Economic Transformation Through Sustainable Domestic Debt: Nigeria’s Experience

Abstract

The Keynesian thinking of economics suggests that economy is improved by upward movement on the aggregate demand. The desire of Nigeria, like every economy, to attain one of the major macroeconomic goals of economic growth then puts pressure on her resources which resulted to borrowing. Is this a vice or virtue for economic transformation? This study empirically looks at the sustainability state of Nigeria’s domestic debt with the intention of unveiling its economic realities towards achievable transformation. Using OLS regression techniques and time series data, the study analysed the domestic debt sustainability of Nigeria. Our results show that domestic debt of the country is sustainable given that government revenue grows at about 3.15% every year over the government expenditure, including interest rate. However, the ratio of primary deficit to GDP (p) and the product of the ratio of the differential of real interest rate and real growth rate upon the   real growth, and the one-period lag of the domestic debt stock (Z) weakens the domestic debt sustainability by 0.94% and 0.18% respectively, every year. In the light of the findings, the study recommends among other things that proactive measures by the Government should be put in place to encourage the growth of GDP.

Keywords: Domestic Debt, Budget Deficit, Debt Profile, Sustainability, Debt-GDP Ratio, Economic Transformation.