IMPACT OF DEBT MANAGEMENT ON NIGERIA’S ECONOMIC GROWTH (2010-2022)

CHAPTER ONE INTRODUCTION 1.1 Background of the Study The pursuit of economic growth and development has driven Nigeria to incur both external and domestic debts. Oyejide defines debt as the result of borrowing, where government borrowing constitutes public debt, which can be internal or external. Such debt arises from government borrowings in domestic and international financial markets to finance domestic investments. Public debt encompasses the total borrowings by all levels of government—including federal, state, and local governments (Idenyi, Igberi, & Anoke, 2020). It also includes amounts owed to private organizations, public institutions, foreign governments, and other creditors. Discussions on public debt often incorporate future pension obligations, government liabilities, and goods or services acquired on credit. Idenyi, Igberi, and Anoke (2020) highlight public debt as one of the primary mechanisms for financing government expenditure. While governments may direct central banks to generate funds to avoid interest costs, such actions control interest payments but do not eliminate the debt; instead, this can precipitate hyperinflation. Additionally, governments might resort to tax increases to service debt obligations (Idenyi, Igberi & Anoke, 2020). Notably, since the beginning of the 21st century, public debt, especially in emerging economies, has escalated alarmingly. This increase can be detrimental to economic growth if not prudently managed (Favor et al., 2021). Economic growth is generally defined as the aggregate annual production of a nation, measured by the market value of goods and services produced, adjusted for price fluctuations and net income from abroad (Favor et al., 2021). The connection between foreign debt and the economic growth of developing countries is widely recognized by policymakers and scholars globally (Idris & Ahmad, 2021). However, domestic debt implications have often been overlooked in scholarly discourse. Prior to the Structural Adjustment Programme (SAP) of the 1980s, many African governments, including Nigeria, paid scant attention to the adverse effects of domestic debt on their economies. Consequently, several governments have relied on central banks to mobilize funds needed for debt servicing (Idris & Ahmad, 2021). Essien et al. (2020) note that this practice has contributed to multiple macroeconomic challenges such as liquidity crises, inflationary pressures, rapid monetary expansion, and a shortage of funds available for private sector investment. Cecchetti, Moharty, and Zampoli (2010) argue that without fiscal policy reforms, debt accumulation will persist, as government expenditures continue to grow even amid declining revenues. They further suggest that increased risks related to bond issuance will exacerbate the dynamics of public debt accumulation. This current debt predicament has thus revived both policy and academic debates concerning the impact of public debt on economic development. 1.2 Statement of the Problem Many developing nations, including Nigeria, consistently borrow from both internal and external sources without implementing an effective debt management framework (Akinwunmi & Adekoya, 2021). Debt management, as described by Essien, Agboegbulem, Mba, and Onumonu (2020), involves formulating and executing strategies to manage government debt to raise adequate funds at the lowest possible cost over the medium to long term, while controlling associated risks. Effective debt management promotes timely repayment and supports economic growth and development; conversely, poor debt management adversely affects the exchange rate, inflation, investment levels, and overall economic development. In Nigeria, inadequate attention to debt management has led to escalating debt servicing costs—both domestic and external—that threaten to exceed the economy’s capacity, thus impeding economic progress (Panizza & Presbitero, 2020). Akinwunmi and Adekoya (2021) observe that Nigeria’s persistent reliance on public debt, especially foreign borrowing marked by unfavorable terms, exchange rate volatility, and risks of debt repudiation, has culminated in a debt overhang, hampering economic growth. Said and Yusuf (2021) highlight that endogenous factors like increased tax burdens and diversion of scarce capital from productive private sectors to less productive public sectors, alongside exogenous factors such as fluctuating exchange and interest rates—especially in the context of declining oil prices—compound the problems of poor debt management. Furthermore, rising debt levels restrict government spending in crucial sectors such as infrastructure, education, and public health, thereby undermining economic development. Most research on debt management has been conducted in developed countries such as the United States, the United Kingdom, and France (Chenery & Alan, 2020), with fewer studies focusing on developing countries like Nigeria. Those that do tend to emphasize the relationships between external and domestic debt and economic growth and development (Bamidele & Joseph, 2020). Despite increased scholarly attention, there remains a dearth of empirical data from developing countries on the nexus between debt management and economic performance. In light of this gap, this study aims to explore the impact of debt management on Nigeria’s economic growth. 1.3 Objectives of the Study The overall objective of this research is to examine how debt management affects Nigeria’s economic growth. Specifically, the study seeks to: 1. Assess the impact of external debt on Nigeria’s economic growth. 2. Evaluate the effect of domestic debt on economic growth in Nigeria. 3. Determine the long-term relationship between external debt and Nigeria’s economic growth. 4. Examine the long-term relationship between public debt and Nigeria’s economic growth. 1.4 Research Questions 1. What is the impact of external debt on Nigeria’s economic growth? 2. How does domestic debt affect economic growth in Nigeria? 3. Is there a long-term relationship between external debt and economic growth in Nigeria? 4. Does a long-term relationship exist between public debt and economic growth in Nigeria? 1.5 Research Hypotheses HO1: There is no significant relationship between external debt and Nigeria’s economic growth. HO2: There is no significant relationship between domestic debt and Nigeria’s economic growth. 1.6 Significance of the Study Inefficient debt management often leads to debt overhang and unsustainable debt service burdens, compelling Nigeria to undertake macroeconomic restructuring and adopt debt strategies aimed at relief and economic growth. By identifying causes of debt accumulation and analyzing management strategies employed by successive Nigerian governments, this study holds relevance for scholars, policymakers, government officials, investors, international organizations, private firms, and future researchers. The findings will guide policymakers in debt reduction and control, providing a benchmark for future research and documentation on Nigeria’s external debt challenges. Additionally, the study informs citizens on how effective debt management can enhance economic output and living standards. Empirically, it contributes to the existing body of literature and serves as a reference for scholars and students pursuing related fields. 1.7 Scope of the Study This study focuses on the impact of debt management on Nigeria’s economic growth. It specifically examines the effects of external and domestic debt on economic growth and investigates the long-term relationships between these forms of debt and economic growth in Nigeria. 1.8 Limitations of the Study The researcher encountered several challenges during the study, including constraints of time and financial resources, language barriers, and uncooperative attitudes from respondents. Limited access to data custodians in financial institutions and government ministries posed difficulties, necessitating careful judgment in handling the data. Time and funding also restricted extensive data collection, including visits to financial and governmental offices. Despite these limitations, the researcher overcame obstacles by adhering to principles of fairness, impartiality, and rigorous observation to ensure the study’s success. The case study approach also presented risks of subjective bias, which the researcher mitigated through adherence to methodological rigor. 1.9 Definition of Terms • External Debt: Debt incurred when a government borrows from foreign banks, governments, or international institutions such as the IMF, World Bank, or Paris Club. It includes unpaid portions of external resources for development or balance of payments support that remain unsettled upon maturity. • Economic Growth: A sustained increase in a nation’s capacity to produce a diverse array of economic goods and services, driven by technological advancements and institutional adjustments, reflected in rising real output or per capita output. • Debt Management Office (DMO): The governmental treasury entity responsible for issuing government securities and managing government borrowing activities. • Gross Domestic Product (GDP): The total market value of all final goods and services produced within a country during a specified year, calculated as the sum of consumer spending, investments, government expenditures, plus net exports (exports minus imports).