Osagie defines external debt as “one incurred when government borrows from foreign international financial institutions”. In other words, external debt comprises of any debt, incurred or contracted by the government of a particular country from sources outside the geographical boundaries of the indebted country. The debt ballooned of Nigeria was the fact that the more she pays part of her debt, the more the increase in the debt owed. Ordu summed up the frustration of a nation entangled in protracted debt crisis when he said “Our debts seem to be perpetually on the increase. It is a sore that has refused to heal. The more we pay, the more we seem to owe. And our debt has been paid many times over.”
The Nigerian Debt Build-Up: A Foreign Author’s Brief Account
Quite a number of views have been expressed in relation to the build-up to the nation’s debt crisis. One of such views is that by Rieffel that stated among other things, that “Nigeria’s debt servicing problem began around 1985. At this point, the Nigerian government’s total external debts to all creditors amounted to $19 billion. However, today its outstanding external debt at the end of 2004 grew to almost $36 billion.”. The ballooning of Nigeria’s debt is related directly and exclusively to this policy choice by the creditors. Over the past twenty years, Nigeria has met its debt-service obligations to multilateral creditors without any restructuring, to commercial creditors after negotiating a debt exchange at 60% discount, Nigeria has been a performing debtor.
The above view becomes very necessary in that over the past few years, it is commonplace to find different authors adduced Nigeria’s external debt crisis to a case of a nonperforming debtor, thus making the country the only visible culprit for its worsening debt debacle. However, as it is combination of so many factors and not just a case of nonperforming creditor or debtor.
The research made use of secondary data source from the central bank of Nigeria (CBN) statistical bulletin 2008. The ordinary least square regression model was used to test the significant of relationship that exist between the Gross Domestic Product ( GDP ), as explained, variables on the national debt, national debt volatility and the lag of gross domestic product. The national debt volatility was obtained as the squared residual of national debt using the Autoregressive Conditional Heteroskedasticity (ARCH) using the Breush Pagan – Godfrey test for random shock test.The various dependent variables were also tested for the present of unit root. The Augmented Dickey – Fuller (ADF) test was adopted for a robust analysis. National debt, one lag of gross domestic product (GDP (1)) and national debt volatility were tested for present of a unit root. The decision criterion was based on the Markinnon one -sided p – values. fully
The linear regression model was estimated as below:
GDP = a0 + a1 NDebt + a2 NDebt vol + a3 GDP
GDP = Gross Domestic Product
NDebt = National debt
NDebt vol = National debt volatility
GDP = one lag of gross domestic product a0, a1, a2, a3 = constants
U = the standard error of the equation.