EXTERNAL DEBT OVERHANG AND NIGERIA’S ECONOMY: AN ARDL BASED ANALYSIS

Abstract

This research investigated the effect of external debt overhang on Nigeria's economy. The research relied on time series data collected from the Central Bank of Nigeria statistical bulletin for the period 1986 to 2024. The research adopted a series of econometric estimation methods which culminated the auto-regressive distributed lag (ARDL) model for data analysis. The Jarque-Berra normality test and Augmented Dickey-Fuller (unit root) test were used as diagnostic to test that basic assumptions of the data were satisfied. Findings from the data analysis revealed that external debt overhang and the weight of debt servicing obligations had statistically significant adverse effect on the economy. In all, we posit that external debt causes a problem on the economy due to the build-up of repayment obligations which far outweigh the contributions of the actual borrowing to the economy. Bases on the findings, it is concluded that external borrowing and the challenges associated with it is causing deterioration in the economy as repayment obligations emerge without commensurate income or returns from the funds that were borrowed. This research recommends that the government take steps to ensure that international best practices guiding external borrowing funds are fully implemented. This should include tying borrowed funds to specific capital formation projects of economic value. In addition, giving funds providers’ economic/financial interest in the specified projects will improve the selection and monitoring criteria of such projects. Finally, It is important that the rate of domestic saving be improved in order to build up surplus funds that can be invested within the economy.