ABSTRACT
Nigeria External Debt and its Implication in Nigeria
Economy has a background traced to Nigeria Independence in 1960 and up to the
1970s when there was no serious credit problem facing the country. The reasons
were that the ideology of development in the 1960s did not encourage excessive
borrowing from international capital market because it was through to be in
appropriate.
Hence Nigerian has been ranked among the fifteen heavily
indebted countries in the world with crippling debt burden. Thus in the early
1970s the country's external reserve rose sharply due to the increased
importance of crude oil.
As could be observed the country took off with a cautions
debt policy which led to the first major borrowing from the international
capital market. Inspite all efforts, the debt crisis of Nigeria keeps
escalating because of unpatriotic and unscrupulous citizen of the country.
However, the methodology introduction involves the description analysis and the
statistical approach that involves the aid of multiple regression analysis with
interpret result under the hypothesis formulated.
It is clear that the critical factor affecting economic
growth is external debt. Hence, with the use of t-test using the ordinary least
squares. Regression techniques (OLS), a negative relationship between debt
service payment and the department variable.
Thus, the sources, growth and features of the present
debt crisis of Nigeria has been revealed and how it has generally affected the
economic growth of this country. The Nigeria debt could have been avoided if
loan were properly contracted and deployed to self -liquidating and
economically variable projects.
It involves that steps must be taken to attract more
direct investment, which not only brings in the external finance but also the
skills and technology so essential for the rapid expansion of the economy.
TABLE OF CONTENTS
Title page
Certification
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE
1.0 Introduction
1.1 Background
of the study
1.2 Statement of
the problem
1.3 Objective of
the study
1.4 Research
questions
1.5 Significance
of the study
1.6 Research
hypothesis
1.7 Sources of
data
1.8 Scope and
limitation of the study
1.9 Plan of the
study
CHAPTER TWO
2.0 Literature
review
2.1 Introduction
2.2 Origin of
Nigeria's external debt
2.3 Causes of
external debt in the world economy
2.4 Theoretical
analysis of Africa's debt crisis
2.5 Structure of
Nigeria's external debt
2.6 Nigerian
external debt profile
2.7 Causes of
Nigeria's external debt
2.8 Debt relief
proposals
2.9 Debt
management strategies adopted in Nigeria
CHAPTER THREE
3.0 research
methodology
3.1 Introduction
3.2 Research
design
3.3 Sources of
data collection
3.4 Method of
research and measurement of variable
3.5 Data
analysis techniques
3.6 Limitations
of the research methods
CHAPTER FOUR
4.0 Analysis of
data and interpretation
4.1 Introduction
4.2 Data
Analysis technique
4.3 Presentation
of data
4.4 Empirical
result
CHAPTER FIVE
5.0 Summary,
Conclusion and Recommendation
5.1 Summary of
Findings
5.2 Conclusion
5.3 Recommendation
BIBLIOGRAPHY
APPENDIX
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Prior to Nigeria's independence in 1960 and up to the
1970's there was no serious debt problem facing the country. The reasons were
that the ideology of development in the 1960's did not encourage excessive
borrowing from international capital market because it was through to be in
appropriate. Even where borrowing was permitted to finance development it was
not easy to obtain loan from the international capital market and the
pre-independence period did not witness any significant growth in the level of opportunity
attractive to foreign investors.
According to an International Monetary Fund (IMF) survey
(Washington DC 1989). Nigerian has been ranked among the fifteen heavily
indebted countries in" the world with crippling debt burden Nigerian
experienced serious balance of payments difficulties around 1963 where her
level of external reserves fell below the minimum of four months import as a
result of this. a number of fiscal measures were adopted by Nigeria to certain
the situation. This included the imposition of higher tariffs and the
introduction of quantitative import restrictions.
In the early 1970's the country's external reserves rose
sharply due to the increased importance of crude oil. This situation led to the
then head of states general Yakubu Gowon into making public money creation.
Consequently, the fiduciary element of the currency was expanded and a policy
to hold down the cost of public debt began.
As could be observed the country took off with a cautious
debt policy which led to the first major borrowing of $2.8million from the
international capital market. This was later interrupted by the events of the
devastating civil war. Even then, the low profile picture of public debt was
maintained. What then the government did in response to the war situation was
to float new public debt instruments of short term maturities, treasury bills,
treasury certificates etc. in addition to the development loan stock.
The cautions debt policy especially as regards to
external borrowing was maintained throughout the first and to greatest extent
of the second decade of the country's political independence.
According to Nwankwo (1989), from 1978 caution seems to
have been thrown to the winds and the nation seems to have gone into an
external borrowing spree. The total external debt of the federal government at
the end of 1975 was N349.9million and internal debt of N1678.9million as
against an external debt of N20982.7million-and internal debt of N25675million
at the end of 1984.
This increased public debt scenario has obvious brig run
implications on the country's development effort and more importantly the wellbeing
of her citizens. Even more disturbing is that oil revenue on which pre-casts
external debt was contracted has been tilling thereby compounding debt
servicing obligation.
One of the greatest problems faced by the government
revenue such that any fluctuations in oil prices affect government revenue.
This can be seen in the form of governments belief that it could not only
afford to import large quantities of consumer goods and services, but that it
could also borrow large sums of money from abroad to finance certain projects
within Nigeria give the country's high credit worthiness.
Unfortunately, when oil prices started dropping, instead
of the government reducing the level of imports, it resorted to more external
borrowing to fill the foreign gap.
Inspite of all efforts, the debt crisis of Nigeria keeps
escalating because of unpatriotic and unscrupulous citizens of the country.
Government efforts are also plagued by an inherent contradiction and
politicization of federal policies and projects, which have thwarted honest
measures or effort of the government to alleviate the debt crisis.
1.2 STATEMENT OF THE PROBLEM
The external debt of Nigeria dated back to the
pre-independence era. Sources from the federal ministry of finance indicated
that Nigeria contracted her first loan from the World Bank in 1958. The loan
was a relatively small amount of US $28million
for railway extension in the country. The loan has since been fully rapid. The
external debt renamed relatively low during the oil boom years. In fact, during
that period, the country's foreign exchange position was healthy that Nigeria
had to lend money to such institutions as the International Monetary Fund (IMF)
under the oil facility in 1974. During the oil boom, it was the general
perception that Nigeria was relatively "Under Borrowed."
However, the position change dramatically in 1977 as the
oil boom collapsed and was replaced by an oil glut. The reserve in out fortunes
brought a lot of pressure on the government finances and consequently, it
became absolutely necessary to borrow for balance of payment support. This led
to the first major borrowing of $1.0billion from the International Capital
Market. This loan was generally referred to as the 'Jumbo Loan'. The loan had a
short maturity period with very high interest rate.
From 1978, our external borrowing rose sharply. Most of
the loans were raised from private capital markets as funds from the bilateral
and multilateral institutions were not easy to source. In order to further
complicate issues, some state government resorted to borrowing from external
sources to finance all sorts of projects, regardless of their viability. Most
of the bans were used to finance social white elephant project which were
unproductive.
It has to be noted that while the debt incurred between
1970 and 1978, consisted mostly of the soft long terms loans from bilateral and
multilateral institutions, the borrowing after 1978 were from private capital
markets with very high interest rates. The sharp decline in oil earning as a
result of the oil glut led to our difficulty in meeting out external loans
obligations.
Consequently, from 1982, the country started to incur
payments arrears and also became incapable of paying her imports as at when
due. This development impaired the international credit worthiness of the
country as most international organizations became reluctant to give additional
lines of credit to the country.
Nigeria's external debt problem started as a result of
the changing structure of Nigeria's debt. The share of official development
assistance (ODA) and confessional loans has declined over the years, while the
share of the debt owed to private creditors and loans contracted on market
terms increased. The shift from official to private sources of credit by
African and Nigeria in particular shortened loans maturity. from the average of
22years in the 1970's to 15years in the 1980' s and reduced grace periods from
6years to 4years. Besides the maturity transformation, the shift also involved,
paying considerable higher interest rate, which has short maturities. An
important consequence of the maturity transformation was of debt service
obligations at a time of acute shortage of foreign exchange. This explains the
rapid buildup of payment arrears and thus intensified the age-long problem of
net capital flows. The consequence has been a serve bunching of amortization
and interest payments since 1984 and a worsening of the debt crisis in Nigeria,
and as such, this has formed the bulk of outstanding external debts. As such,
the solution to the debt problem is a major task facing policy makers in
Nigeria.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to review the
implications of external debt burden on the Nigeria economy, and to identify
the major causes of the debt burden. This study is to see the effect of
external debt on the Nigeria economy. In the process of the study, a detailed analysis of the country's external debt
shall be made and be used to prove the hypothesis to arrive at a reasonable
conclusion and recommendations.
1.4 RESEARCH QUESTIONS
In the process of carrying out this study, these are some
of the research questions used for this purpose.
(i) What are
the effects of debt on- the Nigeria economy?
(ii) Is the loan
has any effect on foreign exchange?
(iii) Is there any relationship between external
debt and Gross Domestic Product (GDP)?
(iv) Is the principal repayment of the debt has
any impact on Gross Domestic Product (GDP)?
(v) What is the effect of the debt on the
standard of living? However, econometrics and statistical techniques will be
employed in carrying out the analysis in order to assess the impact of external
debt on the Gross Domestic Product (GOP). Here, the external debt is divided
into two ways parts:
Principal repayment on external debt and Interest payment
on external debt
1.5 SIGNIFICANCE OF THE STUDY
The significance of the study lies in the fact that if
adequate attempts are made at understanding the genesis, causes and
implications of the external debt burden on the Nigeria on the Nigeria economy,
it could help policy makers and government to be able to formulate policies
that would help facilitate the debt problem, and adjust such policies to
enhance necessary macro-economic growth and development.
Finally, it will help build up or rather contribute to
existing knowledge in this field of economics, and shall make useful
recommendations that would assist policy makers in formulating development plans for the Nigeria economy.
1.6 RESEARCH HYPOTHESIS
In the analysis, the following hypothesis is set up:
Ho: Principal repayment on external debt has no
impact directly on Gross Domestic Product (GDP).
Hi: Principal repayment on external debt has an
impact directly on Gross Domestic Product (GDP).
Ho: External debt has no impact directly on Gross
Domestic Product (GDP).
Hi: External debt has an impact directly on
Gross Domestic Product (GDP).
It is on the basis of this that conclusion on the study
would be established and interpreted.
1.7 SOURCES OF DATA
The major of date use would be derived and based purely
on secondary sources. These sources include central bank of Nigeria (CBN)
Economic and Financial Reviews, CBN Annual Report and Statements of Accounts.
CBN briefs and bullions. Other sources includes: Journals, Newspapers, Seminar
Papers and Articles.
1.8 SCOPE
AND LIMITATIONS OF THE STUDY
The study is redistricted to the foreign debt outstanding
of Nigeria.
It covers a period of fourteen years, 1989-2003. although debts were incurred
before and after these year's, the study will be restricted to the above given
years based on the fact that a study of this nature will not yields sufficient
results if a longer period is used and also such result could equally be
applied in future policy decision making process.
However, a research study of this nature, cannot be done
successfully without having one or two problems one of the limitations of this
study is the use of secondary data; this to the fact that it is difficult to
generate primary data relevant for the study.
Secondly, the problem of irreconcilability of the
available data published by the central bank of Nigeria (CBN) on one hand, and
those publish by the IMF and other independent bodies on the other hand.
Also in most cases, the presentation of the debts owed by
Nigeria is not clearly presented in the reports of CBN i.e. they do not follow
a systematic and permanent format.
Despite these constraints, the available data will be
used for an indepth analysis.
1.9 PLAN OF THE STUDY
In an attempt to do justice to the study under review,
the outline of the study will be such that:
Chapter one will give a brief statement of the problem
with the objectives introduction and methodology of the study.
Chapter two shall look into various theoretical
background and literature review of the Nigeria external debt burden and its implication.
Chapter three shall cover the methodology of research and
specification of the model.
Chapter four shall look at the descriptive analysis and
statistical results and interpretation and shall analysis the study.
Chapter five of the paper shall be devoted to summary,
conclusion and recommendation.
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