Fiscal Policy, Debt Management and Economic Growth in Nigeria

Abstract

This study examines fiscal policy, debt management, and economic growth in Nigeria using annual data from 1990 to 2023 within an Autoregressive Distributed Lag (ARDL) framework. The results show that in the short run, government revenue to GDP has a negative and marginal effect on economic growth (β = –0.335, p≈0.055), while debt service payments significantly reduce economic growth (β = –3.70, p = 0.0120). External debt to GDP also exerts a delayed negative effect on growth (β = –0.932, p = 0.0068), whereas regulatory quality positively influences growth in the short run (β = 0.268, p = 0.0229). Foreign direct investment shows limited short run impact, while the error correction term is negative and highly significant (β = –0.889973, p = 0.0010), indicating a strong adjustment speed of about 89 percent toward long run equilibrium. In the long run, external debt to GDP positively affects economic growth (β = 1.68, p = 0.0001), alongside regulatory quality which also shows a significant positive effect (β = 1.31, p = 0.0006), suggesting that well managed borrowing and strong institutions support growth performance. However, government revenue to GDP (β = –1.49, p = 0.0134) and debt service payments (β = –1.01, p = 0.0013) exert significant negative effects on economic growth, indicating fiscal inefficiencies and crowding out of productive expenditure. The model explains about 70 percent of variations in economic growth, with a statistically significant overall fit (F-statistic probability = 0.0014). The study concludes that fiscal policy and debt management significantly influence economic growth in Nigeria, depending largely on institutional quality and debt sustainability, and recommends improved debt utilization, stronger fiscal discipline, and enhanced governance frameworks to promote sustainable economic growth.