Debt and Economic Performance in Nigeria (1982 – 2016)

Ogunniyi, M.B. ; Iwegbu, O. ; Womiloju, I.A. (2019)

Staff publications

Article

The rising debt profile of Nigeria after the debt forgiveness of 2006 is at the centre of attention of policy makers and economic analysts especially in the face of Nigeria’s economic malaise. Using Error Correction approach, we investigated the impact of debt on Nigeria’s economic performance and the channels through which debt impacts macroeconomic performance in Nigeria. We affirmed the traditional relationship between debt and economic performance (the direct effect). We validated the overhang hypothesis and from our results, hypothesize a threshold point of just 0.1% suggesting that private investment has minimal tolerance for debt (the crowding out and overhang effect). This means that the foreign direct investment (FDI) component has been very reactive to the external debt level. Given the huge debt profile of Nigeria, efforts should therefore be increasingly directed towards encouraging private sector investment as the prime engine of economic growth.