An Empirical Analysis of Public Debt and Economic Growth in Nigeria

Chapter One

1.1 Background of the Study
Public debt has become a central issue in economic management worldwide. Many developing countries, including Nigeria, rely on borrowing to finance budget deficits and development projects. When borrowing is productive, it stimulates growth by funding infrastructure and education (Okeke, 2022). However, excessive debt can slow down growth and create long-term financial pressure.

Nigeria’s debt profile has expanded significantly over the past two decades. Both external and domestic debts have grown due to increased government spending. Moreover, fluctuations in oil prices have reduced national revenue, leading to frequent borrowing. Although loans fund vital projects, high debt servicing often consumes much of the budget, leaving limited resources for development.

Furthermore, debt accumulation affects key macroeconomic variables. Rising debt can trigger inflation, reduce investor confidence, and increase interest rates. In addition, external debt exposes the economy to currency risk. When the naira weakens, the cost of repaying foreign loans rises sharply. Consequently, this situation can limit economic growth.

Despite these challenges, debt can still support progress when used effectively. If the borrowed funds finance infrastructure and industrialization, productivity increases and economic expansion follows. Therefore, it is important to evaluate how Nigeria’s growing debt influences its economic growth.

1.2 Statement of the Problem
Nigeria’s debt continues to grow while economic performance remains inconsistent. Many projects financed by debt yield limited returns. Moreover, debt servicing consumes over half of government revenue, leaving little for education, health, and infrastructure. This imbalance raises concerns about sustainability.

1.3 Objectives of the Study
The major objective of this study is to analyze the relationship between public debt and economic growth in Nigeria.
Specific objectives include:

1. To examine the trend of public debt in Nigeria.

2. To determine the effect of public debt on GDP growth.

3. To assess the impact of debt servicing on public investment.

1.4 Research Questions

1. What is the trend of public debt in Nigeria?

2. How does public debt affect GDP growth?

3. What is the effect of debt servicing on public investment and development?

1.5 Significance of the Study
This study will provide insight for policymakers on how to manage borrowing responsibly. It will also help researchers understand the connection between debt accumulation and economic progress. Moreover, the findings may guide government institutions in designing debt sustainability frameworks.

1.6 Scope of the Study
The study focuses on Nigeria between 2000 and 2024. It covers domestic and external debt and their effects on economic growth.

1.7 Definition of Terms

• Public Debt: Money borrowed by the government from internal and external sources.

• Economic Growth: The increase in the output of goods and services in an economy.

• Debt Servicing: The process of repaying interest and principal on borrowed funds.