Effect of Public Debt on Economic Growth in Nigeria (2000 – 2022)
Chapter One
OBJECTIVES OF STUDY
The general objective of this research is to ascertain the impact public debt liability has on economic growth in Nigeria. Other specific objectives include:
- To determine long relationship between public debt liability and economic growth in Nigeria.
- To identify the causes of public debt burden in Nigeria.
- To evaluate the effect of debt servicing on Nigeria’s economy during the period under review
- Proffering appropriate framework based on the policy recommendations made.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
The Conceptual Framework
Public debt has been described as one of the major indicators of the macroeconomic variables which forms the image of countries in the international markets. Generally, it is one of the determinants of foreign direct investment flows. Prudent management of public debt increases economic growth and stability via resources mobilization with low borrowing cost and limited financial risk exposure (Christabell, 2013). Public debt can also be described as the total debts of a country, which include debts of governments at all levels such as local, state and national governments, thereby showing how many public expenditures are financed through borrowing instead of taxation (Makau, 2008 cited in Christabell, 2013). Public debt is one of the approaches used in financing government projects, even though the approach is not the only way the government can change its operations as she can also create money to monetize its debts, and by creating money to finance government operations, the need to pay interest may be removed (Martin, 2009). According to Kibul (1997), the fundamental factor that causes public debt to rise is overreliance on external borrowings to augment capital formation in the nation‘s economy. If the interest payment is high, the deficit on the current account will also be high thereby resulting in the huge debt burden. Isaac and Rosa (2016) also postulated that sub-national governmentsacquire debt mainly to finance public investment projects that complement the private investments to translate into improved economic growth from which the contracted debt becomes sustainable and no risk for their finances. Nassir and Wani (2016) opined that a debt implies an obligation to pay money, deliver goods, or render service under an express or implied agreement. Hence, they described public debt as the total debts of the nation which include debts of national, state and local governments that revealed how much public spending is financed through borrowing instead of taxation. Obi (2014) argued that most theoretical literature on the nexus between external debt stock and growth-focused largely on the adverse effects of debt overhang. Debt overhang, according to Krugman (1998), is defined as a condition by which the expected repayment on external debt falls short of the contractual value of debt. If the level of a nation‘s debt is expected to exceed the country‘s ability to repay with some probability in the future, expected debt service is likely to be an increasing function of the output level of the country. The returns from investing in the domestic economy may effectively be taxed away existing foreign creditors and investment by foreign and domestic investors, and hence, economic growth is discouraged.
Government Borrowing
Government borrowing is a loan obtained by the government that is recorded as capital receipts in the Budget document. It’s the total amount of money borrowed by the federal government to provide government services and benefits. Because tax and non-tax revenue is insufficient to fund the government’s spending program, the government announces an annual borrowing program in the Budget (Economic times, 2020). Government Borrowing refers to the government sector’s demand for loans obtained through financial markets to fund purchases not covered by taxes. In terms of the circular flow, this is one of two family saving demands that are channeled into financial markets, the other being investment borrowing. The most common way for governments to borrow is to issue securities, such as government bonds and bills. Countries with poor credit ratings may borrow directly from supranational entities (US legal, 2021). The key to accelerating economic growth and development is borrowing at a reasonable rate to support public and infrastructural improvements.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine effect of public debt on economic growth in Nigeria (2000-2022). CBN in Cross River state form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to effect of public debt on economic growth in Nigeria (2000-2022). In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing challenges of effect of public debt on economic growth in Nigeria (2000-2022).
Summary
This study was on an effect of public debt on economic growth in Nigeria (2000-2022). four objectives were raised which included: To determine long relationship between public debt liability and economic growth in Nigeria, to identify the causes of public debt burden in Nigeria, to evaluate the effect of debt servicing on Nigeria’s economy during the period under review and Proffering appropriate framework based on the policy recommendations made. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN of Cross River state. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Premise on the analytical results carried out in the study, it is evident that public debt has a varying relationship with economic growth. The study specifically established that external debt impacts negatively on economic growth of Nigeria both in the short run and long run while domestic debt possesses positive relationship with economic growth both in the long run and short run. Based on the findings of the study, we therefore conclude that public debt commands a relationship with economic growth depending on the form of debt contracted.
Recommendation
Policy makers should integrate appropriate measures towards ensuring suitable management of domestic debts so as to enhance the productivity level of the country.
Government should ensure that contracted national debts are directed towards encouraging investment in the country so as to increase capital formation in the country and consequently a sustainable economic growth.
Government through necessary monitoring committees should ensure that national debts are directed toward the provision of basic amenities and services required for the development of communities and societies of the nation.
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