The Impact Of Domestic Debt On The Economic Development Of Nigeria From 1981-2012

The Impact Of Domestic Debt On The Economic Development Of Nigeria From 1981-2012

Chapter One

Preface

Background of the study

The failure of the request to allocate coffers efficiently handed a reason for considering other supplementary mechanisms for allocating coffers directly,(e.g. public provision of goods and services) or for considering corrective bias that can intrude with the price medium so as to induce the request to serve more effectively and efficiently in resource allocation. This has redounded in the intervention of government in the allocation of coffers, through the provision of public goods and services. To be suitable to carry out this part effectively, government has to dodge some expenditure. Nigeria, like numerous developing husbandry, is agonized by adding government expenditures, unmatched by government earnings. This has redounded in the need for government borrowing. Government borrowing becomes necessary when the conventional profit sources( duty andnon-tax) are shy in financing government expenditures. Borrowing is demanded by the government to cover financial deficiency in order to boost domestic investment and hence accelerate profitable growth and development. Debt connotes a situation in which a borrower collects commodity from the lender promising to pay fellow at a after date.

Debt can be of two types private and public. It’s private when the borrower is a private individual and public when the borrower is the government. Public debt can either be sourced internally or externally. Internal source involves the borrowing of finances from the citizens of the Country through the issuing of government securities; while external source involves the borrowing of finances from other countries and, or transnational associations like the London Club, Paris Club, the International Monetary Fund( IMF), World Bank, etc. The profile of the Nigerian domestic debt seems to have reached a stage of serious concern to Nigerian policy makers and scholars and constitutes an important element of profitable docket. Nigeria’s oil painting came on the profitable scene in 1970, when Nigeria came a member of the oil painting producing nations.

From also on, oil painting came the catalyst element in Nigeria’s growth process. Nigeria served immensely from the sharp price increase in1973/1974 and again in1979/1980. By 1976, oil painting had come the major source of government profit and the foreign exchange earner of over 80 percent in both cases( Ajayi, 1991). The frugality witnessed a substantial in inflow of coffers through oil painting exports. This period was characterized by rapid-fire growth of oil painting profit, while the rate of growth ofnon-oil profit was fairly low. From slightly N634 million in 1970, the federally collected profit jumped to N15.2 billion in 1980 and bounded by further than a factor of four in 1990 when it stood at about N67 billion. In general, the relative share of oil painting profit in total profit on an periodic base since 1975 has been further than 75 per cent.

The periodic average growth of oil painting profit andnon-oil profit was 114 and 23 percents independently; during this period. This recorded growth rate was largely due to the impact of the favorable terms of trade of oil painting import endured particularly in 1971 and the period of the first positive oil painting shock( 1973- 1974) on government profit. This led the total profit to grow by 63 per cent. Consequent upon the large profit from oil painting, its relative significance increased at the expenditure of other sectors. These earnings handed the base for significant increases in government expenditure designed to expand structure and to ameliorate thenon-oil product capacity of the frugality.

Nigeria’s trip into domestic debt dates back to 1948( Gbosi, 1998). It was in that time that the first development stock of five hundred thousand naira( N500, 000) only, was floated in Nigeria. But the first storeroom bills and storeroom instruments worth eight million naira( N8, 000,000) and twenty million naira( N), independently were issued in 1960 and 1968. The First National Development Program dated( 1962- 1968) imaged 50 of planned expenditures to be financed from foreign sources. It turned out that foreign loan constituted only 25 of realized capital investment. Government had to fall back on domestic sources for provision of demanded finances to finance development.

Problem statement

Nigeria’s total domestic debt outstanding stood at only1.1 billion in 1970. It rose steadily to N8.2 billion in 1980. later, it sky skyrocketed to N84.1 billion in 1990. In tune with increased situations of popular poverties, the profile of this debt ballooned to about N898.2 billion in 2000 before reaching N 1,525.91 billion as at the end of December, 2005. As at October 2010, Nigeria’s domestic debt stood at$21.8 billion having risen from$17.7 billion in 2009. Rapid expansion programs and changes in the macroeconomic terrain are some of the factors linked as the major causes of the astronomical increases in Nigeria’s domestic debt position.

This is so as, coffers are scarce and governments over the world hardly have enough finances to pay for all that they need, therefore adopting from internal sources becomes a veritable instrument for business deals. Nigeria has set up itself in a situation in which the magnitude of its domestic debt and its servicing scores is posing serious problems to both the government and the creditors( the public), in the sense that the debts are accumulated at a fairly rapid-fire pace far in excess of the nation’s capacity to repay. This domestic debt extremity had persisted despite some policy measures taken to meliorate it. The incarnation of this domestic debt extremity is apparent in the ever adding position of severance, soaring affectation, capacity under application and over dependence on the oil painting sector among others.

It thus, seems egregious that Nigeria can not attain profitable development without taking into consideration the goods of domestic debt on the frugality. This study intends to assess the effect of domestic debt on Nigeria’s profitable performance. The attainment of profitable development is consummate to every nation. To be suitable to achieve this, there’s need to have feasible macroeconomic programs which relate to conduct taken by government agencies responsible for the conduct of profitable programs to achieve some asked objects through the manipulation of a set of macroeconomic variables; one of which is domestic debt.

Purpose of the study

The purpose of this study is to examine the impact of domestic debt on the profitable development of Nigeria from 1981- 2012. Specifically the study

1. to examine the extent of domestic debt in Nigeria from 1981 to 2012

2. to determine the nature of the relationship between domestic debt and profitable development

3. to determine the impact of domestic debt on the profitable development of Nigeria from 1981- 2012

Significance Of The Study

The following are the significance of the study

The results from this study will educate the policy makers and business directors in Nigeria and the general domestic on the impact of domestic debt on the Nigerian frugality.

This exploration will be a donation to the body of literature in the area of the goods of domestic debt on the Nigerian frugality, thereby constituting the empirical literature for unborn exploration in the subject area

Study Thesis

The study thesis is

HO the relationship between domestic debt and profitable development isn’t significant

HO2 There’s no significant impact of domestic debt on the profitable development of Nigeria from 1981- 2012

Compass And Limitations Of The Study

The study compass is limited to probing the impact of domestic debt on the profitable development of Nigeria from 1981- 2012. Limitation faced by the exploration was limited time and fiscal constraint

Description Of Basic Languages

Debt commodity, generally plutocrat, that’s owed or due.

Growth the process of adding in progress of the nation

Capital wealth in the form of plutocrat or other means possessed by a person or association or available or contributed for a particular purpose similar as starting a company or investing.

Development the process of developing or being developed.

Organization of study

The study is grouped into five chapters. This chapter being the first gives an preface to the study. Chapter two gives a review of the affiliated literature. Chapter three presents the exploration methodology; chapter four presents the data analysis as well as interpretation and discussion of the results. Chapter five gives a summary of findings and recommendations.