Boosting Nigeria's Bond Market: Evidence from Macroeconomic Perspective

Macroeconomics and finance drive bond markets in developing countries, allowing governments to raise money for businesses and infrastructure. However, many factors in developing countries like Nigeria hinder the growth of the bond market. This study investigates a novel contribution by focusing exclusively on the Nigerian bond market and considering a set of macroeconomic drivers that have not been studied collectively. The study applies the Autoregressive Distributive Lag (ARDL) model to examine the short-run dynamics between key macrofinancial drivers and the Nigerian bond market. The findings show that an increase in fiscal deficit does not support the development of the bond market in Nigeria. Similar results are found for GDP per capita, inflation, interest rates, and banking scale; all negatively affect bond market development. However, domestic debt and stock market development positively promote bond market development. The policy implications offered from these findings are to redirect their spending to projects that have the potential to stimulate economic activities that help the government generate more revenue. Policymakers should also cut unnecessary spending on recurrent expenditure, which is a significant part by implementing efficient fiscal discipline.