Nigeria's Debt Conundrum: An Appraisal of Debt Management Strategies and their Impact on Economic Growth

This study investigated the relationship among debt management strategies and economic growth 
in Nigeria over a 34-year period between 1990 and 2023. Nigeria’s persistent debt accumulation, 
heavy debt-servicing obligations, and fiscal vulnerability raise pressing questions about the 
effectiveness of existing strategies in fostering sustainable development. While borrowing 
potentially stimulated growth by bridging resource gaps, the country’s rising debt profile —
 combined with exchange rate volatility, high interest rates, and weak governance —generated 
more concerns about debt sustainability. The specific objectives of this study were to examine the 
effect of external debt on economic growth, the impact of debt servicing on growth, and the 
moderating effect of institutional quality on the relationship between Nigeria’s debt and economic 
growth. Secondary data for macroeconomic indicators such as GDP growth, external and 
domestic debt, debt servicing, exchange rate, and interest rate were sourced from the Central Bank 
of Nigeria, Debt Management Office, World Bank, and International Monetary Fund (IMF). The 
Autoregressive Distributed Lag (ARDL) model was employed to capture both short-run and long
run dynamics among the variables. The empirical analyses revealed three key findings. First, 
external debt exerted a significant negative impact on growth in both the short and long run, 
underscoring the risks of overreliance on foreign borrowing amid exchange rate depreciation and 
global interest rate pressures. Second, debt servicing obligations severely constrained economic 
growth, as the diversion of revenues (often exceeding 90% of federal income) to debt repayment 
crowded out public investments in education, healthcare, and infrastructure. This burden was 
further amplified by exchange rate depreciation and high domestic interest rates. Third, 
institutional quality was found to significantly moderate the debt–economic growth relationship 
as strong governance, transparency, and accountability mitigated the adverse effects. However, 
weak institutions exacerbated fiscal vulnerabilities thus, the study recommends; cautious and 
strategic borrowing, enhanced domestic revenue mobilization, and strengthened institutional 
frameworks.