IMPACT OF DEBT ON THE ECONOMIC GROWTH OF NIGERIA

This study examines the impact of debt on Nigeria’s economic growth, analyzing the relationship between public debt (domestic and external), debt servicing costs, and key macroeconomic indicators from 1990 to 2024. While debt can be a vital tool for financing development, excessive borrowing has raised concerns about Nigeria’s fiscal sustainability, particularly as debt servicing consumes over 90% of government revenue, stifling productive investment. Using autoregressive distributed lag (ARDL) and error correction models (ECM), this research evaluates the short- and long-run effects of debt on GDP growth, controlling for inflation, exchange rates, oil prices, and governance indicators. The findings reveal that Nigeria’s debt-to-GDP ratio remains within manageable limits (below 40%), but the debt-to-revenue ratio is alarmingly high, indicating severe fiscal strain. External debt exhibits a negative long-term impact on growth due to high servicing costs and exchange rate volatility, while domestic debt shows a mild positive effect when channeled into infrastructure. However, debt servicing costs significantly hinder economic expansion, crowding out critical public and private investments. The study also identifies weak revenue generation and poor governance as key factors exacerbating debt inefficiency. To mitigate these risks, the study recommends enhancing domestic revenue mobilization, prioritizing concessional loans, strengthening debt transparency, and adopting debt restructuring mechanisms such as climate swaps. Additionally, economic diversification and tighter fiscal-monetary policy coordination are crucial to reducing dependency on volatile oil revenues and stabilizing macroeconomic conditions. The study provides actionable insights for policymakers to balance debt-financed development with long-term growth stability, offering a framework applicable to other resource-dependent, debt-burdened economies. Keywords: Public debt, economic growth, debt sustainability, fiscal policy, Nigeria, ARDL.