PUBLIC DEBT MANAGEMENT IN NIGERIA: A STUDY OF THE IMPACT OF DOMESTIC DEBT ON THE ECONOMY (1999 - 2019)

PUBLIC DEBT MANAGEMENT IN NIGERIA: A STUDY OF THE IMPACT OF DOMESTIC DEBT ON THE ECONOMY (1999 – 2019)

ABSTRACT

The study examined public debt management in Nigeria: a study of the impact of domestic debt on the economy (1999 – 2019). The specific objectives of the study include: to determine the quantum of federal government domestic debt from 1999 to 2019; to analyze the relationship between domestic debt and the GDP in Nigeria and  evaluate the impact of domestic debt to economic growth to economic growth in Nigeria. The researcher made use of quantitative and historical designs and the data were analyzed using regression analysis. The findings of the study revealed that the quantum of Nigeria domestic debt have increased over the years as the value of domestic debt outstanding have increased from N794.81 Billion in 1999 to 14,272.46 billion in 2019.  The study also revealed that there is a significant relationship between domestic debt and the gross domestic product of Nigeria and finally it is seen from the study that domestic debt outstanding have significant impact on the economic growth in Nigeria. Based on the findings the researcher recommends that policy makers should integrate appropriate measures towards ensuring suitable management of domestic debts so as to enhance the productivity level of the country and government should ensure that contracted national debts are directed towards encouraging investment in the country so as to increase capital formation in the country and consequently a sustainable economic growth.

CHAPTER ONE

INTRODUCTION

1. Background of the Study

All over the world, countries incur debts, either from the international community or internally. This is necessary in order to boost domestic investment and hence accelerate economic growth and development (Anyanwu and Erhijakpor (2014). Borrowing does not negate any economic principle, so far its expenditure are channeled into regenerative investments that will guarantee and facilitate the repayment structure, debt liquidation and value addition in terms of supporting the standard of living of the citizens (Ogwuma, Ikenna and Odili (2015).

Public debt is one of the methods of financing government operations; governments can also create money to settle her debts in order to avoid interest payment, though creation of money will only reduce interest cost and will not cancel the debt itself which may cause hyperinflation. And in some other times government might increase tax so as to finance debt repayment in the economy. Public debt is in different forms: internal or domestic debt and foreign or external debt. Domestic public debts are usually contracted through debt instruments such as Treasury Bills, Bonds, Treasury Certificates, Federal Development Stocks and Ways and Means Advances, provided by the Central Bank of Nigeria (Nzotta, 2004).

Public Debt Management is the process by which the government acquires and uses the debt effectively and efficiently. Debt is manageable as long as the cost of acquiring debt is reasonably low and debt obtained is used efficiently in such a way that it helps growth and efficient allocation of resources in the long run. Debt is used efficiently if the ratios of debt service to total revenue and external debt service to exports fall or remain constant. The underlying assumption is that the projects for which borrowed money is used would generate sufficient output and exports for debt repayment. Public debt management typically involves activities ranging from the formulation of a debt/borrowing strategy. This strategy is generally based on country’s debt situation, financial market situation, need of new finances, use of borrowed money, meeting of debt service obligations on time and maintenance of information systems and databases (World Bank and IMF, 2001). These activities need to be governed under an explicit and clear legal mandate and organized under a framework where roles and responsibilities of the agencies involved are well specified.

In the wake of persistent saving-investment gap, export-import gap and fiscal deficit, a prudent public debt management is essential tools for sustainable macroeconomic stability of the Nigerian economy. Nigeria has run persistently large budget deficits in recent decades. These large and persistent budget deficits have generated considerable concern in Nigeria and there is a widespread perception that it will reduce growth, and could lead to a crisis if the deficit continues for long or become too large (Okonjo-Iweala, 2014).

Nigeria’s experience indicates that an escalating debt profile presents serious obstacles on a nation’s path to economic growth and development. The cost of servicing debt may expand beyond the coping capacity of the economy, thereby impacting negatively on its ability to achieve the desired fiscal and monetary policy objectives. Furthermore, a rising debt burden may constrain the ability of government to undertake more productive investment programmes in infrastructure, education and public health.

Nigeria Government over the years has been funding her budget deficit through public debt or borrowings which have been described as an important instrument of fiscal policy available to government to fund the development of a nation. It has been that budget deficits demonstrate that government expenditure is high relative to its revenue; this gap has been identified to be filled with public debt (Mankiw, 2013). Public debt which includes both internal (domestic) and external debts is considered when the revenue realized by the governable is insufficient for its projected expenditures (Rahman, 2012). It is on this note that this study seek to examine public debt management in Nigeria: a study of the impact of domestic debt on the economy (1999 – 2019).

1. Statement of the Problem

The inability of Nigeria to accumulate domestic resources so as to fill the usual budget deficit experienced in the country over the years occasioned the consistent dependence on public debt which is often typified by adverse lending conditions, instability of foreign exchange rates and the potential repudiation that occasions debt overhand, hence exerting negative effects on the economic growth of Nigeria (Akinwunmi and Adekoya, 2018). This issue has also been ascertained to impede domestic capital creation thereby triggering the reduced provision of basic amenities for citizens in the country (Udoka, 2010).

The consistent upsurge in Nigerian’s domestic and external debt profile without an obvious growth in its capacity usage have over time caused the frequent quest for debt scheduling and cancellation expired by Nigeria and several other developing countries across the globe (World Bank, 2002). Following the issues created by endogenous factors stemming from domestic debt which includes extra-tax burden, deflection of the society’s limited capital from the productive private sector to the unproductive public sector and the economic exogenous factors such as exchange rate and interest rate particularly couple with the oil price drop which led Nigeria into recession and also intensified its debt stock cause the need for debt relief which was initiated in 2005 (Nwankwo, 2010).  Numerous studies aimed at examining the effects of public debt management on economic growth have been carried out over time across countries of the world. Noticeably, a significant number of these studies and other related researches are bereft of strategic empirical evidences in developed countries, Nigeria and other developing countries (Saifuddin, 2016; Idenyi, Ogonna and Ifeyinwa, 2016; Jernej, Aleksander and Miroslav, 2014; Muhammad, Ruhaini, Nathan and Arshad, 2017; Siew-Peng and Yan-Ling, 2015; Egbetunde, 2012; Amilcar, 2016; Rahman, 2012; Hadhek and Fatma. 2014; Naeem, 2017; Muhammad, 2017; Mousa, and Shawawreh, 2017).

The questions then are: How has the Nigerian government been funding her budget through debt financing? What ratio is the debt financing to total budget been? What roles has domestic debt financing played in the budget? What impacts has this domestic financing played on the economy? Following the gap in the research focus and literature of previous researches, this study examines public debt management in Nigeria: a study of the impact of domestic debt on the economy (1999 – 2019).

1. Objectives of the Study

The broad objective of this study is to examine public debt management in Nigeria: a study of the impact of domestic debt on the economy (1999 – 2019).

The specific objectives of the study are:

1. To determine the quantum of federal government domestic debt from 1999 to 2019.
2. To analyze the relationship between domestic debt and the GDP in Nigeria.
3. To evaluate the impact of domestic debt to economic growth to economic growth in Nigeria.

1. Research Questions
2. What is the quantum of federal government’s domestic debt from 1999 to 2019?
3. What is the relationship between domestic debt and the GDP in Nigeria?
4. What is the impact of the domestic debt to economic growth in Nigeria?

1. Statement of Hypothesis

H₀₁: There is no significant relationship between domestic debt and the GDP of Nigeria.

H₀₂: Domestic debt has no significant impact on economic growth of Nigeria.

1. Significance of the Study

This study is focused on providing evaluation of public debt management in Nigeria: a study of the impact of domestic debt on the economy (1999 – 2019). It will also serve as a tool in revamping government policies towards loan procurement and debt servicing in Nigeria. This work may also serve as a yardstick for research and documentation on Nigeria’s debt crisis. Other significant are itemized as follows:

The research is meant to be particularly educative in the sense that it is going to help us expose some of the experiences Nigeria has acquired in the course of servicing her debts. It will also enable us to know whether Nigeria’s relationship with her creditors has been beneficial or not to the general economic development of the Nigeria economy.

In as much as a lot of write-up and publications have appeared from these long periods of Nigerian debt servicing, most of these expression have neither economic nor even any basis at all. Besides very few Nigerians are really concerned with the main issues involved or have critically analysed Nigerian foreign debt situation. Though, such analysis can be very difficult, complicated and time consuming, indeed that only those qualified and equipped can meaningfully undertake or embark on such. Essentially, this research is a blood attempt in that direction.

Finally, this study is meant to be beneficial to the policy makers, business investors, bankers, financial managers, the general public and the Nigerian economy as whole as well as other developing nations who may embark in the art of serving or borrowing foreign loans.

1. Scope of the Study

The scope of this study shall cover the examination of public debt management in Nigeria: a study of the impact of domestic debt on the economy (1999 – 2019).

1.8     Limitation of the Study

The limitations of this study include some of unavoidable constraints and problems encountered in the process. They are as follows:

1. Finance: The problem of finance was not left out in the course of research to this study. This type of study required little money and time to enable the researcher visit the necessary places for collection of data. Insufficient fund hindered an in-depth study of this research since it was financed from meager pocket money of the researcher.
   1. Time: Since this study is one of the many courses offered by the researcher, the researcher was constrained by time to carry out an indent research on the study.

1.     Operational Definition of Terms

Public Debt: The public debt is how much a country owes to lenders outside of itself. These can include individuals, businesses, and even other governments. The term “public debt” is often used interchangeably with the term sovereign debt. Public debt usually only refers to national debt.

Domestic Debt: Domestic debt is the component of the total government debt in a country that is owed to lenders within the country. Internal government debt’s complement is external government debt.

Public Debt Management: Public Debt Management is the process by which the government acquires and uses the debt effectively and efficiently. Debt is manageable as long as the cost of acquiring debt is reasonably low and debt obtained is used efficiently in such a way that it helps growth and efficient allocation of resources.

 GDP (Gross Domestic Product): According to Okeke (1990: 297) Gross Domestic Product is the total value of goods and services produced in the country at a given time normally a year.