Domestic Debt and Economic Growth in Nigeria

Decades of Unending Dilemma

Abstract

This study examines the empirical relationship between
domestic debt and the performance of the Nigerian economy
using annual time series data obtained from various editions of
the Central Bank of Nigeria's Statistical Bulletin, the Debt
Management Office, and the World Development Indicators
(WDI). Gross Domestic Product (GDP) is used as a proxy for
economic growth and serves as the dependent variable, while
domestic debt, debt servicing, interest rate, exchange rate,
capital (proxied by gross capital formation), and labor (proxied
by the labor force participation rate) are the independent
variables. The study employs unit root tests for co-integration
and the Autoregressive Distributed Lag (ARDL) technique as its
estimation methods. The findings reveal that domestic debt has a
significant positive impact on economic growth; however, the
growth-enhancing effect of domestic debt is substantially
diminished by debt servicing obligations. The policy
implication of this result is that the government should ensure
domestic debt management strategies align with the optimal
debt threshold that maximizes growth. In addition, the
government is encouraged to implement fiscal reforms aimed at
improving domestic debt management and accelerating
economic growth, especially in light of recent trends indicating
that excessive debt servicing poses a threat to economic
expansion.