from 1981- 2009. In our empirical analysis, we run ordinary least square test to verify the statistical significance of the variables used and Johansen cointegration to determine the order of integration among the variables. Empirical investigations revealed that the coefficient of external debt is statistically significant at 5% while other variables such as prime lending rate. Growth rate of GDP are not statistically significant. Our cointegration result s revealed the existence of two cointegrating equations at 5% level of significance among Gross domestic product, external debt, PLR, GRGDP and GREXDS. The results show the existence of long-run relationship among the variables. I. Introduction External debt management refers to the establishment of the condition of issue and redemption of foreign loans. It involves the proceeds of administering the external public debt that is, providing for the payment of interest and arranging the refinancing of maturity bonds/debt. It involves a conscious and carefully planned schedule of the acquisition and retirement of loans contracted either for development purpose or to support the balance of payments. It makes use of estimates of foreign earnings, sources of exchange finance, sources of exchange finance, the project returns from the investment and the repayment schedule. It also includes an assessment of the country's capacity to service existing debts and a judgment on the desirability of contracting loans (CBN; 1996). Nigeria's economic histories in the pre and post independence era are important in order to understand the magnitude of her economic problems and the measures in the recent past to combat the external debt crisis and achieve sustainable economy recovery and growth. The nation's inability to meet all its debt service payments constitutes one of the serious obstacles to the inflow of external resources into the economy. The accumulation of debt service arrears, which is being compounded with penalty interest, has not permitted reduction in the debt stock, despite the fact that government has been servicing it external debt with US $2.0 billion annually between 1991 and 1997. The reasons for this are varied. In some cases, debt problems have mainly stemmed from the efficient use and control of borrowed funds by debtor countries. In most countries, returns on investment had not even debt servicing cost. While in others an adequate policy framework for debt management has led to accumulation of external debts that have proved excessive for the countries debt servicing capacity. Many debtors have faced much higher than anticipated growth in debt payment relative to their growth in their exports of gods and services.
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