Abstract
This study reflects an appraisal of Nigeria’s External Debt Management necessitated by inadequate internal capital formation arising from vicious cycle of low productivity, low income and savings in the Nigerian economy.
Considerable linkage has been established between external debt and economic performance. The study determined the impact of Nigeria’s external debt stock on gross domestic product and also examined the impact of external debt penalties on arrears for default of external debt stock covering a period of 25 years, 1989-2014, using secondary data.
The study used ordinary least square (OLS) estimation technique for analysis. Findings showed that external debt stock had a negative significant impact on gross domestic product.
Threats associated with borrowing externally for capital formation in Nigeria outweigh the benefits therein. There was a positive significant impact of penalties arrears for default on external debt stock.
An increase of external debt stock as a result of rising penalties on arrears has deepened the burden of debt and its sustainability in Nigeria.
External debt by economic sector to support infrastructure should be taken into consideration, which is in accordance with the provisions of the Fiscal Responsibility Act and the National Debt Management Objectives & Strategy.
Also external debt service payment should be paid as at when due to avoid accumulation of compounding late interest on penalty payment which in the past had contributed immensely to the deteriorated debt situation in Nigeria within the period under study.
Introduction
Background of Study
Debt is created by the act of borrowing. It is defined according to Oyejide, Soyede, and Kayode (1985), as “the resource or money in use in an organization which is not contributed by its owners and does not in any other way belongs to them”.
“It is a liability represented by a financial instrument or other formal equivalent. Legally debt is a chose in action transferable by the creditor to some other person debtor provided that the transfer is in writing and confirmed seal” (Anyafo 1996).
When a government borrows, the debt is a public debt. Public debt either, internal or external is debt incurred by the government through borrowing in the domestic and international market respectively, so as to finance domestic investment.
“Public debts are outstanding payment or contractual obligations of all tiers of government (Federal, State and Local) public corporations and parastatals”(Anyafo 1996).
After an attempt definition of public debt and debt, Uche (2005:127) “defines external debt of a country as the summation of indebtedness of a country to other countries, institutions and non-residents of that country”.
The contractual liabilities are denominated in foreign currencies. In essence external debt can therefore be seen as the foreign exchange component of public debt.
For the context of this research, Nigeria external debt management will be analyzed in terms of structure, genesis, challenges and contemporary issues.
References
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