ABSTRACT

This research study was designed to analyze Nigeria’s external debt liability and its impact on her economic growth. To achieve the objective of the study, secondary data from the Central Bank of Nigeria statistical bulletin and the National Bureau of Statistics for the period of 1980-2015 was collected. The analysis of data was conducted using econometric analysis by employing tool of Ordinary Least-Square (OLS). The study employed the Johansen co-integration test and Error Correction Method. The co-integration test shows the existence of long run equilibrium relationship among the variables. Among other things the result of the study revealed that there is a negative relationship between EDS and GDP. This implies that an increase in External Debt Stock (EDS) will bring about a decrease in Gross Domestic Product (GDP). The positive value of the co-efficient of (DSP) indicates that, for every one percent increase in External Debt Service Payment (DSP), there will be a corresponding decrease of 5.46 in Gross Domestic Product (GDP). This shows that External Debt Service Payment (DSP) has a significant negative impact on Gross Domestic Product (GDP). The relationship between Official Exchange Rate (ExR) and GDP is significant. The study recommended that development activities in Nigeria be financed through increased export earnings spearheaded by export led growth strategy as well as investment in human capital as these can be the best alternative to external debt in the long-run.

Nigeria like most highly indebted poor countries has low economic growth and low per capita income, with domestic savings insufficient to meet developmental and other national goals. Nigerian exports were primarily primary commodities with export earnings too small to finance imports which are mostly capital intensive (Manufactured) goods which are comparably more expensive (Siddique, Selvanathan and Selvanathan, 2015). Compounding the problem is Nigeria’s drift to mono economy with the discovery of oil. The oil sector generates about 95% of foreign exchange earnings and about 80 percent of budgetary revenue. The inability to diversify her revenue sources coupled with corruption and mismanagement compels Nigeria to have inadequate fund for growth and developmental projects such as roads, electricity pipe borne water and so on.

Nigeria as a developing nation has adopted a number of policies such as the Structural Adjustment Programme (SAP) of 1986 to liberalize her economy and boost Gross Domestic product (GDP) growth. In a bid to ensure the implementation of these policies the government embarked upon massive borrowings from multilateral sources which resulted in a high external debt service burden and by 1992 Nigeria was classified among the heavily indebted poor countries (HIPC) by the World Bank.

Moreover, despite the huge amount of debts which Nigeria has continued to incur over the years, with the aim of achieving economic growth and development, high unemployment, poverty, and low standard of living is still prevalent in the country, as observed by Aiyedogbon and Ohwojasa (2012) and Nwagwu (2014). The inability of Nigeria to effectively meet her debt obligations has adverse effect on the economy, as interests arrears accumulate over the years, thereby creating a much greater debt burden on the nation resulting in a greater percent of her revenue being spent on debt service arrears.

Audu (2004) opined that the debt service burden has continued to hamper Nigeria's rapid economic development and worsened the social problems; this is because debt servicing crowds out investment and growth. Furthermore, Pattilo et al (2002) assert that at low levels, debt has positive effects on growth but above the threshold point accumulated debt begins to have a negative impact on growth.

This therefore has informed the need to embark on the present study with a view to painstakingly examine the economic impact of external debt liability in Nigeria.

1.3       Objectives of the Study

The general objective of this study is to investigate the economic impact of external debt liability in Nigeria. The specific objectives are:

        i.            To determine the impact of external debt on Gross Domestic Product (GDP) in Nigeria.

     ii.            To examine the effect of external debt servicing on Gross domestic Product in Nigeria.

   iii.            To find the impact of exchange rate on Gross Domestic Product in Nigeria.

1.4       Research Questions

This study will be guided be the following research questions:

        i.            What is the impact of external debt on Gross Domestic Product (GDP) in Nigeria?

     ii.            How does external debt servicing affect Gross domestic Product in Nigeria?

   iii.            What is the impact of exchange rate on Gross Domestic Product in Nigeria?

1.5       Research Hypotheses

The researcher intends to test the following hypotheses:

Hypothesis 1:

H_o: There is no significant impact of external debt on Gross Domestic Product (GDP) in             Nigeria

H_I: There is a significant impact of external debt on Gross Domestic Product (GDP) in    Nigeria.

Hypothesis 2:

H_o: There is no significant relationship between external debt servicing and Gross           domestic Product in Nigeria.

H_I: There is a significant relationship between external debt servicing and Gross domestic Product in Nigeria.

Hypothesis 3:

H_o:      There is no significant relationship between exchange rate and Gross Domestic     Product in Nigeria.

H_I:        There is a significant relationship between exchange rate and Gross Domestic       Product in Nigeria.

1.6       Significance of the Study