A Predictive Model For Nigeria’s External Debt: New Evidence And Insights

Abstract

Motivated by the urge to search for improved prediction of the prevailing empirical interrelationships between Nigeria’s external debt and the acclaimed primary causants from received literature (productivity index, inflation rate, foreign reserves, population and balance of payment on current account), this study builds on the earlier studies of Isu (1997) as well as Nnamdi and Omojefe (2009). Secondary data was obtained from Central Bank of Nigeria's Statistical Bulletin over the period 1986 to 2016. Stationarity, Multiple Regression, Johansen's Cointegration, Error Correction and Granger Causality tests were employed in processing the obtained data on incremental/change basis. The results obtained represent obvious improvements on earlier studies of Isu (1997) as well as Nnamdi and Omojefe (2009). They provide evidence that in the short run, inflation rate and population are significant predictive variables for Nigeria's external debt. The long run analysis reveals that inflation rate, foreign reserves and balance of payment on current account are reliable predictors of Nigeria's external debt. Further, inflation rate and Nigeria's balance of payment on current account are found to be significantly promoted by Nigeria's external debt. The study concludes that combined, inflation rate, balance of payment on current account, foreign reserves, and population constitute reliable predictors of Nigeria's external debt depending on whether short or long run perspective is taken. On the whole, it is recommended that Nigeria’s Central Bank should address anti-inflationary measures, while the government should step up campaign efforts towards population control. Intensified diversification of the economy through increased private sector participation in non-oil related businesses is strongly recommended in order to boost Nigeria's export earnings, external reserves and balance of payment positions.

Keywords: External Debt, Economic Performance, Development financing.