External Debt and Macroeconomic Performance in Nigeria, 1981–2019

International Journal of Research and Scientific Innovation (IJRSI) | Volume IX, Issue II, February 2022 | ISSN 2321–2705

External Debt and Macroeconomic Performance in Nigeria, 1981–2019

Nnamocha, P. N. (PhD)¹ Anyanwu, Austin Chinenye (PhD)², Evbie Johnson^3
1Dept of Economics, Imo State University, Owerri, Nigeria
²Gulftek Microfinance Cooperative Society Ltd, Owerri, Nigeria
³Dept of Economics, College of Education, Warri, Nigeria

Abstract: This research studied external debt and macro-economic performance in Nigeria from 1981 to 2019. The macro-economic performance indicators employed were Real Gross Domestic Product, and Inflation rate while external debt stock was the explanatory variable. The study employed the cointegration and Vector Error Correction Model as the main analytical tool. The findings revealed that a significant positive relationship existed between external debt stock and inflation ratein Nigeria while external debt stock decreased Real GDP. The study also found that shocks to external debt stock decreased real GDP initially but grew subsequently at a slow pace. The external debt stock contributed to the macro-economy in the VEC model was very minimal as they contributed less than 20%. The study concluded that Nigeria’s external debt had negatively affected the macro-economy and also, external debt stock increased inflation rate thus indicating a serious strain in the macro-economy occasioned by continued debts without a corresponding debt servicing. Thus, we recommended that the government can utilize external debt to decrease the rate of inflation through government focus on productive sectors and channeling of public investments to the real sector. Also, Nigeria should focus more on the real sector which is the productive sector of the economy so as to create a long term external debt service plan and ease the strain on exchange rate and the macro-economy.

Keywords: External Debt, Real Gross Domestic Product, Inflation Rate, Economic growth, Vector Error Correction Model

I.INTRODUCTION

The improvement of macroeconomic performance, such as sustained economic growth, low inflation rate, positive balance of payment position, etc. is a key focus for any sovereign nation particularly the developing countries which are known to have low capital formation due to low levels of domestic investment and savings. Soludo (2003) gave two main reasons why countries borrow as; firstly, macroeconomic reason – to enable the country undertake higher level of consumption and investment and secondly to finance the transitory balance of payment deficit and avoid constraints in budget which will help improve economic growth, reduce the level of poverty and improve their macroeconomic performance. The creation of external loans by any government is to enable her finance the deficits of her budget (Osinubi and Olaleru, 2006). External debt has become an important avenue of generating public revenue and

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