External Debt, Servicing and Debt Relief Transmissions In Nigeria

Abstract

The study examined the trend of external debt, debt servicing and debt relief transmissions in the Nigerian economy. The huge for external debt to argument domestic saving to boost investment in developing countries is obvious but more crucial to these variables is tracing out their effects on economic development. Indebted countries as observed even in some case find it difficult to service such debt leading to international concerns to writing off such debts to ameliorate the plight of the citizens. The study used structural VAR to trace out the structural effect of these variables in the Nigerian economy. Also examined was the 2005 external debt relief to Nigeria by the London Paris club through descriptive techniques to illustrate how the relief was channeled down to other macroeconomic variables in the economy.

The descriptive analysis showed that soon after the debt relief, government expenditure on health and education improved. Also the position of the nation foreign exchange appreciated which cumulated to higher economic growth rate in Nigeria. Queuing from the descriptive analysis, the structural VAR result showed a decomposed shock to exchange rate were absorbed by external debt and external debt service after itself. This shows that external debt and debt servicing affects the country’s exchange rate. Decomposed shock from health and education outputs were strongly influenced by external debt servicing. Economic output in Nigeria, apart from itself were largely influenced by EXR (24 percent) followed by HLTH and EXD respectively.

The study concludes that external debt is a crucial variable to developing countries and the trickle-down effect of its components are felt in the Nigerian economy. The study therefore recommends good policies to effectively transmit the gains from external borrowing to boost critical infrastructural deficit in the country.

Keywords: external debt, debt servicing, education, health, exchange rate, debt relief and economic growth.