Impact Of Public Debt Burden On Economic Growth In Nigeria, 1986 -2024

Abstract

This study examines the impact of public debt burden on economic growth in Nigeria, with particular emphasis on three core debt indicators: public debt-to-GDP ratio, debt service-to revenue ratio, and external debt-to-exports ratio. Covering the period 1986–2024, the study investigates whether public debt-to GDP ratio, debt service-to-revenue ratio, and external debt-to exports ratio significantly influence real GDP growth, while controlling for gross capital formation and inflation. Annual time-series data were analyzed using the Autoregressive Distributed Lag (ARDL) model, following confirmation of mixed order integration through the Augmented Dickey–Fuller test and the existence of a long-run relationship via the Bounds cointegration test (F-statistic = 5.5938, exceeding the upper bound critical value at 1%). The long-run results reveal that public debt-to-GDP ratio (β = –0.108, p < 0.01), debt service-to revenue ratio (β = –0.846, p < 0.05), and external debt-to exports ratio (β = –0.115, p < 0.01) exert significant negative effects on economic growth, while gross capital formation enhances growth (β = 0.168, p < 0.01) and inflation reduces it (β = –0.574, p < 0.01). The error correction term (–0.492, p < 0.01) indicates that approximately 49% of short-run disequilibrium adjusts annually toward long-run equilibrium. The findings support the Debt Overhang and Crowding-Out hypotheses, suggesting that Nigeria’s debt challenge is driven more by servicing pressure and structural inefficiencies than by borrowing alone. The study concludes that public debt burden has had a predominantly adverse long-run impact on economic growth in Nigeria and recommends maintaining debt within sustainable thresholds, strengthening domestic revenue mobilization to reduce servicing pressure, and aligning external borrowing with export expansion and productive investment.

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