The Impact Of Debt Burden On Economic Growth In Nigeria (1981-2021)

Abstract

This study investigated the impact of debt burden on economic growth in Nigeria spanning from 1981 to 2021. Data for the study were obtained from Central Bank of Nigeria (CBN) Statistical bulletin and World Bank data 2021. The formulated model was subjected to unit root test using the Augmented Dicey Fuller unit root approach. The ADF result revealed that the variables have mixed order of integration. Some of the variables were stationary at levels 1(0) while others became stationary after first difference 1(1). Based on this, the study adopted the Auto-regressive distributive lag (ARDL) Model to ascertain the long-run relationship as well as the behaviour of the variables. Thus, the result revealed that debt service ratio (DSR) is negative but significant to influence real gross domestic product (RGDP) in the long-run while external debt (EXDT) and domestic debt (DMDT) is significant to influence real gross domestic product in the short-run. However, international reserve ratio (IRR) is found to be insignificant with real gross domestic product (RGDP) both in the short-run and long-run. It was recommended amongst others that the federal government should drastically reduce the rate of borrowing. This will enable them use funds that would have been used for debt repayment to carry out essential capital project like road construction, health care and education. Also if the government must borrow to correct budget deficit, they should borrow domestically. This is because the domestic financial institutions will make profit from the cost of loan (interest rate) which will enable them increase the standard of living of their workers (salaries) and also expand their outlet by way of job creation.This scenario will help the government achieve some form of macroeconomic objective.