Public Debt Management and Economic Growth in Nigeria

FESTUS FOLAJIMI ADEGBIE1, EMMANUEL DARE OTITOLAIYE1,

THEOPHILUS ANAEKENWA AGUGUOM2, ADEMOLA AJAYI1

1Department of Accounting, Babcock University, Ilishan-Remo, Ogun State, NIGERIA

2Department of Accounting and Finance, Augustine University, Ilara-Epe, Lagos State, NIGERIA

Abstract: - Globally, when various channels of revenue available to the government fail to yield adequate resources

to handle government expenditure or financial responsibilities, the government resorts to borrowing as an

alternative source to complement revenue from taxes and other sources. However, the inability to optimally utilize

borrowed funds had resulted in a high public debt profile and had retarded the economic growth of the Nigerian

economy over the years. Consequently, this study investigated the effect of public debt management on economic

growth in Nigeria. An ex-post facto research design was employed, while time-series data on the relevance of

macroeconomic variables to public debt management and economic growth were sourced from secondary sources.

The sample population purposively was chosen from data available from the 2020 edition of the Central Bank of

Nigeria’s (CBN) Statistical Bulletin, which covers 40 years (1981-2020). Results revealed that public debt

management RGDP) had a positive significant effect on economic growth in Nigeria (AdjR2 = 0.995; F (5, 31) =

99.562; p-value = 0.000). The conclusion validated that effective public debt management tends to have a positive

significant effect on economic growth in Nigeria. It is therefore recommended that adequate measures be put in

place to ensure optimal investment of borrowed funds in productive ventures in Nigeria Also, the loans should be

serviced when they are due to avoid sanctions and accumulation default charges.

Key-words: Economic growth, domestic debts, external debts, exchange rate, real GDP, public debt management.

Received: July 20, 2021. Revised: February 24, 2022. Accepted: March 29, 2022. Published: April 29, 2022.

1 Introduction

Government resorts to borrowing when it becomes

obvious that the revenue generated from various

sources of income was not sufficient to carry on its

activities. In some periods when the government’s

various channels of revenue turn out to be inadequate

to cater for all its streams of expenditure, the

government resorts to borrowing as a critical

alternative to supplement other revenue from taxes

and other sources in order to handle public

spending[1]. This process over the years has left

some countries predominantly among the developing

countries with massive and substantial outstanding

debts, hence policies must be put in place in these

concerned countries to manage these debts that have

accrued over the years [2]. According to Elom-Obed,

et. al.,[3], it is economically reasonable for countries

to borrow funds for investment purposes in order to

finance public infrastructural development which are

key drivers of the economic development of the

country. Also, some unexpected natural disasters

necessitate borrowing especially when local and

international aids are inadequate depending on the

extent of such catastrophes [4]. In most cases,

taxation creates an undue distortionary adverse effect

on economic growth as posited by the Ricardian

invariance theorem making borrowing indispensable

in an economy’s growth [5], [6], [33].

On the contrary, while borrowing for investment and

infrastructural development is commendable,

excessive borrowing without strong strategic policies

and planning for investments or capital formation is

unreasonable on the part of the government. This can

lead, to a heavy debt burden on the country [7], [8].

Public borrowing can impact the economy depending

on the purpose of borrowing, the mechanism put in

place to manage public debt and the estimated debt-

to-GDP ratio of a country [9]. Studies have asserted

that the debt-to-GDP ratio in developing countries

should be below 88.2%; and that if this is not the

case, the ripple effects of loans could adversely harm

the overall economic growth and development of such

developing economies [10]. The World Bank, for

instance, reported the ratios of 29.1%, 91.9%, 57%,

71.8% and 30.7% for Nigeria, Zambia, Seychelles,

Tunisia, and Indonesia respectively [42]. In addition,

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high public debts are critically undesirable,

unnecessary and injurious to the economic growth of

a country. They create uncertainties and undue

pressures and lead to stagnation of the economy.

Loans also have negative effects on the stock market

and reduce productive investment opportunities as

well as employment [11].

The historical antecedent of Nigeria’s debt is

disturbing and unreasonable. It is an all-time

chronicle of decades of mismanagement of public

funds, corporate incompetence in optimal utilisation

of revenue and productive infrastructural investment

of decades of huge oil revenue in Nigeria [12], [13].

Sadly, despite the rich oil deposits and natural

resources, Nigeria is still regarded as being among the

poor nations of the world and rated 149 out of 180

most corrupt nations of the world, scoring only

25/100 in the recent 2020 International Perception

Index [14]. In addition, Transparency International

reports that 44% of public service users in Nigeria

paid a bribe in the years preceding 2020. Ranking and

high profile corrupt officers among the public

servants do not decline [14].

In recent times, the Nigerian government has made

strategic efforts to revive and sustain economic

growth by embarking on strategies that can improve

economic growth. These include systematic policies

that deliver general prices, reduction of commodities,

alternative non-oil revenues to supplement oil

revenue that has been volatile, an improvement in

security, trade politics, and other policies capable of

setting the economy on the path of stability and

recovery.

The government has recently invested in

infrastructure to encourage private sector capacity

and diversification of the economy to enhance

growth, prosperity, and a globally competitive

economy. The public debt management has achieved

a remarkable milestone in articulating a holistic and

accurate verification of creditors’ claims, various

agencies’ debt portfolio profile of Nigerian debts and

monitoring of service arrangements, defaults, and

penalties in promoting economic incentives for

economic growth in Nigeria [1]. Public debt

management enhances transparent incentives for

consistent and well-streamlined borrowing policies

and public debt management strategies that will serve

to put a strategic constraint on state governors’

unbridled appetite for foreign loan facilities [15].

Nigeria witnesses inconsistent and unstable economic

growth considering the myriad of infrastructural

deficits and strategic mismatched investments in the

economic growth of the key drivers over the years

[16]. Despite the high profile of oil boom windfall

revenues, there have never been concerted efforts to

increase expenditure in productive infrastructures;

hence capital formation has not shown any signal of

increase but a continuous decline [17]. Evidently,

there has been no substantial indication of progress

for years. The country has continued to experience

low productive investment and inadequate

infrastructures. Nothing seems to have moved the

Nigerian economic situation beyond the stagnated

state which characterizes low foreign savings,

unprecedented corrupt practices, punitive and

unwholesome unpatriotic actions, insurgency,

terrorism and insecurity challenges, high cost of

business operations, high-interest rates, inflation and

high cost of raw materials, weak Naira to Dollar

exchange rates and balance of payment deficits and

unstable government policies and regulations [18].

The challenges of economic growth in Nigeria are

appalling: there is unprecedented decay in all sectors

of the economy. The country is filled with

dilapidated infrastructures, from power grids that are

on continuous collapse, to bad roads that have been

abandoned to the mercy of bandits and kidnappers.

There is a general deficiency of good governance [1].

Huge acclaimed infrastructural spending and

investments have not stimulated the economy; the

private investments in Nigeria suffer higher interest

rates, high costs, a multiplicity of taxes, and sluggish

economic growth while the Naira loses its value

unabated as the depletion of foreign reserves keeps

rising [12]

Incidentally, all of these worsen social and economic

issues and reduce the state of the Nigerian economic

growth to the level of an alarming deterioration as

reflected in dipping crude oil production quota,

unstable crude oil prices, and disruption in oil

production. Consistent with this position, Rafindadi

and Musa [19] argued that economic growth in

Nigeria has taken a downslope due to poor and

inadequate infrastructures, inflation, and the weak

state of the Naira as some individuals are obsessed

with a high appetite for foreign and imported items.

Studies have advanced that economic growth is a

gradual process of strategic and pragmatic efforts of

the government in putting things in their deserving

perspectives.

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Studies have found empirical evidence linking

effective public debt management to adequate

investment in productive infrastructure that can

enhance economic growth [17]. Sluggish economic

growth despite huge infrastructural investments and

debt reduction through debt management has also

been reported [3], [19].

While inconsistencies in results exist, fewer studies

reveal positive effects of public debt on economic

growth and consider the solution of economic growth

from the perspective of the measures of economic

growth and the inability to put to productive use a

series of government loans in supplementing

generated revenue from crude oil sales, taxation, and

other non-tax revenue accruable to the government

[20], [21. Donavre and Taivan [22] found that public

debt management had a negative and insignificant

effect on economic growth, this argument is

consistent with the result reported in the studies [10],

[20]. However, Eke and Akujuobi [1] asserted the

fact that the majority of loans in Nigeria end up being

diverted or misappropriated, hence public debt

management seems to be a reactive exercise when

the loans were never invested in infrastructural

development projects.

Consequent to the observed indecisiveness and

inconsistencies, divergent opinions and mixed

results, an attempt was made, in this study, to fill

some gaps in the literature, hence the following

research objective, question, and hypothesis were

proposed:

Research Objectives: To investigate the effect of

public debt management on Real Domestic Products

in Nigeria

Research Question: To what extent does public debt

management affect Real Domestic Products in

Nigeria?

Hypotheses: (Ho1): There is no significant effect of

public debt management on Real Gross Domestic

Product in Nigeria.

The rest of the study was structured in this manner:

In section 2, the study considered literature and

theoretical framework, methodology in section 3,

while data analysis, results and discussions in section

4. The study concluded in section 5 with the

conclusion, recommendations and suggestions for

further studies.

2 Literature Review and Theoretical

Framework

2.1 Conceptual Review

Economic Growth: Economic growth in this study is

considered from the perspective of a sustained

increase in the Nigerian economy’s real national

income for a prolonged period, and this includes real

national income in the value of national output and/or

national expenditure. This position has been

criticised in some studies, with the argument that

there is a possibility for national income to increase

while the standards of living of the citizens remain

unaffected [22], [23]. However, another school of

thought places emphasis on economic growth from

the perspective of per-capita income [24]. The

position here is that economic growth should reflect

an annual increase in a country’s real per-capita

income over a period. It should depict national output

per head of population and reflect the investment of

public debts in infrastructures that should affect the

standards of living of the populace [8].

Public Debt: The process of irrational borrowing by

the government creates public debt while borrowing

for the purpose of infrastructural development and to

purchase certain capital projects capable of enhancing

positive economic proceeds are reproductive public

debt.

However, on the contrary, loans that are borrowed to

provide relief during disasters and wars; and to fund

current expenditure, are termed dead-weight public

debts [15], [25], [26].

Public Debt Management: The Nigerian debt

management office (DMO) reported that the Nigerian

public debt stock of the Federal government and that

of the States and Federal Capital Territory as of the

end of March 2021 is valued at thirty-three trillion

Naira (N33.107) or $87.239 billion [1]. In addition,

the DMO revealed that the debt stock includes

Promissory Notes totaling N940.220 billion issued to

settle inherited areas of the Federal Government to

states, oil companies engaged in marketing oil

marketing, exporters, and local contractors. This was

compared to the public debt stock of N32.916 trillion

of the country as of December 2020, indicating an

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increase of 0.58 per cent. In a further analysis of the

Nigerian debt profile, the Federal Government’s share

of the domestic debt includes FGN bonds, Sukuk and

Green bonds utilised in financing infrastructural and

capital projects in addition to the promissory notes,

while the external debt stock stands at $32.86 billion

[1]. The Nigerian domestic source of borrowing is

bank borrowing, issued treasury bills, bonds, and

securitised papers among others.

2.2 Theoretical Review

Endogenous Growth Theory: The Endogenous

Growth Theory was propounded by one of the Neo-

classical scholars of Solo-Swan growth and a Nobel

Prize-winning economist, Robert Solow in the years

1957 [27]. The theory suggests that economic growth

is not appropriately related to externally generated

revenue butt o internally generated variables in fixed

capital formations, investments in infrastructures and

internally generated economic drivers in a particular

economy, through endogenous variables and not

exogenous factors [28]. The endogenous growth

theory is in contradiction with the classical growth

model which postulates exogenous growth, asserting

that growth factors such as technological innovations

are the main source of economic growth. By

economic implications, endogenous growth theory

posited that government policies have significant

roles to play in economic growth if the government

policies are directed toward infrastructural

development that is capable of stimulating growth

towards market competitive advantages and

innovation in the production of domestic products

and services [29], [30].

One of the key implications of endogenous growth

theory includes increasing returns to scale from

capital investments in the enhancement of industrial

sectors, education, healthcare, telecommunications,

and other infrastructures that can improve indigenous

growth. Issues of investments in internally generated

research and development are also considered major

sources of technological progress for any given

economy. Some of the assumptions of the theory are

that an investment in the capital project without a

corresponding investment in human capital will lead

to disequilibrium and may not leave endearing and

enduring growth in the economy of a nation but

could only reflect on the economic growth on a

temporary basis, leading to a short-lived expected

growth. In addition, the endogenous theory

hypotheses that a sustainable and enduring

investment and increase in capital investment can

improve a nation’s economy [31].

2.3 Empirical Review

Public Debt Management and Economic Growth

Eke and Akujuobi [1] carried out an empirical study

of the effect of public debt on economic growth in

Nigeria for a period of 38 years, covering 1981 to

2018. The ex-post facto research design with a co-

integration approach was used in analysing the data.

The study revealed that a positive significance exists

in the short run between public debt and economic

growth. In addition, it was revealed that external

debts have a negatively significant effect on

economic growth. Furthermore, the study revealed

that eternal borrowings in Nigeria are not optimally

used for infrastructural development in Nigeria that

will stimulate economic growth. The study of Eke

and Akujuobi [1] was found to be consistent with the

study of Ochuko and Idowu [10] who emphasized

adequate monitoring and public debt management in

Nigeria.

Consistent with a recent study by Eke and Akujuobi

[1], Panagiotis [32] considered the nexus between

public debt management and drivers of economic

development from the perspective of private and

public investments, consumption and trade openness

and the recent population in Greece. Unit root tests

and auto-regressive distributed lag (ARDL) were

carried out for the study. While the unit root

exhibited mixed integration of order zero and order

one among the tested variables, the ARDL revealed a

long-run positive effect on trade openness. In

addition, it was revealed that government debt and

population growth had a negative effect on economic

growth in Greece.

Yusuf and Saidatulakmal [33] studied the impact of

public debt on Nigeria’s economic growth. Time

series data obtained from an annual report covering a

period of 39 years: 1980 to 2018, was used to analyse

data in the study. Autoregressive Distributed Leg

Technique (ADLT) was adopted for the study and

domestic debt and external debts in the long- and

short-term periods were employed as the measures of

public debts. The regression analysis carried out

revealed that external debts were the major problem

negating economic long-term growth in Nigeria. In

addition, the study results revealed that domestic debt

had a positive significant effect on long-term growth

whereas short term debts had a negative effect. In

addition, it was shown that debt servicing had a

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negative effect on economic growth, and can result in

economic retardation and debt overhang effect.

Saungweme and Odhiambho [34] examined the

causal effect association between public debts and

general debt service payments on the economic

growth of Zambia, covering a period of 39 years

from 1979 to 2017. The study models real gross

domestic product as a function of Zambian public

debts, fiscal balance, and debts savings as a

percentage of Gross Domestic Product. Findings

revealed that there is a unidirectional causal

association between public debts and general

servicing payments on Zambia’s economic growth.

Ochuko and Idowu [10] examined the impact of

public debt on economic growth in the Nigerian

economy for a period of 38 years, covering 1981 to

2018. The ex-post facto research design was adopted

in the study. Time-series data were obtained from the

Statistical Bulletin of the Central Bank of Nigeria

and the Office of Debt Management Office (DMO).

The study measures of public debt employed in the

study include domestic debts, cost of debt servicing

and foreign debts as measures of public debts. The

data were analysed using regression analysis and the

results revealed that domestic debts have a positive

significant effect on economic growth while foreign

debts have an inverse effect [1].

Thao [35] studied the effect of public debt on the

economic growth of six selected Asian countries

namely, Indonesia, Malaysia, the Philippines,

Singapore, Thailand and Vietnam for a period of 21

years, covering 1995 to 2015. A general method of

moment estimation technique was employed for the

measure and estimation of data. Results revealed that

public debts, foreign direct investments and gross

fixed capital formation and real executive exchange

rates had a positive effect on the economic growth of

these countries. Like in previous studies, Akhanolu,

et. al., [36]studied the impact of public debt on the

economic growth of Nigeria using time series

spanning the period of 36 years, covering 1982 to

2017. The study models gross domestic product in

relation to total public debts comprising the internal

and external debts. The study analysis revealed that

while external debts had a negative significant effect,

the internal debts on the part revealed a positive

significant effect.

Udeh [37] studied the possible influence of externally

borrowed funds on the economy of Nigeria.

Especially the fluctuating effect of the exchange rates

and inflation rates in Nigeria. Based on the analysis

conducted, the study reported a negative influence on

debt burden as found in a similar study by Akhanolu

et al., [36] Fadayomi and Oluranti [38] examined the

effect of household structure on labour force

participation in Nigeria.

Primary data collected from the market survey

conducted in the year 2005 from the defunct national

manpower board in Nigeria was analysed in the study

with the use of both descriptive statistics of the

characteristics of labour force participation in

Nigeria, and probability of and logit regression

models in estimating the labour force participation

rates. After the analysis, it was discovered that there

was a positive effect and relative importance of

household structure in affecting labour force

participation. Other traditional economic and social-

demographic variables conforming to the

expectations were established in the study. It was

recommended that the government should make

friendly policies that encourage labour force

participation, in other to contribute to the economic

development of Nigeria.

Kargi [39] conducted an examination of the likely

association between gross fixed capital formation in

an economy and economic growth in Turkey. Based

on the analysis carried out, the study found that

capital formation in Turkey remained quite low

implying a high unemployment rate in Turkey. It

advised that the government need to invest in job

creation opportunities in the country to enhance

economic development in the country. Shahid [40]

investigated the relationship between labour force

participation and economic growth and development

in Pakistan. The gross fixed capital formation as a

measuring proxy of economic growth and

development, using time series data for the period of

33 years from 1980 to 2012, was employed in the

study. Also, Johnsen co-integration test was

conducted for the data used. Results revealed that a

long-run relationship did exist between the variables

used in the study; and that labour force participation

has a positive significant effect on the economic

growth and development in Pakistan.

3 Methodology

The ex-post facto research design was employed in

this study. Time series data on the relevance of

macroeconomic variables to public debt management

and economic growth were sourced from secondary

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sources. The sample population was purposively

chosen for this study based on data available in the

Central Bank of Nigerian (CBN) Statistical Bulletin,

2020 edition was 40 years (1981-2020). The

variables for the study are Real Gross Domestic

Product (RGDP) as criteria variables to measure

economic growth while public debt as a surrogate of

public debt management employed External Debt

Stock (EDTS), Domestic Debts Stock (DDTS),

Defaults/Debts Service Payments (DDSP), Exchange

Rates (EXR) and Effective Interest Rate (EIR) as the

explanatory variables of the study. Descriptive and

inferential statistics were employed for the analyses

of the data collected for the study.

In differing from prior empirical studies, this current

study contributes to knowledge in this manner: first,

it is country-specific and the Nigerian

macroeconomic variables of time series are used;

whereas some prior studies had used panel-based

time [2], [4]. Secondly, some Nigerian related studies

had used singular-faced model estimate regression,

[10], [37]. However, only one model was considered

in this study, with an expanded explanatory variable

of domestic debts, external debts, defaults/debts

service payments, exchange rates and effective

interest rate.

3.1 Econometric Specification of the Model

The model estimated in this study is generally

represented as:

Ɣt = βo +β1Xt + μt (1)

Based on the indicator of economic growth used, one

model was specified in a stochastic form as indicated

by the error term.

Model

RGDPt = β0 + β1EDTSt + β2DDTSt + β3DDSPt

+ β4EXRt + β5EIRt + μt (2)

Where:

RGDP = Real Gross Domestic Product; EDTS =

External Debt Stock; DDTS = Domestic Debts Stock;

DDSP Defaults/Debts Service Payments; EXR =

Exchange Rates; EIR = Effective Interest Rate; β

=intercept; t = time series, µ= error terms.

An increase in debt (both domestic and foreign) had a

potentially negative effect on economic growth.

However, if the borrowed monies are used

judiciously in deficit financing, the economy can

experience growth, hence, the coefficients of the

parameters in the models for EDTS and DDTS (β1

and β2 >0). On the other hand, an increase in debt

servicing and defaults will exert negative effects on

the economy of Nigeria. In the same way, an increase

in the exchange rate would worsen the value of the

Nigerian Naira and interest as well will have negative

effects on economic growth. Therefore, the a priori

expectation of the last three independent variables in

the model is negative (β3, β4, and β5< 0).

4 Data Analyses, Results and

Discussions of Findings

4.1 Trend Analysis of the models’ variables

Figure 1 shows the interaction of external debt and

the internal debt profile of Nigeria. As shown in the

figure, in the era of pre-SAP to 1998 before the

military hand-over to democratically elected

governments, the trends of external and internal

borrowing were similar.

However, between the years 2000 and 2005, the

external debt profile was slightly above domestic

debt. The trend however changed from 2006 to date.

Hence, the stock of domestic debt profile of Nigeria

had soared higher than external debt.

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Fig. 1: Total stock of external (EDTS) & domestic (DDTS) debts (1981-2020) in Billions of Naira

Source: Author’s computation using the underlying data from Central Bank of Nigeria’s (CBN) Statistical Bulletin.

The trend in Figure 2 compares the share of debt

servicing and gross fixed capital formation in RGDP.

It is evidenced that from the left-hand side of the

plot, the level of debt servicing using the resources of

the economy gradually increased to 4.6% in 2020.

However, the share of fixed capital formation

declined in recent times.

Fig. 2: Trend of percentage shares of Debt servicing and Fixed Capital formation in Real GDP in Nigeria (1981-

2020)

Source: Author’s computation using the underlying data from the Central Bank of Nigeria’s (CBN) Statistical

Bulletin.

The exchange rate and interest rate (prime lending

rate) trend is displayed in Figures 3 and 4. Based on the results, it was observed that the exchange rate has

worsened (currency depreciation) from 1999 to date.

2000

4000

6000

8000

10000

12000

14000

16000

18000

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

EDTS DDTS

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More volatile spikes are recorded in Figure 4 for

interest rate. It is usually a market-determined with

discretionary control by the monetary policy

authorities. The trend in Fig. 2, tends to reveal the

negative effects of the prime lending rate in Nigeria

for the period 1981 to 2020. It revealed that the

Nigerian Naira (NGN) current value had suffered

greatly.

Fig. 3: Trend of Naira-US Dollar Exchange rate(1981-2020)

Fig. 4: Trend of % Prime Lending Interest rate in Nigeria (1981-2020)

4.2 Descriptive Statistics of the Variables

Based on the level of average values of the variables,

the summary statistics in Table 1 showed that the

Real GDP displayed higher values and this was

followed by domestic debt. The level of deviation in

RGDP is also the highest while the least is external

debt apart from the effective interest rate. From the P-

values of Jarque-Bera, all the variables are

characterized by a normal distribution except

default/debt servicing.

Table 1. Summary Statistics of the variables

RGDP

EDTS

DDTS

DDSP

EXR

EIR

GFCF

Mean

37726.48

2.81502

3285.393

1.976586

103.4418

7.72E+10

8509.113

Median

26935.32

2.812120

1016.974

2.191496

111.9433

27949879

8167.453

Maximum

72094.09

4.103996

16023.89

3.513946

358.8108

2.76E+12

15789.67

Minimum

16211.49

0.367580

11.19260

0.003063

0.610025

2139.659

5668.868

Std. Dev.

20039.75

0.847342

4601.101

1.011802

100.7407

4.42E+11

1905.268

Jarque-Bera

4.843204

7.150917

14.88361

2.485265

4.790372

2078.960

33.67159

100

150

200

250

300

350

400

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

0,00

5,00

10,00

15,00

20,00

25,00

30,00

35,00

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

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Emmanuel Dare Otitolaiye,

Theophilus Anaekenwa Aguguom, Ademola Ajayi

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Probability

0.088779

0.028003

0.000586

0.288623

0.091156

0.000000

Sum

1471333.

109.7851

128130.3

77.08684

4034.231

3.01E+12

331855.4

Observations

Source: Author’s computation 2022 using the underlying data from Central Bank of Nigeria’s (CBN) Statistical

Bulletin.

4.3 Correlation Matrix Table 2. Correlation matrix of the variables

RGDP

GFCF

EDTS

DDTS

DDSP

EXR

EIR

RGDP

GFCF

0.50

EDTS

0.59

0.35

DDTS

0.92

0.51

0.77

DDSP

0.82

0.48

0.88

0.97

EXR

0.92

0.48

0.82

0.93

0.91

EIR

-0.14

-0.12

-0.09

-0.12

-0.11

-0.15

Source: Author’s computation 2022 using the underlying data from Central Bank of Nigeria’s (CBN) Statistical

Bulletin.

The values of the correlation coefficient from the

result in Table 2 indicate that domestic debt was

correlated at 92% with RGDP, followed by debt

servicing at 82%. Both domestic and external debts

exhibit a high correlation with debt servicing at 97%

and 88%. Effective interest rate (which is the real cost

of borrowed loan) shows a negative correlation with

all the variables. This revealed -0.14, -0.12, -0.09, -

0.12, -0.11 and -0.15 respectively. This further could

imply the negative effect of effective interest rates on

Nigeria’s borrowing in successive and preceding

years. The result further revealed that the burden has

been passed over the macroeconomic activities in the

economy as revealed

4.4 Unit root Test

As a precondition for ascertaining the type of

estimation technique(s) suitable for the study, the

results of the unit root using Augmented Dickey-

Fuller and Phillips-Perron are shown in Table 3. The

unit root test, which is also known as the stationarity

test is a necessary prerequisite in determining the

nature and characteristics of the time-series

properties of the data. If the data generating process

of each variable is stable, the unit root test using the

Augmented Dickey-Fuller (ADF) and Phillips-Peron

(PP) will show level stationery expressed as the

integration of order zero, I (0)and if otherwise, the

variable may require being differentiated at least

once to achieve stationarity denoted as the integration

of order one, I (1). From the results, Both ADF and

PP exhibit similar results. While only Gross fixed

capital formation (GFCF) and effective interest rate

(EIR) were stationary at levels, I (0), all other

variables achieved stationarity at order one, I (1).

Since the selected variables exhibited mixed order of

unit results for the bound test method to cointegration

Pesaran et al., [41] known as the autoregressive

distributed lagged (ARDL) model was used.

Table 3. Unit Root test results

Variables

Augmented Dickey Fuller (ADF)

Philips-Perron (PP)

T-statistics

P-value

Remark

T-statistics

P-value

Remark

RGDP

-2.772186

0.0718***

I (1)

-2.035210

0.0415**

I (1)

GFCF

-7.476238

0.0000*

I (0)

-7.747362

0.0000*

I (0)

EDTS

-4.688461

0.0000*

I (1)

-4.688461

0.0030*

I (1)

DDTS

-4.026357

0.0163**

I (1)

-3.884849

0.0225**

I (1)

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Emmanuel Dare Otitolaiye,

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DDSP

-8.045074

0.0000*

I (1)

-8.209656

0.0000*

I (1)

EXR

-4.719425

0.0027*

I (1)

-4.523536

0.0046*

I (1)

EIR

-6.316240

0.0000*

I (0)

-6.316587

0.0000*

I (0)

Note: *, **, and *** represent 1%, 5%, and 10% level of statistical significance.

Source: Author’s computation 2022 using the underlying time series data from Central Bank of Nigeria’s (CBN)

Statistical Bulletin.

4.5 ARDL Bound Test for Model One

RGDPt = β0 + β1EDTSt + β2DDTSt + β3DDSPt + β4EXRt + β5EIRt + μt ________________1

To achieve this objective and to test for the

hypothesis, the result for the bound test for model one

is presented in Table 4. From the result, the value of

the F-test (8.348) in Table 4 for the bound testing of

co-integration among the variables shows that there is

a long-run relationship among the variables. This is

because the value is greater than the critical values for

the lower and upper bounds of the order of integration

of the variables.

Table 4. ARDL Bound test for model one

ARDL Bounds Test

Null Hypothesis: No long-run relationships exist

Test Statistic

Value

F-statistic

8.347893

Critical Value Bounds

Significance

I0 Bound

I1 Bound

10%

2.72

3.77

3.23

4.35

2.5%

3.69

4.89

4.29

5.61

Source: Author’s computation 2022 using the underlying time series data from Central Bank of Nigeria’s (CBN)

Statistical Bulletin,

4.6 ARDL Regression Results for Model One

Having found that there is co-integration among the

variables, the impact of public debt management can

be tested through the regression results in Table 5.

The results show that an increase in the lag value of

RDGP will increase economic growth in the current

period by 1.32%. By implication, the level of real

gross domestic product (RGDP) in the immediate

preceding year significantly influences the current

level of RGDP by 1.32%. It is also observed glaringly

from the results in Table 5 that the value of RGDP in

the immediate past 2 years significantly showed a

negative effect of about 0.51% on the current level of

RGDP. This seems to show an issue of growth-decay

if past strides achieved in economic growth are not

consolidated with appropriate fiscal policies like debt

management.

Furthermore, it is also important to note that debt

management is relevance for economic growth. In

comparing the differential impacts of external and

domestic debt on the level of economic growth, the

result in Table 5 further shows that external debt

acquired over time shows an insignificant effect on

economic growth but an increase in domestic debt

would likely stimulate economic growth positively by

0.04%. This implies that it is much more beneficial

for an economy to borrow from domestic sources for

deficit financing. In terms of interest rate effect on the

economy, an increase in real interest rates impacted

economic growth positively. This is however contrary

to a priori expectations. The exchange shows a sign

of negative effect on economic growth as expected

theoretically even though the coefficient is not

significant. The model goodness of fit through its F-

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test value (995.56; P-value of 0.000) as well as the

high value of the coefficient of the determination of

the model (R2 0.996 and Adj.R2 = 0.995), showed that

public debt management had a significant effect on

economic growth in Nigeria for the sampled years.

Table 5. ARDL Result for model one

Dependent Variable: Log_RGDP

Variable

Coefficient

Std. Error

t-Statistic

Prob.

LOG_RGDP(-1)

1.328335

0.167629

7.924239

0.0000*

LOG_RGDP(-2)

-0.507585

0.168382

-3.014480

0.0053*

LOG_EDTS

-0.028701

0.018222

-1.575031

0.1261

LOG_DDTS

0.041311

0.020038

2.061669

0.0483**

LOG_DDSP

0.002358

0.021180

0.111337

0.9121

EXR

-0.000104

0.000212

-0.489027

0.6285

EXR(-1)

0.000319

0.000194

1.649187

0.1099

LOG_EIR

0.005575

0.002183

2.553844

0.0162**

0.711106

0.368992

1.927156

0.0638

R2 = 0.996

Adj.R2 = 0.995

F-test = 995.5627 (0.000) *

Note: *, **, and *** represent 1%, 5%, and 10% level of statistical significance.

Source: Author’s computation 2022 using the underlying time series data from Central Bank of Nigeria’s (CBN)

Statistical Bulletin.

4.6.1 Residual Diagnostic Checks for Model One

Statistical tools for residual diagnostic tests applied

here are the Breusch-Godfrey Serial Correlation Test

and Heteroscedasticity Test as well as the Model

Stability Test with Parameter Normality test. From

Table 6, the results showed that the estimated model

is robust as there are no issues of autocorrelation and

the assumption of the residual error of constant

variance with normal distributions is not violated.

Table 6. Some Diagnostic tests for model one

Breusch-Godfrey Serial Correlation LM Test:

F-statistic

0.901626

Prob. F (2,27)

0.4178

Obs*R-squared

2.379023

Prob. Chi-Square (2)

0.3044

Heteroskedasticity Test: Breusch-Pagan-Godfrey

F-statistic

2.510552

Prob. F (8,29)

0.0331

Obs*R-squared

15.54888

Prob. Chi-Square (8)

0.0493

Scaled explained SS

7.500080

Prob. Chi-Square (8)

0.4838

Source: Author’s computation 2022 using the underlying time series data from Central Bank of Nigerian (CBN)

Statistical Bulletin

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-0.03 -0.02 -0.01 0.00 0.01 0.02 0.03

Series: Residuals

Sample 1983 2020

Observations 38

Mean -2.62e-16

Median -5.45e-05

Maximum 0.028702

Minimum -0.031592

Std. Dev. 0.013990

Skewness 0.049068

Kurtosis 2.656410

Jarque-Bera 0.202167

Probability 0.903858

Fig. 5: Jarque-Bera normality Plot for model one

Source: Author’s computation 2022 using the underlying time series data from Central Bank of Nigeria’s (CBN)

Statistical Bulletin.

The plot in Figure 6 also validates the fact that the

estimations were robust as the parameters are stable

with the indication that the residual estimates fall

within the 5% upper and lower bound of the CUSUM

and CUSUM Square plot.

-16

-12

-8

-4

92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

CUSUM 5% Significance

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

CUSUM of Squares 5% Significance

Fig. 6: CUSUM and CUSUM Square Plots for model one

Source: Author’s computation 2022 using the underlying time series from Central Bank of Nigeria’s (CBN)

Statistical Bulletin.

4.6.2 Decision on Hypothesis

The null hypothesis of there being no significant

effect on public debt management on economic

growth in Nigeria was rejected because of the value

of R2 (99.6%) and its adjusted rate (99.5%), as well

as the overall significant value of the F-test (995.56),

support the fact that alternative hypothesis should be

accepted. Therefore, it was concluded that public

debt and the extent of its management have effects on

economic growth measured by Real GDP. The

findings of other authors such as Fadayomi and

Oluranti, [38]; Shahid [40]; Thao [35]; Udeh [37] are

all consistent with the results of this study. However,

our study was found to be inconsistent with some

prior studies that found negative effects results of

[10], [1], [33]. Based on the results of the study: the

trend analyses result in Fig. 1 to Fig 6, and the

regression analysis results in Table 1 to Table6

reported, they had further validated the underlying

economic realities in Nigeria, Poor living standards

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of the citizens, economic backwardness and

infrastructural deficits and terrible security

challenges. The successive government borrowings

had failed to make a much-expected impact on the

economic growth, due to bad economic policies,

failure to optimize external and domestic borrowings

over the years, and poor management and

implementation of effective macroeconomics

indexes, making Nigeria one among the poor

developing economies of the world, with

unprecedented debt profit.

5 Conclusion and Recommendations

In all respects, it is reasonable and economically

normal for countries to borrow loans in order to

finance productive investments and to finance public

infrastructural development which are key drivers of

the economic development of the country that are

necessary for enhancing productivity. Consequent to

this, the possible effect of public debt management

on economic growth in Nigeria was investigated in

this study. Results revealed that using (RGDP),

public debt management had a positive significant

effect on economic growth in Nigeria. Consequent to

the results, it is recommended that adequate measures

be put in place to invest the borrowed funds into

productive ventures and service the loans when due

to avoid default sanctions and default charges. Our

results had shown a lack of optimal public debts

management and poorly utilized borrowed funds. In

some extreme cases, borrowed funds were either

mismanaged or looted by a few unscrupulous

government officials instead of investing them in

economic yielding infrastructures, enhancement of

quality education, power generations and other areas

in the economy that could have stimulated economic

activities. Consequently, the study advised that

adequate infrastructural development investments

should be considered a priority to stimulate economic

activities that will in turn enhance economic growth

in Nigeria.

6 Suggestions for Future Research

It was observed that there is a dearth of research in

the area of public debt management and economic

growth. Also, the various diverse options considered

in this study had only been considered in a few

research works. The various untapped resources from

where the government can derive various revenue

were revealed. These resources can be accessible to

the government if it ensures that effective debt

management includes pragmatically harnessing all

the potential sources as highlighted in this study.

Thus, this study could serve as a rare resource base

for future studies in the accounting and finance fields

in relation to public debt management and economic

growth in Nigeria. Also, researchers, analysts, and

financial consultants will find this study a veritable

reference point and another pool from which future

research endeavours can be drawn.

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E-ISSN: 2224-2899

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Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

Festus Folajimi Adegbie carried out theoretical

analysis and development of the model.

Emmanuel Dare Otitolaiye carried out the

methodology and model specification.

Theophilus Anaekenwa Aguguom and Ademola

Ajayi carried out the data analysis and

interpretations.

Source of Funding for Research Presented in a

Scientific Article or Scientific Article Itself

Reported potential sources of funding if there is any.

No source of funding were used for this article.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.en_

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