DOMESTIC DEBT AND ECONOMIC GROWTH OF NIGERIA

CHAPTER ONE

1.0        INTRODUCTION

1.1   Background of the Study

Debt is an outstanding credit obligation. It refers to payment which must be, but has not yet been paid to somebody. Legally, debt is a choice in action transferable by the creditor to some other person provided that the transfer is in writing and that whole and not merely a part of the debt is so assigned ( Anyafo, 1995).

Public debtis an amount of money owed by the government to institutions, government agencies and other bodies either resident in or outside a country. When debts are owed to residents within a country, it is known as domestic public debt. Specifically in Nigeria, the sources of domestic public debt are the central bank of Nigeria, commercial banks, merchant banks and the non bank public (Nzotta,2004).

It is the objective of every sovereign nation to improve the standard of living of its citizenry and to promote her economic well being. Due to the scarcity of resources, nations borrow from within and externally to foster economic growth and to achieve sustainable economic development (Adepoju, Salau & Obayelu, 2007). The necessity for governments to borrow in order to finance a deficit budget has led to the development of both internal and external debts (Osinubi & Olaleru, 2006, Obadan, 2004).

By way of definition, domestic debts refer to the portion of a country's debt that was borrowed from within the confines of a country. These loans are usually obtained from the central bank of Nigeria, deposit money banks, discount houses and other non bank financial houses. This study therefore is set to assess the degree to which the different components of domestic debts have impacted on the economic growth of Nigeria over the period 1980-2014.

1.2 Statement of Research Problem

The reliance by the federal government in borrowing from the banking system, particularly the CBN, to finance its large and unsustainable fiscal deficits has hindered the attainment of macroeconomic stability and sustainable economic growth in Nigeria. In addition, this has crowded out the private sector from the credit market, thereby stalling investment and output growth. A review of Nigeria’s domestic debt profile indicates that, it has been on the increase in recent times. Various factors account for the phenomenal rise. This includes the increased financing needs of government for developmental purposes and other socio –economic needs before the advent of the oil boom. There was also the need to finance the large fiscal deficits of the government after the oil boom period. Other factors include the financing gaps in the government revenue-expenditure profile and other financing needs of the government. All these had led to the enhanced domestic debt stock of Nigeria In spite of her continued penchant for domestic loans, Nigerian economy is still characterized by low per capita income, high unemployment rates, dwindling economies, inadequate basic amenities and poor infrastructural developments and falling growth rates of GDP; problems that publicly procured funds are supposed to take care of. Paradoxically; it does not appear as if our craving for domestic loans is in any way commensurate to our low level of economic growth and development.

The natural question that readily comes to mind is: What has our leaders and the political class been doing with the huge sums of money procured on our behalf as domestic debts and how beneficial has these sources of loans been to the economic growth of Nigeria? It is against this background that this study will seek to investigate the various components of our domestic debt profile. This is with a view to ascertaining the usage, to which the proceeds were put, and the direction / significance of the effects of such funds. - That is the crux of the matter!

1.3  Research Questions

This study will be addressing these research questions

1)                what is the nature of the relationship between domestic debt and economic growth in Nigeria with the period under review?

2)                What is the impact of domestic debt on economic growth of Nigeria?

1.4  Research Objective

The broad objective of this study is to ascertain the impact of domestic debt on economic growth of Nigeria.

Specifically, the objectives of this study include:

1.     To ascertain the relationship between domestic debt and economic growth of Nigeria.

2.     To find out the impact of domestic debt on economic growth of Nigeria.

Centrally, the study is intended to ascertain the impact of domestic debt on the economic growth of Nigeria. It will investigate the mismatch between the huge domestic debts incurred by Nigeria, within the period (1980-2014) and the stunted level of economic growth in Nigeria. The study will seek to determine the impact of domestic debts procured through Treasury bills, Treasury certificates and Treasury Bonds on the economic growth of Nigeria. It will also seek to determine the impact of Development stock, FGN Bonds and Promissory notes on the economic growth of Nigeria, herein, represented by Gross Domestic Product (GDP).

1.5 Hypothesis of the study:

The following hypotheses shall be tested in this study:

Ho1: There is no significant relationship between the Domestic debt and economic growth in Nigeria.

Ho2: Domestic debts has no significant impact on economic growth in Nigeria

1.6 Scope of the Study

Domestic debt and economic growth is a very broad area. This study as a matter of fact is limited only to the Nigerian economy. The scope of investigation is delineated from 1980-2014, a period of 35 (thirty five years).