Public Debt and Economic Growth in Nigeria: An Empirical Analysis (1986-2024)

This study examines the impact of public debt on Nigeria’s economic growth from 1986 to 2024, focusing on real GDP growth, domestic debt, external debt, domestic debt servicing, and external debt servicing. Using the Autoregressive Distributed Lag (ARDL) approach, annual time series data were obtained from the Central Bank of Nigeria, International Monetary Fund, and World Bank. Findings reveal that domestic and external debts have significant positive long-run effects on growth, indicating their role in financing productive investments and infrastructure. Conversely, domestic debt servicing and external debt servicing exert significant negative impacts, with external servicing posing a greater constraint on fiscal space and long-term development. In the short run, new borrowing supports growth, while servicing obligations slightly reduce output. Granger causality analysis shows bidirectional causality between domestic debt and growth, and unidirectional effects from external debt and both servicing components to growth. Diagnostic and stability tests confirm the robustness of the model. The study concludes that prudently managed borrowing targeted at high-return projects can enhance growth, but rising servicing costs—especially external—erode these gains. Policy recommendations include restructuring domestic debt portfolios, prioritizing concessional external loans, strengthening legislative oversight on borrowing thresholds, ensuring domestic debt issuance does not crowd out private investment, and enforcing transparency and accountability in project execution. These measures are essential for sustaining the growth benefits of debt while mitigating long-term fiscal risks.