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This work evolved out of the zeal to provide an immense understanding
of the Nigeria economic of debt. The broad objective of this study was
to evaluate the impact of external debt on the development of the
Nigeria economy within the life-span of 1985-2011.The models in this
study was used to evaluate the developmental relationship between the
independent variables and the dependent variables. The data were
sourced from the Federal office of statistics, CBN statistical bulletin
2011, and international monetary fund (IMF). The ordinary least square
method (OLS) was employed in the cause of study. Also, the Augmented
Dickey Fuller test (ADF) revealed that the variables are reliable for
forecasting while the use of OLS was most appropriate for the study in
terms of goodness of fit and significance of regression coefficient. The
outcome of the analysis revealed that increase in external debt positively
affects the economic development of Nigeria while increase in external
debt services positively affects economic development in Nigeria. Thus;
conclusion was made that external debt rises rapidly because loans were
secured for dubious projects and private pockets rather investing the
loan in productive ventures by increasing exports. And by
recommendation, government should incur external fund for
developmental projects and as well monitor effectively the use of
external funds so as to ensure the development of Nigeria economy.
Title page – – – – – – — – – – -i
Approval page – – – – – – – – – -ii
Dedication – – – – – – – – – – -iii
Acknowledgement – – – – – – – – -iv
Table of content – – – – – – – – – -v
Abstract – – – – – – – – – – -vii
1.1 Background of the study – – – – – – -1
1.2 Statement of problem – – – – – — – -4
1.3 Objectives of the study- – – – – – – -5
1.4 Statement of hypothesis – – – – – – -5
1.5 Significance of study – – – – – – – -6
1.6 Scope of study – – – – – – — – -7
2.0 Literature review – – – – – – – -8
2.1 Theoretical Frame Work – – – – – – -8
2.2 Empirical Evidence – – – – – – – 23
2.3. Summary of the previous empirical findings – – – 27
2.4. Limitations of previous study – – – – – 28
3.1. Introduction – – – – – – – 30
3.2. Sources of data – – – – – – – – 30
3.3. Data Analysis Technique – – – – – – 31
3.4. Model specification – – – – – – – 31
4.1. Presentation of Result – – – – – – – 38
4.2. Analysis of the Result – – – – – – – 39
4.3. Evaluation Methods – – – – – – – 40
4.4 Hypothesis Testing – – – – – – – 46
5.1. Summary of Findings – – – – – – – 47
5.2. Conclusion – – – – – – – – – 47
5.3 Recommendations – – – – – – – 48
Bibliography – – – – – – – – 50
Appendix – – – – – – – – – 52
Most economic development literature described the 1950‘s and 1960‘s
as ―Golden Years‖, which marked the rate of development in developing
countries whose development at the period was just high and internally
generated. Also, the less developed countries (LDCs) increased their
investment with little or no reliance on external resources (Daily Sun;
On the contrary, most of the development experienced in 70‘s was ―debt
led‖. This was a result that these countries maintain persistent current
account deficits, which led to the borrowing from the international
money and capital market to finance projects. Based on this premise,
external borrowing has always been resorted to because of the shortfall
between domestic savings, seeking external funds to bridge gaps is not
desirable which is so because external debts acts as a major constraints
to capital formation in developing nations.
In most cases, debt accumulates because of the servicing, requirements
and the principal itself. Considering the above, external debt becomes a
self-perpetuating mechanism of poverty aggression, over exploitation
and a constraint on development in developing countries
(NakatamianhHerca; 2007). However like most developing countries of
the world; Nigeria relies substantially on external funds for financing its
development projects, e.g. Iron and steel mills, roads, electricity
generation, plants etc. such external funding usually takes the form of
external loans. In the early years of political independence(i.e. 1960
through 1975), the size of such loans was small, the rate of interest
concessionary, the maturitywas long-term and the source was usually
multilateral in nature. For instance, Nigeria‘s external debt in 1960 was
about $150million, however, beginning in the year 1978, the situation
changed. Nigeria, at the lure of the international financial institutions
started to borrow huge sums from private sources at a floating rates and
with shorter term maturities (Business New; 2009).
In 1978 ―JomboLoan‖alone which is borrowed from the international
capital market (ICM) was estimated to sum of $1billion which
represented over 100% of Nigerians Gross Domestic Product (GDP) for
that year. The situation precipitated a debt-crisis that progressively
worsened overtime. However, it follows that debt is an integral part of
all economies; developed, developing or undeveloped. (Bannock Baxter
and Rees, 1972). By 1986, Nigeria had to adopt a
WorldBank/International Monetary Fund (IMF) sponsored Structural
Adjustment Programme (SAP), with a view to revamping the economy
and making the country better-able to service her debt.
Furthermore some state government resorted to imprudent borrowings
from external source. This was to finance all sorts of projects of doubtful
viability. Sooner than expected, the debt problem was marked to have
started in the 1980‘s. in fact, the external debt escalatedfrom
#8,8194million in 1982 through to #10,577.7millionin 1985. In 1987, it
was #100,787.6million. it further moved up to #328,051million and
#633,144.4million between 1991 and 1993 respectively. By 1995 and
1996, Nigeria had an outstanding debt of #716,865.6millionand
#617,329.0million respectively (CBN statistical bulletin, 2004). In
Nigeria, the debtsituation is really a big problem because these debts
mount are accumulated annually and we find that the more debt we
accumulate, the higher the debt services payment and less resource.
This in turn reduces savings for investment purposes. Such a situation
portrays an imminent danger for the present and future of the country.
This study therefore tends to focus on the impact of external debt on
Nigeria economy and also provides lasting solution to external debt
Nigeria which was a net lender to organisations like IBRD, IMF, Paris
Club etc. is today one of the highly indebted countries to these
organisations. External debt when effectively and efficiently utilized is
meant to provide some investments. The returns from these
investments will be used in the settlement of the debt. But in Nigeria,
the reverse is the case. The debt is incurred to service and enrich the
private pockets of our leaders,on behalf of the entire citizenry(Vanguard;
2004). Consequently upon this, debt servicing has become one of the
most consuming elements of Nigeria‘s annual earnings. The Nigeria‘s
unfavourable balance of payment (BOP) istoday a function of some
variables amongst which external borrowing is rated the most influential
factor. The BOP problem in turn leads to high rate of inflation, import
and dependence. Nigeria‘s external debt has no doubt put pressure on
the economic recovery and growth of the country. This research has
actual impact of the external debt on the economy of Nigeria.
The trend of external debt shows the state of the economy considering
the external debt. Thus, it shows whether the external debt of the
Nigerian economy is increasing or decreasing. As at 1990 to 1992, the
external debt amounted to 82.3% and from 1993 to 1995, it decreased
significantly by 13.2% while from 1996 to 1998, it further decreased by
2.5%. As at 1999 to 2001, the Nigeria external debt was insignificant.
But as at 2002 to 2004 there was a significant increase on the Nigeria
external debt by24.3%, while from 2005 to 2007 the external debt was
insignificant. But 2008 to 2010 showed an increase in the Nigeria
external debt by 39.9%.
The objectives of the study are;
i. To determine the impact of external debt on the Nigeria economy.
ii. To determine the effect of external debt services on the Nigeria
This study is guided by the following hypothesis.
H0: there is no significant effect of external debt services on the Nigeria
H1: there is significant effect of external debt on the Nigeria economy.
The study is important because it will help to know the amount of
external debt of the country and proffer solutions on how to control the
debt of the country based on the findings and recommendation of this
work. It will stand to help the policy makers, governments, researchers
and the students of related discipline. The research work will serve as a
guide to policy makers to enable them in making and implementing
appropriate laws that will guide the rate at which money is being
borrowed from other countries and also negotiate the maturity period to
limit the extent of external debt. This is implementing proper policies.
This work will be relevant to government in the area of debt
management. Thus; it will help the government to know the
organisations and countries whose maturity period are longer and also
charge rate of interest and then borrow from them so that the loan can
be repayable as and when due. This will also benefit the researchers and
the students of related discipline by serving as a reference material
primarily geared towards expanding the boundaries of knowledge.
The study will focus on the Nigeria external debt and its impact on the
economy. The study will cover the period of 1985-2011. This period is
particularly pertinent for the study and the nation‘s economic history
because it covers a period of deficit financing and budgeting as well as
recessionary period involving sharp nose diving cum dwindling in general
societal aggregate demand which emanated as a result of low level of
savings in Nigeria economy which necessitated the undesirable macroeconomic problems and economic distress and fluctuations which may
come up inform of economic glut(dumping of unsold socks of goods due
to lack of patronage by the consumer, i.e. low or no effective demand of
the commodities or stock of the goods by consumers).
The period witnessed the introduction of multifarious types of policies
(fiscal and monetary policies) and some programmes to bring the
fluctuating Nigeria economy to normalcy sees to achieve economic
growth and development which are the goals of macro-economic. In
particular, the period witnessed the period of bank
consolidation/recapitalization policy, deregulation, industrialization and
open door policy. All these were designed to bring the sagging economy
in equilibrium.


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