THE ROLE OF PUBLIC DEBT IN FINANCING INFRASTRUCTURE DEVELOPMENT IN NIGERIA

ABSTRACT This study examines the role of public debt in financing infrastructure development in Nigeria using annual time series data from 1981 to 2023 sourced from CBN Statistical Bulletin and the World Bank Development Indicators. The analysis employs the Autoregressive Distributed Lag (ARDL) model to estimate both short-run and long-run relationships among key variables, including domestic public debt, external public debt, interest rates, and exchange rates. The findings reveal that both domestic and external public debt has a positive effect on infrastructure development. Specifically, a 1% increase in domestic debt leads to about a 0.88% rise in infrastructure development, while a 1% increase in external debt raises infrastructure development by approximately 0.34%. In contrast, a 1% rise in interest rate reduces infrastructure development by around 0.01%, and a 1% increase in exchange rate decreases it by 0.005%. These results underscore the significance of well-managed domestic borrowing while highlighting the potential risks associated with macroeconomic volatility. The error correction term confirms a stable long-run relationship, with deviations adjusting at a rate of 31.32% per period. These findings align with previous empirical studies, reinforcing the argument that effective debt management strategies are essential for optimizing infrastructure investment and economic growth. The study provides policy recommendations emphasizing the need for prudent debt utilization, exchange rate stability, and efficient resource allocation to maximize the benefits of public borrowing for infrastructure development. Key Words: Public Debt, Infrastructure Development, ARDL Model, and Exchange Rate Jel Codes: H63, H54, E43, F31