External Debt Servicing and Public Expenditure in Nigeria (2000-2023): is There a link?

Abstract

The study assessed the effect of debt servicing on public expenditure in Nigeria for the period, 2000-2023. The dependent variable is government expenditure while independent variables consist of debt servicing, external debt and exchange rate. The study utilized co-integration and Ordinary Least Square and finding indicated evidence of long run relationship between public expenditure and debt servicing. The study also found that the impact of debt servicing and exchange on government expenditure is positive while external debt exerted significant negative effect on public expenditure. It is recommended therefore that government may consider channeling external borrowings to the real sectors of the economy as against social consumption to avoid accumulation of external debt servicing. Also, the funds should be properly managed in order to avoid wastages and mismatch. Finally, effort must be intensified by policy makers to ensure that effect of exchange rate misalignment on the naira must be mitigated to fast track repayment of any contracted external borrowings thereby preventing huge debt servicing.