Publication Details
Abstract
This study investigates the impact of external debt management on Nigeria’s economic growth, employing a quantitative econometric analysis to provide empirical insights into the relationship between key macroeconomic variables. Nigeria’s reliance on external borrowing has historically played a dual role - funding infrastructural development while risking debt sustainability issues. The main objectives are to assess how external debt, domestic debt, external debt service, external reserves, and exchange rate fluctuations influence Nigeria’s gross domestic product (GDP). The study adopts the classical linear regression model, utilizing secondary time-series data from the Central Bank of Nigeria spanning 1999 to 2024, and employs the Ordinary Least Squares (OLS) estimation technique, complemented by stationarity tests, cointegration analysis, and diagnostic checks to ensure robustness. The theoretical framework is grounded in debt sustainability and growth theories, which posit that prudent debt management can stimulate growth, whereas mismanagement hampers macroeconomic stability. The results reveal that external debt (EXDT) has a positive and statistically significant impact on GDP, with a coefficient of 2.018 (p-value = 0.0000), indicating that a one-unit increase in external debt is associated with a 2.018-unit increase in Nigeria’s GDP. External reserves (EXRV) also exert a strong positive effect (coefficient = 5.028, p-value ≈ 0.0000), underscoring their role in macroeconomic stability. Conversely, exchange rate (EXCH) depreciation negatively influences GDP significantly (coefficient = -27.947, p-value = 0.0006), implying that currency stability is crucial for growth. The effect of domestic debt (DODT) on GDP is positive but statistically insignificant (coefficient = 8.661, p-value = 0.4115), while external debt service payments (EDSV) display a negative but marginally insignificant relationship (coefficient = -1.495, p-value = 0.1445). The model explains approximately 59.5% of the variation in GDP (R² = 0.595), with the overall regression being statistically significant (F-statistic = 8.238, p-value = 0.00007). Diagnostic tests indicate no severe multicollinearity, but heteroscedasticity is present; however, robust standard error adjustments mitigate this concern. The findings suggest that effective management of external debt and reserves, coupled with exchange rate stability, are vital for fostering sustainable economic growth. Based on these findings, several policy recommendations are proposed: the Ministry of Finance and Central Bank should strengthen debt management frameworks to prioritize productive investments; evaluate domestic borrowing strategies; renegotiate debt repayment terms to reduce debt service burdens; bolster external reserves through export diversification and FDI attraction; and actively manage exchange rate stability to shield the economy from depreciation effects. These measures aim to leverage external debt as a growth catalyst while safeguarding macroeconomic stability, thereby supporting Nigeria’s long-term development objectives.