Debt and Debt Volatility: Effect on Economic Growth in Nigeri – Literature Review

Ellis disagrees to some extend with the assumption made by most economists that a low National Debt as a percentage of GDP is a sign of economic health. While it can be a sign of economic health, it is increasingly a sign of economic disparity amongst the citizens. Some of the countries with the lowest debt to GDP ratios have the highest income inequality (GINI Coefficient) and a large percentage of their population living in below the poverty line. The perfect example she gave would be South Africa. The country has one of the highest GINI coefficients in the world, half of its population, however, lives under the poverty line, yet it has a national debt to GDP ratio that is only half that of the United States. This is nowhere near being economically healthy. This only means that a select few, likely large companies and multinationals, are economically healthy within the country.
Ellis stated that It is important to note that the relationship between public debt and GDP is abstract. Nations do not actually pay off public debt per year according to the ratio of debt and GDP. Since most public debt is paid off over many years and even altered or added to as time goes by, the relationship between public debt and GDP is merely used to illustrate and illuminate the financial state of a nation. Despite the limited real meaning of public debt and GDP ratios, the comparison is taken very seriously, as it indicates how able a nation will be to pay off debts. When the Eurozone was created in 1999, member nations had to prove a debt to GDP ratio of under 60% to be allowed to join the currency. This was to ensure that the euro would remain relatively stable despite becoming the backbone of many widely different economies throughout Europe.
Over the past two decades, the world’s most populous black nation has been sitting on the time bomb which evolves around a protracted external debt crisis, the intractable effect of which is unseen in relation to the country’s economic growth development. The debt relief granted by the Paris Club in 2005, one of Nigeria’s creditors, is no doubt a welcome development, but that does not put a permanent end to the debt debacle. For those who understand the intricacies surrounding the recent debt cancellation granted by the Paris Club, they would quite agree that it is not yet “uhum” for Nigeria as regards her debt crisis. Naturally and historically too, Nigeria can be aptly referred to as an agro economy just like most of its contemporaries in the sub-saharan part of Africa. The dominant economic activity was in terms of employment and linkages with the rest of the economy and it used to be the sector with the most earnings for the government especially during the preindependence era. Around this period, Nigeria was heavily dependent on agriculture as the mainstay of the economy. For the avoidance of doubt, 64% of the GDP were originated from the agricultural sector.
However, all that soon changed with vigorous exploration of oil in the 1970s; the contribution of the agricultural sector systematically declined until it reached an all time low level of about 17% in 1982. From 1976, there was an oil glut which resulted in the fall of oil prices at the international market. However, the government still embarked on large projects which were pegged on external financing. This could be said to be the genesis of Nigeria’s external debt crisis. fully