External Debt Financing and Public Capital Investment in Nigeria: A Critical Evaluation

Abstract

This study considers the consequences of external loan on capital investment in Nigeria. Data for the study have been collected from the World Bank and Central Bank of Nigeria Statistical Bulletin, 2018 edition. The variables on which data are sourced include government capital expenditure, external debt accumulation, debt servicing cost, inflation rate, and exchange rate. Government capital expenditure is the dependent variable, while external debt accumulation and debt servicing cost are the key independent variables. Inflation and exchange rates are used as the moderating variables. The scope of the study covers the period from 1996 to 2018 and the data are analysed using the ordinary least squares multiple regression method. The regression results indicate that external debt has a significant negative impact on capital investment while debt servicing cost has a strong and significant positive effect on capital investment. Under this circumstance, the controlling variables are not significant in influencing capital investment. Hence, the study suggests more focus on profitable capital investments if external borrowing must be embarked upon. The need for the development of untapped natural resources, establishment of industries and revival of abandoned industries to boost debt repayment has been emphasized. The study also strongly recommends that the existing governments (state and federal) should endeavour to complete capital projects of past administrations in order to drive the economy and to avoid wastage of financial resources including the borrowed funds.

Cash Flow and Profit Impact on Capital Account Liberalization-Investment Growth Nexus in Nigeria: An Aggregated Firm Case

“…In addition, Nwafor, Odey & Effiong (2017) found domestic savings to be insensitive to financial liberalization in Nigeria for the period under study. Apart from some flaws of CAL as itemized earlier, Omodero (2019) in her study found that accumulation of external debt which was one of the upshots of liberalization imposed an adverse effect on capital investment in Nigeria. From the mixed outcome angle, private investments appeared to react differently to financial or capital openness in the short run and the long run.…”

Non-Linear Effect of Government Debt on Public Expenditure in Nigeria: Insight from Bootstrap ARDL Procedure

“…At country-specific level, researchers have also assessed the impact of public debt on public expenditure, particularly in developing countries such as Bangladesh, Kenya, Namibia, Nigeria, South Africa, including Uganda, and found that public debt (stock, servicing) is positively related to aggregate and/or components of public expenditure (Abu et al, 2022;Ahaisibwe, 2018;Fagge & Ibrahim, 2018;Firoj et al, 2018;Iiyambo & Kaulihowa, 2020;Kiminyei, 2014Kiminyei, , 2019Ncanywa & Masoga, 2018;Omodero, 2019;Ukwueze, 2015). On the contrary, some authors discovered that public debt (stock and servicing) decelerates public expenditure (Adamu, 2016;Aregbeyen & Akpan, 2013).…”

Impact of National Debt Burden on Economic Stability in Nigeria

“…It was found that debt overhang and debt burden in Nigeria were due to the usage of borrowed funds into unproductive activities such as payment of salaries and allowances, which had hindered economic growth. Omodero (2019) emphasised the consequences of external loans in Nigeria between 1996 and 2018. Using the regression technique to analyse the data, it was revealed that external loans had a significant and negative impact on capital investment, while the cost of external debt exerted a positive and statistically significant impact on capital investment.…”