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Ofurum, C. O., & Fubara, S. J. (2022). Public Debt and Economic Development: An Empirical Evidence from Nigeria. Archives of Business Research,

10(7). 79-91.

URL: http://dx.doi.org/10.14738/abr.107.12728

recession in 2005 (Nwankwo, 2010). Despite discontinuing her membership in the Paris and

London Clubs in 2006, Nigeria continued to use deficit financing, particularly in 2009 and 2010,

when it issued debt instruments worth N524 billion and N867 billion, respectively (Ajayi and

Edewusi 2020). This action was awkward and resulted in the payment of a $42 billion interest

rate to the Paris Club (Nwankwo, 2010). Several studies on the effects of public debt on

economic growth have been conducted over time in various nations worldwide. Interestingly,

many of these studies and other related research lack strategic empirical evidence Mencinger,

Aristovnik et al. (2014). Mencinger, Aristovnik et al. (2015); Ohiomu (2020), Lee and Ng (2015);

Egbetunde (2012), Brini, Jemmali et al. (2016)

Although public debt is frequently used as a last alternative by governments worldwide, it is

regarded as advantageous compared to other strategies such as money creation and the sale of

national assets. Nonetheless, it has been found that an increase in foreign debt has a detrimental

influence on most countries' trading capabilities and economic success (Asley 2002).

Furthermore, debt overhang impacts economic development and the efficacy of monetary

policies, export growth and decreases the harshness of trade restrictions, therefore improving

market friendliness and, as a result, boosting trade openness. Regardless, debt, if not properly

utilised, decreases the amount of economic progress (Muinga 2014). According to Ojo (2020),

the rising debt accumulated by Nigeria was undoubtedly one of the factors that prompted the

SAP (Structural Adjustment Programme)established in 1986 to promote sustainable economic

growth. According to Buryk, Bashtannyk et al. (2019), public debt is an excellent tool for

boosting economic growth, especially when it is utilised to create national assets that may

generate job possibilities. Although public debt, if mishandled or used inefficiently, causes a

slew of economic problems, the notion is that debt should only be used when it is indispensable

and when sufficient measures for its usefulness and control are in place. This study used

external debt, domestic debt, external debt servicing, and domestic debt servicing as public

debt indicators.

External debt refers to liabilities owing to other countries or international organisations. There

is ample evidence in the current body of research to suggest that foreign borrowing promotes

a country's growth and development. Governments borrow for various reasons; the first is for

macroeconomic reason, to increase investment and human capital development, while the

second is to alleviate budget constraints by funding fiscal and balance-of-payment imbalances.

Alabi (2010)) emphasised that nations, particularly less developed countries, borrow to

increase capital formation and investment, which low domestic savings had historically limited.

The two primary reasons the government borrow are to bridge the savings-investment gap and

the foreign exchange deficit. According to Chenery (1967), governments borrow to compensate

for a country's lack of savings and investment. Domestic debt refers to the responsibility or

obligation committed by a country within its borders. Domestic debt markets can assist

improve money and financial markets, increase private savings, and promote investment

(Abbas and Christensen 2007). According to data provided by Nigeria's Debt Management

Office (DMO), Nigeria's domestic debt stock was at about $43.185 billion or N7.25 trillion in

March 2015 Titus, Chidi et al. (2016)), 10.606 trillion in June 2016 (DMO, 2016), and is

constantly growing. Meanwhile, Nigeria's internal debt amounted to $21.8 billion in October

2010, up from $17.7 billion in 2009 (Udeh, UGWU et al. 2016).