Debt Service Payments and Economic Growth in Nigeria

Abstract

The problems of accumulating capital for the provision of basic infrastructures in the less developed countries (LDCs), Nigeria in particular, have been the challenges deterring their consistent growth. This is also compounded by the accumulation of debt service payment areas which constitute one of the serious obstacles to the inflow of external resources into the economy. From the foregoing, there is need to examine the impact of debt service payments on economic growth in Nigeria. The study made use of data collected from Central Bank of Nigeria (CBN) and World Bank Database from 1981 to 2019 using ARDL regression method of analysis. The results showed that debt service payment (TDS_GNI), exchange rate (EXR), external debt (EXTD_GNI) and foreign direct investment (FDI_GDP) have positive relationship with economic growth (GR) in Nigeria. All these variables except exchange rate have significant impact on economic growth within the period under consideration. The ECM coefficient of -0.205 indicates that any deviation from the long-term equilibrium between variables will be corrected by about 20.5% each year. Based on the findings the study suggests that debt service obligation should not be allowed to rise more than foreign exchange earnings and that the loan contracted should be invested in profitable venture, which will generate a reasonable amount of money for debt repayment. The study recommended amongst others the needs for the country to develop a framework and strategy for closing its resource gap in order to achieve the objective of halving poverty by 2030.