External Debt Shocks, Debt Service Payment, Debt Weight and the Growth of the Nigerian Economy

Abstract

This study analyzes the nexus between external debts and the growth of the Nigerian economy from 1993 to 2023, focusing on key macroeconomic indicators. The objectives include: (i) examining the relationship between external debts and economic growth, (ii) assessing the impact of debt servicing on growth, (iii) analyzing the effect of exchange rate fluctuations, and (iv) evaluating the influence of inflation on economic performance. The study adopts an ex-post facto research design, leveraging secondary data from the Central Bank of Nigeria (CBN) Statistical Bulletin and World Development Indicators (1999–2024). The data, being time-series and publicly available, ensures reliability and eliminates human bias. Using the Autoregressive Distributed Lag (ARDL) estimation method and the Breusch-Pagan-Godfrey (BPG) test for heteroscedasticity, the findings reveal that external debt stock (Coefficient = -0.08, p-value = 0.03) and debt servicing (Coefficient = -0.20, p-value = 0.00) negatively and significantly impact economic growth. Additionally, economic growth exhibits significant responsiveness to debt burden (Coefficient = -0.05, p-value = 0.01). The study concludes that excessive external borrowing and high debt servicing costs constrain Nigeria’s economic expansion, while exchange rate volatility and inflation further exacerbate these challenges.