The Effect Of External Debt On The Nigeria Economy

The Effect Of External Debt On The Nigeria Economy

Abstract

This study is meant to examine the effect of external debt on gross domestic product using econometric analysis. The exploration revealed that Nigeria’s external debt has contributed immensely to the gross domestic product. This has affected investment on the domestic productivity and hence always affected the profitable growth and development. Due to the macroeconomics deformation in the profitable growth and development like the problem of severance, affectation, balance of payment disequilibrium and a lot of others. The experimenter gave recommendation in view of the exploration chancing similar as( 1) The need for the enhancement of domestic social metamorphosis to pave way for a social tone- reliant frugality by developing wisdom and technology.( 2) Government shouldde-emphasis import led growth grounded on foreign exchange earning from primary product.( 3) Government should embark on policy measure to insure full employment.( 4) rallying of mortal and accoutrements coffers to achieve the ideal of sustain growth towards externally source fund are conducted into productively conditioning

Chapter one

Preface

Background of the Study

The accumulation of external debt is common miracle of the third world countries at the stage of profitable development where the force domestic savings is low, current account payment deficiency are high and significances of capital are demanded to compound domestic coffers.

Early 1970’s, the external debt of developing countries was fairly small and primarily an sanctioned miracle, the maturity of creditors being Foreign Governments and International Financial Institutions similar as IMF, the World Bank and Regional Development Bank.

still, during the late 70’s and early 80’s marketable Banks began, playing a large part in International Lending by recovering fat OPEC “ Petrodollars ” and Issuing general purpose loans to less developed countries to give balance of payment support and expansion of import sectors.

While foreign borrowing can be largely salutary furnishing the coffers necessary to promote profitable growth and development it has its cost. In recent times these costs have greatly out counted the benefits for numerous developing nation. The main cost associated with the accumulation of a large external debt is “ Debt Servicing ”. Debt Servicing is the payment of liquidation of the star and accumulated interest, it’s a contractually fixed exchange on domestic real income and savings as the debt grows or as interest rates rise, debt service payment must be made with foreign exchange, in order words, debt service obligation can be met only through import earnings.

still, should the composition of Import changed or should the composition of import change or should interest rates rise significantly causing paragliding of debt service payment or should export earnings dwindle debt servicing difficulties are likely to arise. This has been the experience of utmost of the heavily obliged third world nations.

In order to break the problem, several external debt- backing options were espoused under the Structural Adjustment Program( SAP) in 1986. Since the preface of this program, Nigerians have been plunged into one difficulty after another ranging from the devaluation of the naira through Second Tie Foreign Exchange Market( SFEM) now Foreign Exchange Market( FEM) to the rising prices of Goods affectation etc. SAP as an profitable restructuring program is able of easing the country’s debt trap is a phenomenon Nigerian’s were staying to see.

Specifically as part of the programmatic approach to reduce the burden of external debt, the following measures have been espoused in recent times.

They include proscription on new loans, limit on debt service payment debt restructuring and debt conversion

Statement of the problem

The ultimate end of any well-conditionedco-coordinated and articulated profitable policy is to achieve a sustained profitable growth and development. still, a proper understanding of what development is, well enable a policy maker to formulate applicable programs for the acceleration of profitable development. In order words, the nature of the development policy of a country will depend on how policy makers of that country perceive development.

The asseveration of the need of external backing obscures the necessity for the people of poor countries themselves to develop the installations stations and institutions which are needed if these societies are to achieve sustained substantial material process. In deed, these declarations are external aids help to immortalize the ideals and station wide spread in these countries which are damaging the profitable progress.

The rapid-fire growing foreign debt, its consequent payment problem and lack of applicable debt operation has declined the country into a turbulent profitable extremity characteristics of habitual balance of payment problem, foreign exchange sequence, failure of essential particulars( including raw accoutrements and spare corridor) which led to the check of numerous manufactories, with intermitted retrenchment of workers, high rate severance and under employment, run down affectation.

External loans thus can not be seen as spelling doom for but could be a blessing to the debtor nation. The introductory problem is how these loans are employed for development purposes

Embarking on unproductive gambles for case led to waste of coffers, and of course, poor profitable performance

The debt problem feel to have defined result despite the substantial part of the country’s external debt been tallied over a long ages. The cataloging isn’t indeed a satisfactory measure because similar decision is like delaying the day of reckoning. The profitable earnings that ate made now will be crowded when the debt is due for payment.

As a matter of fact, these external imbalances in the frugality weren’t caused only by foreign debt alone, rather other problem like abating oil painting profit and mismanagement of the frugality by unrighteous conditioning of the politicians of the alternate democracy also contributed in their own way. These were exactly what motivated the experimenter to embark on this study, tox-ray the benefactions( goods) of external debt to these imbalances in the frugality.

Ideal of the Study

The study into this area of Pubic Finance was stimulated by the experimenter’s interest in the world debt extremity, which was generated by the huge foreign debt owed to the creditor public and the developing countries – Argentina, Brazil Chile, Mexico, Turkey, Cote D’ ivoryetc.

Nigeria being the part and parcel of developing frugality also has her own share of problem. The frugality has drifted from profitable situation to another; these have hampered profitable growth and overall development and urged all kinds of difficulty in the frugality.

OUR AIM IS TO IDENTIFY

a) Source, size and nature of Nigeria’s external debt.

b) The recrimination( impact) of debt burden on the frugality

c) Debt operation options( government approach) towards working the problem and its effectiveness.

d) A lasting result to the debt extremity

It’s there hoped that this design will give the public with a better knowledge on the nation’s foreign debt problem and will act as reference point for effective operation of foreign debt both now and in future.

Exploration Thesis

This study will be companion by the following thesis. Null thesis

Ho ß0 = O

There’s no significant relationship between Gross domestic product and External debt

Indispensable thesis

N1 = ß 1 = O

There’s significant relationship between gross domestic product and External debt.

Compass of the Study

The compass of the study covers a period of 20 times( 1989 – 2009). It’s stopgap that the result of this study will be applicable to serve the purpose for which it was intended, which is to serve as premonitory to both government of the private sector in terms of borrowing.

. Limitation of the Study

This study is principally confined to the effect of external debt on the Nigeria frugality.

The exploration wasn’t suitable to gather all the necessary accoutrements from all the secondary sources demanded for the study due to unlooked-for circumstances performing from time and fiscal constraints.