Abstract:

This study focused on the public debt and government expenditure in Nigeria. Understanding the determinants of total debt stock has become increasingly important based on the need to improve government fiscal and debt sustainability both of which are currently in distress. The study applied the Auto-regressive Distributed Lag (ARDL) models over the periods 1995-2018 to analyze the responses of public debt and debt to GDP ratio to the government recurrent and capital expenditure, primary balance as a ratio of GDP and interest rate. The bound cointegration test was conducted to assess the existence of long run relationship among the variables. The empirical results suggest that recurrent and capital expenditure as ratio of GDP as well as primary deficit to GDP are significant determinants of public debt and debt to GDP ratio in Nigeria with expected signs. Finally, it is concluded that the Nigerian economy can reduce public debt and debt to GDP ratio by increasing the capital expenditure, since increasing capital expenditure often has significant impact on the output and higher output could bring down the Debt-GDP ratio. Therefore, the public debt management strategies and efficient government expenditure management frameworks should be put in place to provide fiscal and debt sustainability and enhance the growth process in Nigeria.