Public Debt and Economic Growth in Nigeria: An Empirical Analysis (1986-2024)
Main Article Content
Abstract
This study examines the impact of public debt on Nigeria’s economic growth from 1986 to 2024, focusing on real GDP growth, domestic debt, external debt, domestic debt servicing, and external debt servicing. Using the Autoregressive Distributed Lag (ARDL) approach, annual time series data were obtained from the Central Bank of Nigeria, International Monetary Fund, and World Bank. Findings reveal that domestic and external debts have significant positive long-run effects on growth, indicating their role in financing productive investments and infrastructure. Conversely, domestic debt servicing and external debt servicing exert significant negative impacts, with external servicing posing a greater constraint on fiscal space and long-term development. In the short run, new borrowing supports growth, while servicing obligations slightly reduce output. Granger causality analysis shows bidirectional causality between domestic debt and growth, and unidirectional effects from external debt and both servicing components to growth. Diagnostic and stability tests confirm the robustness of the model. The study concludes that prudently managed borrowing targeted at high-return projects can enhance growth, but rising servicing costs—especially external—erode these gains. Policy recommendations include restructuring domestic debt portfolios, prioritizing concessional external loans, strengthening legislative oversight on borrowing thresholds, ensuring domestic debt issuance does not crowd out private investment, and enforcing transparency and accountability in project execution. These measures are essential for sustaining the growth benefits of debt while mitigating long-term fiscal risks.
Article Details
Copyright (c) 2025 Hassan, Mohammed Nezifi, Salihu H. Muhammed-Gani, Osekweyi Joel Odonye (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
Afonso, A., & Jalles, J. T. (2013). The effects of public debt on economic growth: A meta-regression analysis. Journal of Economic Surveys, 27(4), 648-670. https://doi.org/10.1111/joes.12029 DOI: https://doi.org/10.1111/joes.12029
African Development Bank. (2020). African economic outlook 2020: Digital transformation for youth employment. African Development Bank. https://doi.org/10.1111/aeo.2020
African Development Bank. (2022). Annual report 2022: A commitment to the sustainable development of Africa. African Development Bank. https://www.afdb.org/en/documents/2022-annual-report
Ahmed, S. (2022). Revisiting Debt Sustainability: A framework for developing economies. International Review of Economics and Finance, 74, 453-469. https://doi.org/10.1016/j.iref.2021.11.009 DOI: https://doi.org/10.1016/j.iref.2021.11.009
Alwi, A., Mahara, G., & Dhakal, M. (2020). External debt and its potential for economic growth in developing countries: A case study approach. Journal of International Economics and Development, 47(2), 155-170. https://doi.org/10.1016/j.jied.2020.07.005
Anderu, A. A., Omolade, A., & Oguntuase, L. S. (2019). The dynamics of external debt and economic growth in Nigeria: Evidence from time series data. Journal of Economic Studies, 46(5), 1137-1152. https://doi.org/10.1108/JES-03-2018-0151
Anyanwu, O. (2020). External debt servicing and economic stability: The case of developing economies. Journal of Economic Policy and Development, 32(2), 101-116. https://doi.org/10.1016/j.jepd.2020.09.004
Bahr, S., Fir, M., & Güzhan, M. (2020). Domestic debt and economic stability: The role of domestic borrowing in fiscal policy. Journal of Public Finance and Policy, 34(2), 125-141. https://doi.org/10.1016/j.jpfp.2020.05.004
Bandiera, O., & Tsiropoulos, A. (2020). Public debt sustainability: Theory and evidence. Journal of Economic Policy, 45(2), 200-218. https://doi.org/10.1016/j.jep.2020.06.008
Barro, R. J. (1990). Government debt and the effects on economic growth. Journal of Political Economy, 98(5), 103-120. https://doi.org/10.1086/261727 DOI: https://doi.org/10.1086/261726
Bon, S. (2022). The relationship between external debt and economic growth in developing countries: A case study of Nigeria. African Journal of Economic Policy, 14(2), 88-101. https://doi.org/10.1108/AJEP-11-2021-0161
Bunevich, M., Krugman, P., & Obstfeld, M. (2020). The role of external debt in financing development: Insights from global economic theory. World Development Review, 56(4), 210-225. https://doi.org/10.1016/j.wdr.2020.03.002
Camelia, S., & Popovici, M. (2022). Public debt and economic growth: A comparative analysis of Romania’s debt structure. Romanian Journal of Economic Research, 15(3), 25-39. https://doi.org/10.1080/RJER-2022-0025
Central Bank of Nigeria. (2023). Annual economic report 2023: Debt management and fiscal sustainability. Central Bank of Nigeria. https://www.cbn.gov.ng/Publications/Report2023
Channels Television. (2024, March 15). Nigeria's 2025 budget: A focus on debt servicing and economic implications. Channels TV. https://www.channelstv.com/2024/03/15/nigeria-2025-budget-debt-servicing/
Chien, M., & Mhenwa, M. (2022). The implications of external debt servicing on macroeconomic stability. International Journal of Fiscal Policy, 44(3), 210-224. https://doi.org/10.1016/j.ijfp.2022.05.008
Cline, W. (2021). External debt and fiscal responsibility in developing economies. International Finance and Policy Journal, 36(3), 202-218. https://doi.org/10.1016/j.ifpj.2021.01.003
Debt Management Office. (2022). Nigeria’s Eurobond issuance and its implications on fiscal policy. Debt Management Office. https://www.dmo.gov.ng/2022/nigerias-eurobond-issuance
Didia, D., & Ayokunle, O. (2020). Understanding the nuances of external debt servicing and its macroeconomic effects. Development Finance Review, 39(4), 275-289. https://doi.org/10.1016/j.dfr.2020.04.003
Didia, O. P., & Ayokunle, R. A. (2020). The impact of public debt on economic growth in Nigeria: A panel data approach. Journal of Economics and Development Studies, 8(4), 69-85. https://doi.org/10.15640/jeds.v8n4a7 DOI: https://doi.org/10.13189/aeb.2020.080202
Erce, D., Güzhan, M., & Fir, M. (2022). The dynamics of domestic debt restructuring and its impact on economic growth: Evidence from Brazil and Mexico. Journal of International Economics, 58(3), 205-220. https://doi.org/10.1016/j.jie.2022.01.007
Ergen, M., & Güzhan, M. (2022). Understanding domestic debt: Legal frameworks and financial obligations in developing economies. World Economics Review, 21(1), 67-83. https://doi.org/10.1111/wer.2022.03
Fir, M. (2020). The role of local currency debt in reducing reliance on foreign borrowing. Economics and Finance Review, 15(2), 98-111. https://doi.org/10.1016/j.efr.2020.02.004
Fujita, T. (2023). Domestic debt as a financing tool for national development. International Journal of Public Finance, 45(4), 310-326. https://doi.org/10.1093/ijpf/ijpf.2023.0012
Furqani, H., & Güzhan, M. (2023). Domestic debt as a buffer during financial crises: An ethical perspective. Journal of Development Economics, 61(2), 105-120. https://doi.org/10.1016/j.jdeveco.2023.02.008
Grosu, I., et al. (2022). Public debt stability and sustainability: Theoretical and empirical perspectives. Economic Policy Review, 39(3), 124-140. https://doi.org/10.1016/j.epr.2022.01.003
International Monetary Fund. (2023). World economic outlook: Debt sustainability and fiscal policies. International Monetary Fund. https://www.imf.org/en/Publications/WEO
Joy, D., & Panda, R. (2021). Analyzing public debt sustainability in emerging economies. Asian Economic Policy Review, 16(2), 145-162. https://doi.org/10.1111/aepr.12256 DOI: https://doi.org/10.1111/aepr.12256
Kasili, S. (2020). External debt servicing: An analysis of repayments and their effects on fiscal health. African Economic Review, 53(2), 128-142. https://doi.org/10.1016/j.aer.2020.07.005
Kpalukwu, E., & Ezekwe, C. O. (2023). External debt, exchange rate volatility and economic growth: Evidence from Nigeria. International Journal of Economic Development, 11(2), 56-72. https://doi.org/10.1080/IJED-2023-0456
Laskaridis, C. (2021). Fiscal policy and public debt management in emerging economies: A theoretical overview. International Journal of Finance and Economics, 26(3), 229-243. https://doi.org/10.1016/j.ijfe.2021.02.005
Lyamzina, T., & Harbinska-Rudenko, M. (2022). Sustainable external debt management and servicing: Strategies for economic stability. Journal of International Finance and Economics, 31(1), 98-112. https://doi.org/10.1016/j.jife.2022.03.009
Mahara, G., & Dhakal, M. (2020). External debt management for sustainable economic development. Development Economics Journal, 31(1), 120-135. https://doi.org/10.1016/j.deveco.2020.05.007
Mahmud, A., & Ogwuzebe, D. (2021). The dynamics of external debt servicing in low-income countries. International Journal of Economic Development, 25(2), 176-190. https://doi.org/10.1016/j.ijed.2021.04.007
McArthur, J. (2023). Infrastructure financing and economic growth in Africa: The role of public debt. African Development Review, 35(1), 115-130. https://doi.org/10.1111/adr.12357
Mhenwa, M. (2021). External debt servicing: Understanding the cost of foreign borrowing. Journal of International Development and Economics, 24(3), 152-167. https://doi.org/10.1016/j.jide.2021.02.006
Mijiyawa, A. (2022). External debt and macroeconomic stability: The case for careful management of foreign liabilities. Journal of Economic Stability and Policy, 63(2), 146-160. https://doi.org/10.1016/j.jesp.2022.04.001
Milesi-Ferretti, G. M., & Perotti, R. (1999). Fiscal discipline and economic growth: Theory and evidence. International Monetary Fund Working Paper, WP/99/133. https://doi.org/10.5089/9781451842325.001
Ofurum, L., & Fubara, E. F. (2022). Public debt management and fiscal sustainability in Nigeria: Challenges and prospects. Journal of Financial Studies, 10(4), 45-60. https://doi.org/10.1142/JFS-2022-0475 DOI: https://doi.org/10.14738/abr.107.12728
Ogbonna, B., Cline, W., & Krugman, P. (2021). A review of external debt and its role in economic stabilization. Global Economic Studies, 29(3), 112-128. https://doi.org/10.1016/j.ges.2021.09.003
Ogbonna, B., Cline, W., & Krugman, P. (2021). The components of external debt servicing: Principal repayments and interest obligations. Global Economic Perspectives, 38(1), 98-113. https://doi.org/10.1016/j.gep.2021.01.005
Okeke, I., Olusegun, O., & Yusuf, A. (2022). Domestic debt servicing and its impact on fiscal management in developing economies. Journal of Public Finance and Policy, 40(1), 89-104. https://doi.org/10.1016/j.jpfp.2022.03.009
Olusegun, O., & Yusuf, A. (2021). The mechanisms of domestic debt servicing in emerging markets: Evidence from Nigeria. Finance and Development Studies Journal, 35(2), 112-126. https://doi.org/10.1016/j.fdsj.2021.02.005
Omotor, D. (2021). External debt and its implications for economic growth: A critical review. International Journal of Financial Studies, 41(5), 302-315. https://doi.org/10.1016/j.ijf.2021.08.002
Organisation for Economic Co-operation and Development. (2023). Fiscal policies and public debt in advanced economies. OECD Economic Outlook, 104(3), 25-40. https://doi.org/10.1787/eco_outlook-v104-2023-en
Rahman, M., Azad, A., & Rahman, S. (2023). The impact of public debt on economic growth in sub-Saharan Africa: A cross-country analysis. African Economic Journal, 28(2), 98-112. https://doi.org/10.2113/AEJ-2023-0295
Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100(2), 573-578. https://doi.org/10.1257/aer.100.2.573 DOI: https://doi.org/10.1257/aer.100.2.573
Shobande, O. A., & Ogbeifun, J. O. (2025). Public debt and economic growth in developing countries: A focus on infrastructural investment. International Journal of Development Economics, 23(1), 34-49. https://doi.org/10.1186/IJDE-2025-0345
Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65-94. https://doi.org/10.2307/1884513 DOI: https://doi.org/10.2307/1884513
Swan, T. W. (1956). Economic growth and capital accumulation. Economic Record, 32(2), 334-361. https://doi.org/10.1111/j.1475-4932.1956.tb00434.x DOI: https://doi.org/10.1111/j.1475-4932.1956.tb00434.x
Tawiah, D., & Gyapong, E. (2023). The role of domestic debt servicing in maintaining macroeconomic stability: A case study of West African countries. African Journal of Economic Policy, 58(3), 230-243. https://doi.org/10.1016/j.ajep.2023.05.007
United Nations Conference on Trade and Development. (2023). Debt servicing trends in Sub-Saharan Africa: 2010-2022. UNCTAD. https://unctad.org/system/files/official-document/gds2023d1_en.pdf
Urakin, D. (2024). The impact of public debt on economic stability: A case study of emerging markets. Global Economic Review, 45(6), 78-92. https://doi.org/10.1080/GER-2024-0158
World Bank. (2021). External debt servicing and its impact on global economic stability. World Development Report, 59(2), 112-124. https://doi.org/10.1016/j.wdr.2021.04.002
World Bank. (2022). Africa’s debt crisis: Causes, impacts, and solutions. World Bank. https://www.worldbank.org/en/news/feature/2022/03/01/africas-debt-crisis
World Bank. (2023). Japan’s public debt challenges: Demographic trends and fiscal policy. World Bank. https://www.worldbank.org/en/country/japan/overview
Yusuf, A., & Mohd, A. (2021). Government debt obligations and the importance of effective servicing. International Journal of Finance and Economics, 22(4), 155-168. https://doi.org/10.1016/j.ijfe.2021.07.008
Article Sidebar
