Domestic Debts and Economic growth in Nigeria (1980-2011)

Abstract

The impact of different types of domestic debt on economic growth of Nigeria was studied using multiple regression technique. Outcome of the study indicates that in the short run, FGN Bond proved to have a positive significant relationship with economic growth, while Development stock maintained a significant negative relationship. In the long run; Treasury Bills and the lagged value of GDP (in the second year), taken as independent variables were found to be positively significant. Result of the Granger causality test revealed that, while there is a unidirectional relationship between economic growth and FGN Bonds on one hand, there exists a bidirectional relationship between Treasury bills and economic growth on the other hand.  The study, therefore recommends that, it is not a bad idea after all borrowing from within, since debt could be deployed to good purposes. However, the rule of thumb is that the returns (for a business) and societal welfare (in the case of a government) derivable from deploying the funds generated from the loans MUST surpass the interest being paid on such loan. As a way out of the woods, government must undertake an aggressive cut-down of her bogus / burgeoning recurrent expenditure which is over 70% of the total expenditure profile. This will help free up the much-needed savings for infrastructural development. The study further recommends that the Nigerian government should stop accumulating unproductive debts that have no positive multiplier effect. If at all she must borrow from within, then such loans must be tied to some specific, viable and growth enhancing projects that could pay its way through.

Keywords: Domestic debt, Economic growth, Treasury bills, Treasury certificates, Treasury Bonds,   Development stock, FGN Bonds, Promissory notes