External borrowing is a source through which many countries source revenue for
development and economic growth of their countries. But this revenue can only
help solve the problems of gross under – development when judiciously utilized.
The burden of Nigeria’s external debt is more than the country can bear and the
state of economic growth in the country is hampered due to debt crisis.
The debt problem facing Nigeria is concerned on how to stop incurring more
debts and device a way of servicing the existing debt without causing some
distortions in the economy. For effective and efficient debt servicing, factors
that hiders it has to be taken care of i.e. domestic financing policies, debt
management and external economic environment.
External debt affects the economic growth, the level of money supply and
employment in the country. So, Nigeria can solicit for debt cancellation from
it’s creditors and also adopt debt management as pat of it’s macro economic
policies of the nation and finally engage in productive projects.
1.1 BACKGROUND OF STUDY
1.2 STATEMENT OF PROBLEM
1.3 OBJECTIVE OF THE STUDY
1.4 RESEARCH QUESTION
1.5 RESEARCH HYPOTHESIS
1.6 SIGNIFICANCE OF THE STUDY
1.7 SCOPE, LIMITATION AND DELIMITATION
1.8 DEFINITION OF TERMS
REVIEW OF RELATED LITERATURE
2.1 DEFINITION OF EXTERNAL DEBT AND ECONOMIC GROWTH
2.2 CAUSES OF EXTERNAL DEBT CRISIS IN NIGERIA
2.3 CONSEQUENCES OF NIGERIA’S EXTERNAL DEBT
2.4 THE NATURE OF ECONOMIC GROWTH IN NIGERIA
2.5 CONDITIONS FOR RAPID ECONOMIC GROWTH IN NIGERIA
2.6 STRUCTURE OF NIGERIA’S EXTERNAL DEBT
2.7 NIGERIA’S DEBT MANAGEMENT STRATEGIES
2.8 PROBLEMS AND PROSPECTS OF NIGERIA’S EXTERNAL
RESEARCH DESIGN AND METHODOLOGY
3.1 RESEARCH DESIGN
3.2 RESEARCH METHODOLOGY
3.3 AREA OF STUDY
3.4 LOCATION OF DATA
3.5 DESCRIPTION OF POPULATION
3.6 SAMPLE SIZE
3.7 INSTRUMENT OF DATA COLLECTION
3.9 TECHNIQUES OF DATA ANALYSIS
DATA PRESENTATION ANALYSIS AND INTERPRETATION
4.1 PRESENTATION OF FOR HYPOTHESIS
4.2 TEST OF HYPOTHESIS ONE
4.3 PRESENTATION DATA FOR HYPOTHESIS TWO
4.4 PRESENTATION FOR HYPOTHESIS THREE
SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION
5.1 SUMMARY OF FINDINGS
BACKGROUND OF STUDY
Every country in the world aim at achieving economic growth and development.
However, this is only possible if a country has adequate resources. In
developing countries, especially those in sub Sahara Africa, the resources to
finance the optimal level of economic growth and development are in short
supply. This is as a result of the economies ploughed with problems of low
domestic savings, low tax revenues, low productivity and meager foreign
Basically, for these reasons, many developing countries yearning for economic
growth inevitably resort to external financing to bridge the gap between their
savings and investments. In the process of obtaining finance from abroad, a
country may consider several options: grants, foreign investment and loans
(concessional and non – concessional) in that order. However, mix of these
capital in – flow in varying proportion could be obtained depending on the
socio – economic and political situation in a country.
Nigeria like most developing countries borrowed from external sources mainly
for investment purposes. The country’s external debt was sustainable up to mid
1970’s. From the late 1970’s because of poor macro – economic management and
declining prices of crude oil, the country’s external debt began its upward
movement. Thus from an external debt of US $ 557.74 million in 1975.
Nigeria debt peaked at US $33.1 billion in 1990 before declining to US $27.1
billion in 1997 and rose to US $ 28.8 billion in 1998. However, one of the
greatest problems facing African countries basically classified as the amount
of their external indebtedness. The external debt problem is becoming more and
more for many reasons. This problem of increasing rate of the external debt is
threatening the development programmes embarked upon by these countries:
thereby retarding their economic growth and development. The reason being that
the size of the debt relative to size of the economy’s GNP is enormous. Also,
the current system of debt management has a serious macro – economic impact on an
economy’s output: as such, there is an urgent need to reduce Africa’s total
outstanding debt service payments as well as accumulating of arrears on
In 1986, the Federal Government introduced the Structural Adjustment Programme
(SAP) to address the problem of structural imbalance in the economy and create
an atmosphere for the achievement of macro – economic stability. It is obvious
that one of the integral part of the SAP is to reduce Nigeria huge debt. It is
a fact that if the enormous amount spent on debt service payment could be
reduced greatly, the country will be able to finance a large volume of domestic
investment which would enhance growth and development.
The problem of the rising external debt of the less developed countries (LDCs)
is giving nightmares not only to the debtor nations that is worrying about how
to earn enough foreign exchange to at least service their huge external debts
but also to the creditors that are worried about the tendency of the debts becoming
bad and irrecoverable.
To most debtors nations, the adage “ to go a borrowing is to go assorrowing” is
a biting truism. This is not to say that the researcher is against borrowing
either internally or externally. In fact, from the on set, the researcher
strongly believes that external funds if judiciously utilized will go a long
way to help solve or at least alleviate the problems of gross under –
development confronting most of the LDCs. Getting out of the “debt trap” is now
the major concern of both the creditors and the debt nations. The debtors
should not be made to bear the burden of miscalculation of botgh the creditors
( who were reckless in the approach to lending during this peak of the “ petro
dollar boom” for being too short sighted as not to see the strings and traps
attached to the loans.
Perhaps, the above cannot be more representative of the Nigeria situation which
is likened to an extravagant person who is hosting his friends and associates
to an all exercise – paid, no holds barred party, which after the parting found
himself unable to settle even a fraction of the bill and all the guest gone,
not even a person to be seen to offer moral succor to the lavish host. This
vividly describes the Nigeria external debt problem. Having wasted all the
borrowed funds and having nothing to show for it, Nigeria is woken up to
unending knocks of the creditors.
Unfortunately, ability to pay is close to zero. This is becomes more
pathetic when it can be seen that Nigeria is now called upon to pay when the
economy is in a depressed mood. More so, the borrowed funds are embarked on ill
conceived projects which are equally badly implemented. However, the new
international economic order sets out as one of it’s objectives to secure
favourable conditions for the transfer of resources to developing
countries and to ensure that a country’ resources are fully utilizes for the
development of the country concerned. Thus, Nigeria resorted to external
borrowing early in her history so as to quicken the pace of economic
development. The issue of Nigeria’s external debt generated much public concern
at the beginning of 1980.
Actually, Nigeria’s external indebtedness started during the colonial days. The
last of colonial borrowing was the World Bank (IBRD) loan of 1958 used to
finance Nigeria Railway Corporation extension to Bornu under the guarantee of
the United Kingdom Government ( Felagan 1978). It is believed that debt is
generated by the gap between domestic savings and investment, and export
earning which increases in absolute terms over time. As the gap widens and the
debts accumulates, interest charges also accumulate and a country must borrow
more to maintain constant flow of net imports and to refinance maturing debt
Nevertheless, external borrowing became a conscious public policy when in 1960,
the Government promissory notes ordinance was enacted for the purpose of
raising authorized loans. Under the ordinance, a sinking fund was also
established for redeeming loans raised. In 1962, the external loans Act
was enacted by parliament which provided for the raising of the loan outside
Nigeria. Under the Act, external loans were to be used for the purpose of
development program and for making loans to regional government.
In 1970, after the civil war “ The External Loan Rehabilitation, Reconstruction
and Development” decree was promulgated. The decree authorized Federal
Commission to raise loans outside Nigeria for amount not above N1 billion. The
loan is for rehabilitation, reconstruction and development
programme for making loans to state government. These various regulations on
external loans became the policy guidelines not only in magnitude but also in
Nigeria’s debt crisis could also be traced to the misdirect economic policies
pursued since the buoyancy of the oil market which resulted in an outright
neglect of the non – oil sector of the economy especially agriculture. Owing to
this neglect of other sectors in the economy, the oil sector provided over 905
of the government national revenue, so fluctuations that occurred in the oil
market in 1978 and 1980s distorted the projected revenue estimates of the
federal government. Hence, the government had to borrow to fill the gaps
created by the fluctuation and also meets the increasing expenditures. Thus,
Nigeria’s debt as recorded by the Central Bank of Nigeria in 1978 was N1, 265.7
million or US $2.2 billion;N8819.4 million or US $ 13.1 billion in 1982 and
N133,956.2 million in 1988. More so, the total outstanding external debt of
Nigeria went up to N240, 033.6 million in 1989 in addition, it is said that the
debt keeps rising yearly ( defying Newton’s law of gravity) as Nigeria was
owning N648,813 million as at 1994 and N3,097,383.8 million as at 2000.
The debt situation was also intensified by large public deficit relatively free
capital in – flows, inefficient control over private capital out flows and real
over valuation of the exchange rate of naira to other world currencies. For
these reasons and others, debt problem has become one of the most pressing
issues in the world’s political and economic relationship for a LDC like
In essence, what matters most is not the amount of the foreign loans but the
ways and manner the loans are used in developmental process. If these loans are
used for current consumption, they will have minimal impact on future economic
growth but if invested rationally in productive ventures, they will contribute
positively to real growth and enhance the productive capacity of the
economy. The fact is that development depends purely on a sustained increase in
real income, which can only be achieved or accumulated from economic growth.
Economic growth however, emphasizes on the changes in economy’s productivity
over time. Growth tends to occur when total production increases more rapidly
than population. Thus, it is the country’s ability to maintain a strong defense
or to pay for some other national project. As a matter of fact, economic growth
is an ever increasing quantity of goods and services available to meet the
economy’s need over time. As a result, the higher the ratio of debt servicing
payments, the lower the level of economic growth. The primary burden of
Nigeria’s public debt is indeed shifted to the future, thereby retarding
economic growth. The rate of investment tens to be low and unemployment rate
become high because of our huge public debt. Furthermore, our reputation is
tarnished and the developed nations are no longer confident in our economy.
This rise to reductio0n in the flow of foreign investment to Nigeria, which
could have profound consequences for the economic development prospect of the
nation. With the oil glut and reduced revenue, it is expected that our external
debt liabilities will increase and our economy will be unstable. The debt
crisis if not well managed will lead to liquidity crisis and foreign exchange
crisis, which will retard the rate of economic growth and development in
STATEMENT OF THE PROBLEM
The issue of external debt in Nigeria has become an immense status bestriding
the main stream of international economy and politics. Foreign loans and aids
are no longer used as instrument of assistance but as a weapon of oppression,
suppression and perpetual under development. That the management of external
debt has assumed a critical dimension for Nigeria not in doubt. This can be
seen in the rising total of external debt outstanding and the cost of servicing
the huge debt. From the comfortable position of lending even from the
International Monetary Fund (IMF) and Africa Development Bank (ADB). Nigeria
became one of the biggest debtor nations in the world and was listed among the
biggest debtor nations in the world and was listed among the fifteen most
indebted nations in the banker plan list.
At the end of civil war in 1970, the country’s external indebtedness was
relatively low and was of little significance till 1974. But by 1977, external
debt of Nigeria was N496.9 million and it rose by over 205% to N1,265.7 million
or US $ 2.2 billion referred to as the “ Jumbo Loan” and was contracted from
the international capital market (ICM) in 1978. This sky rocketed to US $32.6
billion at December end, 1995.
With huge debt outstanding, debt service obligations rose astronomically as a
result of rising interest rates in the international money market and declining
grace period and grant element leaving little of foreign exchange for import of
external raw materials and consumers goods
OBJECTIVES OF THE STUDY
The broad objectives of the study are mainly:
1. To critically examine the external debt problem
in Nigeria between 1993 to 2004
2. To assess the problems of external debt and
their implications on the economies of the debtors countries.
3. To analyze the factors affecting debt servicing
capacity of nations.
4. To analyze the impact of external debt problem
on he level of money supply in an economy.
5. To suggest and recommend ways of improving on
the debt management policies in Nigeria.
6. To determine external debt problem on level of
7. To determine factors affecting economic growth.
1. What is the causes of external debt problems in
Nigeria between 1992 – 2004?
2. To what extent has the external debt problem
risen and what impact do it have on economies of debtor countries?
3. What are the factors affecting the debt
servicing capacity of nations?
4. To what extent is the impact of external debt on
the level of money supply in an economy?
5. In what ways can debt management policies in
Nigeria be improved?
6. What is the state of external debt problem on
the level of employment?
7. What is the state of economic growth in Nigeria?
For the purpose of evaluating or in
order to efficiently and objectively analyze or achieve the above objective,
the hypotheses is formulated thus:
1A. Ho: External debt has no significant impact on the GOP of
economic growth in Nigeria.
B. Hi: External debt has significant impact on the GOP of economic
growth in Nigeria.
2A.Ho: External borrowing has no significant impact on the level
of money supply in the economy.
Hi: External borrowing has significant impact on the level of
money supply in the economy.
3A. Ho: The level of external debt does not have any significant
impact on employment.
B. Hi: The level of external debt has significant impact on
SIGNIFICANCE OF THE STUDY
The nature of Nigeria economy has made it to be vulnerable to
external shocks. Over the years, Nigerian economy is having
adverse balance of payment which could be easily financed from domestic sources
and hence external borrowing becomes inevitable .The adverse effect of external
debt and economic growth related problems on the Nigerian economy are becoming
unbearable. So the study will be of importance to educate Nigerians by
revealing to them one of the major reasons why Nigerian economy is growing at a
very slow rate, which could be traced back to the huge amount of foreign
earning s spent on the external debt services instead of spending it on
domestic investment. Thus an undecked growth in foreign exchange outflows to
service accumulating debt, which will only further entrench under
development of Nigeria economy .This means increasing poverty ,ignorance
,disease and other conceivable socio political maladies.
Furthermore, this study will be of a good help to the Nigerian
government, especially the present government to know the effectiveness
of the external debt and economic growth polices implemented in the
previous years and know exactly the next step to follow now in curtailing the
total outstanding external debt because it is very obvious that the
Nigeria external debt is now growing at alarming rate yearly. It must be
added that this study is of relevance not only to Nigeria but to almost all the
countries classified as LDCs especially as a result of various common features.
SCOPE – The study is designed to cover the period of 1992 – 2004
and concentrates only on the external debt in Nigeria and also economic growth.
DEFINITION OF TERMS
EXTERNAL DEBT – External debts are debts
incurred when the government of a country borrows from a
foreign banks ,Government and International institutions like IMF,WORLD BANK,
PARIS CLUB etc. Also it can be seen as unpaid portion of external resources
required for developmental purposes and balance of payment support which
could not repaid when they fell due.
BALANCE OF PAYMENT – A systematic record of all transactions
between residents of one country and the rest of the world .It is a
statement of all the financial and economic transactions between one country
and the rest of the world over a given period of time. It becomes unfavorable
or adverse when there is excess importation over exportation.
ECONOMIC GROWTH – I s a long term rise I capacity to supply
increasingly diverse economic goods to its populations. This growing capacity
is based on advancing technology ,the institutional and ideological adjustment
that it demands. It refers to increasing real output or real per capital output
ECONOMIC DEVELOPMENT – A multidimensional process involving the
reorganization and re orientation of entire economic and social system.
TERMS AND CONDITIONS APPLY
For more informations on project materials and more