Public debt, debt servicing and economic growth in Nigeria

Public debt is a vital tool that governments use to finance public spending, especially in situations where it is challenging to raise taxes and cut spending. Nigeria is currently bedevilled with high debt servicing amounting to $1.12 billion by the end of quarter one of 2024. This study investigated the effect of government debt on economic growth in Nigeria. The study employed auto regressive distributed lag model to analyse the secondary data that was obtained from statistical bulletin of Central Bank of Nigeria from 1992 to 2023 and World Development Indicator. The study revealed that there is an existence of significant but negative relationship between domestic debt and economic growth on the long run with a coefficient value of −0.008394 and at 5% level of significance. There also exist a significant and positive impact of foreign debt on economic growth in long run with value of coefficient of 0.360653 and at 5% level of significance. Debt servicing was reported to have negative relationship with economic growth in Nigeria with value of coefficient of −0.120965 and at 1% level of significance. The study also reported a bi-directional effect of domestic debt on growth of economy in Nigeria while a unidirectional causality was reported between economic growth and debt servicing. The study concluded that public debt has significant impact on the growth of economy in Nigeria. Government of Nigeria should make effort in reducing the debt-revenue ratio by paying some affordable debt as soon as possible and seeks for ways of enjoying debt forgiveness by multinational banks. The study recommends that Nigerian government should make more use of external debt than domestic debt because of the low interest of external debt to domestic debt which will help in reducing the debt burden