Public Debt and Its Effect on Economic Stability in Nigeria

CHAPTER ONE

1.1 Background of the Study

Public debt has become a major concern for Nigeria’s fiscal and economic stability. It refers to the total amount of money borrowed by the government to finance budget deficits and development projects. Borrowing can stimulate growth when used productively, but excessive debt can create serious macroeconomic challenges (Krugman, 2021).

Nigeria’s public debt has grown steadily in recent years. According to the Debt Management Office (2024), total public debt reached over ₦97 trillion, reflecting both domestic and external borrowings. While debt can fund infrastructure and social programs, high debt servicing costs often crowd out investment in productive sectors.

In many developing economies, persistent borrowing has led to fiscal imbalance, inflation, and exchange rate volatility. Nigeria faces similar challenges as rising debt weakens investor confidence and increases vulnerability to external shocks. Although the government continues to borrow for development purposes, the long-term sustainability of such borrowing remains uncertain.

This study therefore investigates how public debt affects Nigeria’s economic stability, focusing on its implications for fiscal sustainability, inflation, and growth.

1.2 Statement of the Problem

The continuous rise in Nigeria’s public debt raises concerns about its sustainability. Debt servicing already consumes a large portion of government revenue, leaving little room for capital expenditure. This situation limits the country’s ability to invest in education, healthcare, and infrastructure.

Despite repeated warnings from international organizations, Nigeria’s debt accumulation persists. The major problem lies in whether borrowed funds are used productively enough to generate future revenue. Consequently, understanding the relationship between debt and economic stability is essential for designing prudent fiscal policies.

1.3 Objectives of the Study

1. To examine the trend of public debt in Nigeria from 2010 to 2024.

2. To assess the effect of public debt on economic stability.

3. To analyze the impact of debt servicing on fiscal sustainability and growth.

4. To identify measures that can improve Nigeria’s debt management.

1.4 Research Questions

1. What has been the trend of Nigeria’s public debt between 2010 and 2024?

2. How does public debt influence economic stability?

3. What is the impact of debt servicing on fiscal sustainability?

4. What strategies can improve debt management in Nigeria?

1.5 Hypotheses

• H₀: Public debt has no significant effect on economic stability in Nigeria.

• H₁: Public debt has a significant effect on economic stability in Nigeria.

1.6 Significance of the Study

This study provides a clear understanding of how rising public debt affects Nigeria’s economy. It helps policymakers evaluate the sustainability of current borrowing practices and design effective debt management strategies. Researchers will also benefit from its contribution to the literature on debt and economic performance.

1.7 Scope of the Study

The study covers the period from 2010 to 2024 and focuses on Nigeria’s total debt stock, debt servicing, inflation rate, and GDP growth. Data will be collected from the Debt Management Office, Central Bank of Nigeria, and the National Bureau of Statistics.

1.8 Definition of Terms

Public Debt: Total amount owed by the government to domestic and foreign creditors.
Fiscal Sustainability: The ability of a government to finance its operations without excessive borrowing.
Economic Stability: A condition where an economy experiences steady growth, low inflation, and reduced volatility.

References

Central Bank of Nigeria (2023). Statistical Bulletin. Abuja: CBN.
Debt Management Office (2024). Quarterly Debt Report. Abuja: DMO.
Krugman, P. (2021). International Economics: Theory and Policy. New York: Pearson.
World Bank (2023). Nigeria Development Update. Washington, DC: World Bank.