Effect of External Debt on Inflation Rate in Nigeria.

Abstract:

The study examines the effect of external debt on inflation rate in Nigeria between 2008 to 2023. Ex post-facto research design was used and quarterly time series data were extracted from the Central Bank of Nigeria's statistical bulletin and Debt Management Office reports 2023. The dependent variable was inflation rate, while the independent proxies were multilateral debt and bilateral debt. The Johansen cointegration test estimation was used based on the unit root test result with shows that external debt had no co-integration with inflation rate in Nigeria. Based on regression analysis, it was found that the bilateral debt had a negative significant effect on inflation rate in Nigeria while multilateral debt had a positive significant effect on inflation rate in Nigeria. Therefore, this study recommended that government should go for more of bilateral loans tied to capital projects like the railway project with the China Export-Import Bank. This will encourage price stability and push for the inflow of expatriates that might end up investing in the Nigerian economy and reducing inflation. Government should be cautious in accumulating multilateral debt since most of these multilateral organizations give stringent conditions on loans which might hamper the price stability of the country. Effective debt management, and prudent fiscal policies, will enhance economic resilience are crucial for mitigating these inflationary impacts.