The Impact of Nigeria’s Debt Structure on Economic Performance
Chapter One
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To examine the effect of Nigeria debt structure on economic performance
- To evaluate the structural influence of public debt on Nigeria economic performance proxy by GDP at current market price
- To ascertain the significant relationship between Nigeria debt structure and economic performance
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
The tradition school of thoughts in finance and economic view leverage as essential for corporate growth. However since the great depression of the late 1920’s and early 1930’s when the Keynesian deficit policy propelled the economies of Western Europe out of depression, public debt (deficit) has been recognized as a veritable instrument for raising aggregate demand, employment and output of all economies both developed and developing. Public debt has consequently gained accelerated prominence among less developed countries. It is seen as a viable strategy for mobilization of the additional resources required to finance their much desired developmental needs. This financing strategy seems justifiable on the grounds that available savings at particular points in time have never matched their desired levels of investment. Jhingan (2008) argued that less developed countries are saddled with complex foreign debt problems, because as poor countries, they have low rates of domestic savings and consequently, investment. As a result, they heavily depend on capital inflows from abroad to finance their appraised developmental needs. In his view, less developed countries significantly lack the essential economic and social overhead capital. They also lack the strategic industries such as iron and steel which are fundamental prerequisites for launching nations into the development process as opposed to the situation in the Soviet Union, where industrialization began on the platform of the iron and steel industries. The above circumstances accordingly, made a strong case for incurring sometimes, external debts with stringent repayment terms. The repayment terms in turn, facilitate the conditions for debt crisis as a greater proportion of the export proceeds of debtor countries would continually be required to service matured external debts. Ultimately, accumulation of external debts leads the less developed countries into huge current account deficits. These deficits are financed by issuance of sovereign bonds by debtor countries, borrowing from foreign banks and international credit institutions as well as foreign private firms. The settlement of the bond obligations consequently imposes a serious debt burden on the less developed economies. Onoh (2007) noted that domestic sources of Nigeria’s public debt include borrowings from individuals and corporate bodies, other tiers of government, deposit money banks, non-bank financial institutions etc. The debts are raised through the issuance of instruments subscribed through the money and capital market. Remarkably, he noted that it was only during 2005 – 2007 fiscal years that Nigeria secured a substantial debt relief and debt restructuring from the Paris and London clubs under the Naple terms. Taking a political view of debt relief in Nigeria, Aina (2005) commented that Nigerian economy has been weakened and will continue to deteriorate on account of the neo-colonial forces of globalization. He stressed that Nigeria lacks the competitive advantage to engage the developed nations in any exchange process. Given this scenario, he viewed Nigeria as a victim of capital flight, mounting debt profile, industrial collapse, over dependence on imported goods, weak currency and high inflation rates. He argued that the country will continue to experience the adverse effects of globalization so long as she continued to open up her economy for external economic relationship. Further, he viewed Nigeria as having reduced access to the markets of the developed nations because of her disadvantaged technological position. Providing a valuable framework for predicting Nigeria’s external debt, Isu (1997) drew from scholars who include Killik, Mehran, Printo and Fajana and adopted the traditional primary causants model in evaluating the determinants of Nigeria’s external debt. Among the five Western traditional causants-productivity index, inflation rate, foreign reserves, balance of payment on current account and population, he found only population as significant in Nigeria. Akujuobi (2007) evaluated the comparative influences of external and domestic debts on Nigeria’s economy. The results indicated negative sign for external debt with insignificant regression coefficient at 0.05 level.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study effect of Nigeria debt structure on economic performance
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on effect of Nigeria debt structure on economic performance. 200 staff of CBN, Abuja was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain effect of Nigeria deb structure on economic performance
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 the challenges of Nigeria deb structure on economic performance
Summary
This study was on effect of Nigeria deb structure on economic performance. Three objectives were raised which included: To examine the effect of Nigeria debt structure on economic performance, to evaluate the structural influence of public debt on Nigeria economic performance proxy by GDP at current market price, to ascertain the significant relationship between Nigeria debt structure and economic performance. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up HRMS, economists, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
However, it is vital to note that while domestic debts sign positively with Nigeria’s gross domestic product, external debts sign negatively with it. The results contradict a-priori expectation of positive relationships based on theoretical postulation of the advantageous effects of leverage both at corporate and national levels, However, the results might probably have emanated from the fact that external debts are often associated with stringent repayment terms. They also embody other trade conditionality’s which may turnout to be counter-productive and inimical to the growth of less developed economies. However, the results of this study have shown that changes in both domestic and external debts either in their aggregated or structural forms are valuable in predicting partially, the variations in Nigeria’s gross domestic product and hence, economic performance.
Recommendation
- Nigeria should concentrate on inward financing of her economic growth by utilizing mostly, domestic debts.
- Indigenous technology should be encouraged in order to create the necessary challenges for sustained local technological growth in the country. 3. The government should facilitate product development by encouraging the development of varieties of money and capital market instruments. These will serve as tonic for diversified local long term borrowing to fund development needs.
- The government and the organized private sector should accelerate the internationalization of the operations of Nigeria’s money and capital markets. This is expected to encourage international communities to invest in Nigeria’s corporate and national equities as well as debt instruments in order to provide the Nigerian economy with more liquidity at domestically determined terms and preferences in place of stringent conditions often imposed by international lenders and their agents.
- External debt should only be utilized by Nigeria. either as a matter of last resort or to fund a project with high foreign exchange content.
References
- Aina, A. D. (2005) Globalization and the Challenges Of National Development: The Case of Post Debt Relief Nigeria, Union Digest, Vol. 9, Nos. 3 &4,Dec,pp.45-54.
- Akujuobi, L. B. (2007) Debt and Economic Development in Nigeria Journal of Research In National Development Vol. 5, No. 2 (Dec), pp. 3&43.
- Ghebreyesus, G. S. (2001) Debt Financing and Economic Performance ofSeverely Indebted Low-Income Countries, Papers andProceedings, 28th Annual Meeting, Academy of Economics andFinance, (Feb 14th -17th), Mississippi, pp. 339-347.
- Isu, H. 0. (1997) A Prediction Model for Nigeria’s External Debt, Journal of Finance, Banking and investment, Vol. 1. No. 1 (May), pp. 45-53.
- Jhingan, M. L. (2008) The Economics of Development And Planning, (39thed), Delhi, Vrinda Publications (P) Ltd, p. 439.
- Lintner, J. (1963) The Cost of Capital and Optimal Financing of Corporate Growth, Reprinted in Archer, S. H. and D’Ambrosio, C. A. (ed) (1976), The Theory of Business Finance: A Book of Readings, New York, Collier Macmillan, pp. 579-595.
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- Modigliani, F. and Miller, M. H. (1965) The Cost of Capital, Corporation Finance and the Theory of Investment: Reply, Reprinted in Archer, S. H. and D’Ambrosio, C. A. (ed) (1976), The Theory of Business Finance; A Book of Readings, New York, Collier-Macmillan, pp. 550-552.
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- Onoh, J. K. (2007) Dimension of Nigeria’s Monetary and Fiscal Policies-Domestic arid External, Aba/Enugu/Lagos, Astra Meridian Publishers, pp. 89; 287-288.
- Solomon, E. (1963) Leverage and the Cost of Capital, Reprinted in Brighait, E.F. (ed) (1971), Readings in Managerial Finance, Illinois, Dryden Press pp. 159-172.