The Influence of Nigeria's Level of Public Debt on the Country's Ability to Sustain Fiscal Stability

Abstract:

This research investigates the impact of public debt exposure on Nigeria's fiscal sustainability through an ex post facto research design. The study utilizes quarterly data from 1986 to 2021, comprising 36 data points sourced from the Central Bank of Nigeria (CBN) and World Bank databases. Employing descriptive statistics, unit root analysis, Johansen co-integration, and Vector Error Correction techniques, the analysis maintains a significance level of 5%. The model exhibits a satisfactory fit with an R-squared value of 0.67 and an Adjusted R-squared value of 0.65. Key factors, including the domestic debt to GDP ratio, external debt to GDP ratio, debt servicing to GDP ratio, economic growth, exchange rate, and interest rate, undergo evaluation for their impact on Nigeria's current account balance and budget deficit/surplus. The findings highlight the external debt to GDP ratio, debt servicing to GDP ratio, economic growth, exchange rate, and interest rate as primary determinants of Nigeria's fiscal responsibility. The study recommends several measures based on these findings. These include managing external debt effectively, prioritizing debt servicing, promoting economic growth, monitoring exchange rates and interest rates, strengthening debt management practices, diversifying revenue sources, enhancing budget discipline, and improving governance.