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A CRITICAL ANALYSIS OF THE EFFECT OF DOMESTIC DEBT ON THE NIGERIAN ECONOMY
ABSTRACT
The study examined the impact of domestic debt on economic development of Nigeria with a view to determining amongst other the relative importance and impact of domestic debt on economic growth (GDP) of Nigeria. The study adopted qualitative research focuses on secondary data from CBN. Data relating to domestic debt stock, Gross Domestic product, Interest on domestic debt and capital expenditure of Nigeria from 1990 – 2010 were obtained from the debt management and central bank of Nigeria. The data obtained was subjected to linear regression model analysed with the aid of E-view statistical package for accuracy. The result reveals strong liner correlation between domestic debt and economic growth. In lights of this finding the study recommended for proper management of domestic debt and appropriate debt serving technique for effective growth of the economy.
1.0 INTRODUCTION
1.1 OVERVIEW OF THE STUDY
1.2 STATEMENT OF PROBLEM
The need to finance rising government expenditure has been identified to the rapid increase in the stock of Nigeria’s domestic debt. A recent study by (Abbas and Christerisen 2007) analyzing optimal domestic debt level in low income countries like (Nigeria) and emerging markets between 1999 and 2004 found out that moderate level of marketable domestic debt as a percentage (GDP have significant positive effect on economic growth. the study also provide evidence that debt level exceeding 35 percent of total bank deposits have negative impact on the economic growth.
The money borrowed was not utilize for the benefit of the citizens and for the growth of the Nigerian economy due to the corrupt practices, bad policies and mismanagement of funds by some selfish Nigerians in government. The effect of the global crisis of the Nigerian economy was no doubt reflective on the capital market, with the withdrawal of investment by foreign investors and the crash in the price of crude oil, thereby resulting in the fall in share price in the stock market, and other effect of the banking sector and the economy at large.
Nigeria’s foreign economic relations revolve around it role in supplying the world economy with oil and natural gas, even as the country seeks to diversify its exports harmonize tariffs in line with a potential customs union sought by the economic community of West African states (ECOWAS), and encourage inflows of foreign portfolio and direct investment. In October 2005, Nigeria implemented the ECOWAS common external tariff, which reduced the number of tariff bonds. Prior to this revision,tariffs constituted Nigeria’s second largest source of revenue after oil exports. In 2005 Nigeria achieved a major breakthrough when it reached an agreement with the paris club to eliminate its bilateral debt through a combination of write-down and buybacks. This research therefore will attempt to investigate and profer solution to:
The effect of domestic debt, principal portion of economic growth.
The effect of the cost of servicing domestic debt and economic growth.
The effect of domestic debt instrument on economic growth.
The effect of domestic debt on Gross Domestic product (GDP).
1.3 OBJECTIVES OF THE STUDY
The objective of the study is to:
Investigate the effect of the cost servicing domestic debt on budget and economic growth.
Investigate the effect of domestic debt on the principal portion on economic growth.
To investigate the effect of domestic debt instruments on economic policies (monetary and fiscal policies).
To investigate the effect of domestic debt on Gross Domestic product (GDP).
1.4 RESEARCH HYPOTHESIS
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with Ho while the alternative hypothesis will be represented with hypothesis Hi.
Hypothesis one
HO: There is a negative relationship between the principal portion of domestic debt and economic growth.
Hi: There is a positive relationship between the principal portion of domestic debt and economic growth.
Hypothesis Two
Ho: There is a negative relationship between the cost of servicing domestic debt, and economic growth.
Hi: There is a positive relationship between the cost of servicing domestic debt, and economic growth.
Hypothesis Three
Ho: There is a negative relationship between domestic debt instruments and the economic growth.
Hi: There is a positive relationship between domestic debt instruments and the economic growth.
Hypothesis Four
Ho: There is a negative relationship between domestic debt and gross domestic product (GDP).
Hi: There is a positive relationship between domestic debt and gross domestic product (GDP).
1.5 SCOPE OF THE STUDY
This research is based on domestic debt and the Nigerian economy, the extent of study will be limited to Nigerian domestic debts.
It will cover statistical bulletins from CBN and CBN annual reports, the Debt Management Office (DMO) and other cognate publications from the internet. The researcher will use secondary data in eliciting information that will be used in the research work, and it will cover the period between 2001 – 2010.
1.6 SIGNIFICANT OF THE STUDY
A study of domestic debt and the Nigeria economy will immensely enable creditors in the economic system to identify the level of risk that are prevalent in the granting of debt loan and its recovery.
Some businesses in Nigeria rely on loans to enable their business survive. This fact has made it imperative to undertake this study and to minimize the effect of debt in the Nigeria economy.
Finally, this study is not only intended to highlight domestic debts in the Nigerian economy but also to boost studies in the area and to serve as encouragement to other students to carry out further research in this field.
ABSTRACT
The study examined the impact of domestic debt on economic development of Nigeria with a view to determining amongst other the relative importance and impact of domestic debt on economic growth (GDP) of Nigeria. The study adopted qualitative research focuses on secondary data from CBN. Data relating to domestic debt stock, Gross Domestic product, Interest on domestic debt and capital expenditure of Nigeria from 1990 – 2010 were obtained from the debt management and central bank of Nigeria. The data obtained was subjected to linear regression model analysed with the aid of E-view statistical package for accuracy. The result reveals strong liner correlation between domestic debt and economic growth. In lights of this finding the study recommended for proper management of domestic debt and appropriate debt serving technique for effective growth of the economy.
1.0 INTRODUCTION
1.1 OVERVIEW OF THE STUDY
1.2 STATEMENT OF PROBLEM
The need to finance rising government expenditure has been identified to the rapid increase in the stock of Nigeria’s domestic debt. A recent study by (Abbas and Christerisen 2007) analyzing optimal domestic debt level in low income countries like (Nigeria) and emerging markets between 1999 and 2004 found out that moderate level of marketable domestic debt as a percentage (GDP have significant positive effect on economic growth. the study also provide evidence that debt level exceeding 35 percent of total bank deposits have negative impact on the economic growth.
The money borrowed was not utilize for the benefit of the citizens and for the growth of the Nigerian economy due to the corrupt practices, bad policies and mismanagement of funds by some selfish Nigerians in government. The effect of the global crisis of the Nigerian economy was no doubt reflective on the capital market, with the withdrawal of investment by foreign investors and the crash in the price of crude oil, thereby resulting in the fall in share price in the stock market, and other effect of the banking sector and the economy at large.
Nigeria’s foreign economic relations revolve around it role in supplying the world economy with oil and natural gas, even as the country seeks to diversify its exports harmonize tariffs in line with a potential customs union sought by the economic community of West African states (ECOWAS), and encourage inflows of foreign portfolio and direct investment. In October 2005, Nigeria implemented the ECOWAS common external tariff, which reduced the number of tariff bonds. Prior to this revision,tariffs constituted Nigeria’s second largest source of revenue after oil exports. In 2005 Nigeria achieved a major breakthrough when it reached an agreement with the paris club to eliminate its bilateral debt through a combination of write-down and buybacks. This research therefore will attempt to investigate and profer solution to:
The effect of domestic debt, principal portion of economic growth.
The effect of the cost of servicing domestic debt and economic growth.
The effect of domestic debt instrument on economic growth.
The effect of domestic debt on Gross Domestic product (GDP).
1.3 OBJECTIVES OF THE STUDY
The objective of the study is to:
Investigate the effect of the cost servicing domestic debt on budget and economic growth.
Investigate the effect of domestic debt on the principal portion on economic growth.
To investigate the effect of domestic debt instruments on economic policies (monetary and fiscal policies).
To investigate the effect of domestic debt on Gross Domestic product (GDP).
1.4 RESEARCH HYPOTHESIS
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with Ho while the alternative hypothesis will be represented with hypothesis Hi.
Hypothesis one
HO: There is a negative relationship between the principal portion of domestic debt and economic growth.
Hi: There is a positive relationship between the principal portion of domestic debt and economic growth.
Hypothesis Two
Ho: There is a negative relationship between the cost of servicing domestic debt, and economic growth.
Hi: There is a positive relationship between the cost of servicing domestic debt, and economic growth.
Hypothesis Three
Ho: There is a negative relationship between domestic debt instruments and the economic growth.
Hi: There is a positive relationship between domestic debt instruments and the economic growth.
Hypothesis Four
Ho: There is a negative relationship between domestic debt and gross domestic product (GDP).
Hi: There is a positive relationship between domestic debt and gross domestic product (GDP).
1.5 SCOPE OF THE STUDY
This research is based on domestic debt and the Nigerian economy, the extent of study will be limited to Nigerian domestic debts.
It will cover statistical bulletins from CBN and CBN annual reports, the Debt Management Office (DMO) and other cognate publications from the internet. The researcher will use secondary data in eliciting information that will be used in the research work, and it will cover the period between 2001 – 2010.
1.6 SIGNIFICANT OF THE STUDY
A study of domestic debt and the Nigeria economy will immensely enable creditors in the economic system to identify the level of risk that are prevalent in the granting of debt loan and its recovery.
Some businesses in Nigeria rely on loans to enable their business survive. This fact has made it imperative to undertake this study and to minimize the effect of debt in the Nigeria economy.
Finally, this study is not only intended to highlight domestic debts in the Nigerian economy but also to boost studies in the area and to serve as encouragement to other students to carry out further research in this field.
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