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The Effect Of External Debt On Economic Growth Of Nigeria(1981-2010)
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However, the benefits of the debt cancellation, which was expected to
manifest after couple of years, was wiped up in 2009 by the global
financial and economic crisis, which was precipitated in August 2007 by
the collapse of the sub-prime lending market in the United States. The
effect of the crisis on Nigeria’s exchange rate was phenomenal as the
Naira exchange rate vis-Ã -vis the Dollar rose astronomically from about
N120/$ in the last quarter of 2007 to more than N150/$ (about 25%
increase) in the third quarter of 2009 (CBN, 2009). This is attributable
to the sharp drop in foreign earnings of Nigeria as a result of the
persistent fall of crude oil price, which plunged from an all-time high
of US$147 per barrel in July 2007 to a low of US$45 per barrel in
December 2008 (CBN, 2008).
Available statistics show that the
external debt stock of Nigeria has been on the increase after the debt
cancellation in 2005. The country’s external debt outstanding increased
from $3,545 million in 2006 to $3,654 million in 2007, and then to
$3,720 million and $3,947 in 2008 and 2009 respectively (CBN, 2009). It
is therefore imperative to examine the effect of external debt of the
country on her economy for us to appreciate the need to avoid being back
in the group of highly indebted nations.
1.1 STATEMENT OF THE PROBLEM
The
huge external debt stock and debt service payments of African countries
and Nigeria in particular prevented the countries from embarking on
larger volume of domestic investment, which would have enhanced growth
and development (Clements, etal. 2003). External debt became a burden to
most African countries because contracted loans were not optimally
deployed, therefore returns on investments were not adequate to meet
maturing obligations and did not leave a favourable balance to support
domestic economic growth. So, African economies have not performed well
because the necessary macro-economic adjustment has remained elusive for
most of the countries in the continent. The main interest of this study
then is to empirically investigate the effect of external debt on the
economic growth of Nigeria.
1.2 OBJECTIVES OF THE STUDY
The study will focus on the following objectives:
(i) Empirically investigate the effect of external debt on the growth process of the country;
(ii) To determine the impact of external debt service payment on economic growth of Nigeria.
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ABSRACT - [ Total Page(s): 1 ]This work evolved out of the need to provide an in-depth understanding of the economics of debt in Nigeria. This study aims at analysing the effectiveness of external debt on economic growth within a span of 1981-2010. The broad objective of this work is specified to evaluate the impact of external debt stock and debt servicing on economic growth. In all, the models were to show the growth relationship between the independent variables-inflation rate, exchange rate, interest rate, government exp ... Continue reading---
