Impact of Public Debt on Economic Growth: Evidence from Nigeria

The rising debt profile of developing economies like Nigeria has remained a concern for the policymakers and other agents of the economy. Thus, this study examines the impact of public debt on economic growth in Nigeria. The study used the Johansen cointegration test, Ordinary Least Square technique and Vector Error Correction Model to analyze data sourced from the Central Bank of Nigeria, Debt Management Office, International Monetary Fund and the World Bank for the period 1981-2019. The study demonstrates the presence of a long-run equilibrium relationship between public debt and economic growth in Nigeria. The analysis reveals evidence of an adverse impact of public debt on economic performance for the study period in Nigeria. However, the impact of the relationship is only significant with the lag variable. The study demonstrates that inflation, interest rates, oil price and investment exert influence on economic growth in Nigeria. Following the results of this study and the level of debt in Nigeria, policymakers must support private sector led investment drive for improved economic performance. Also, the government must make sure that borrowing is based on project specific needs that guarantee repayment of borrowed funds. Finally, the government must enforce good governance and institutional structures to discourage the misappropriation of resources and encourage economic growth.