External Debt, Internal Debt, Debt Servicing and Economic Services Provision in Nigeria: An Empirical Exploration (1981-2016)

Abstract

This study empirically examined the relationships among external debt, internal debt, debt service payment and economic services provision in Nigeria over the period 1981 and 2016. Data used for the study are sourced from the Central Bank of Nigeria Statistical Bulletin of various issues, Debt Management Office and Federal Ministry of Finance. The study employed Augumented Dickey Fuller unit root test, Phillip-Perron unit root test, Johansen Cointegration test and Ordinary Least Square estimating technique. Empirical findings from the study revealed that External Debt and Debt Servicing are inversely related with Economic Services Spending by the government. A one unit increase in External Debt and Debt Servicing would bring about 41.72 units and 40.92 units reduction in Economic Services Provision respectively. The results also show that there exists a statistically significant positive relationship between Internal Debt and Economic Services Provision in Nigeria. A one percent increase in Internal Debt would lead to 27.29 percent rise in Economic Services delivery in Nigeria. Based on the results, government at various levels should seek for domestic loans because they are more beneficial to the economy than external loans; private sector should be allowed to complement government effort  in the financing of capital expenditure components as a way of enhancing the quality and size of economic services provision; and tax system should undergo holistic reform by government at various levels to prevent tax evasion and tax avoidance by unpatriotic citizens and corporate organizations and generate more revenue for financing economic services delivery. In addition, government should vigorously pursue diversification of the economy away from the oil sector and invest in other sectors to boost revenue generation that can be channeled to the provision of economic services; and there should be judicious utilization of existing resources by different tiers of government through a programmed based budgeting. This would greatly assist in ensuring that available resources are channeled to the execution of economic services projects already listed in the budget.

Keywords: External Debt, Internal Debt, Debt Servicing, Exchange Rate, Ordinary Least Square, Unit Root, Cointegration, Nigeria