External Debt Servicing and Economic Development of Nigeria

Abstract

This study examined the effect of external debt servicing on economic development in Nigeria from 2007 to 2023. The main objective is to investigate the effect of various components of external debt servicing—multilateral, bilateral, commercial and total debt—affect Nigeria’s level of human development, measured through the Human Development Index (HDI). The study specifically seeks to determine whether debt servicing obligations contribute meaningfully to improving living standards or whether they constrain development efforts. Secondary data were sourced from the Debt Management Office (DMO) and the World Bank, covering relevant macroeconomic indicators within the study period. The data were analysed using the Auto-Regressive Distributed Lag (ARDL) model, after confirming the stationarity of the variables at mixed levels of integration, I(0) and I(1). The empirical findings reveal that external debt servicing has an insignificant effect on economic development in Nigeria, as reflected in the HDI. Although external borrowing remains a vital tool for financing development, the study observed that the benefits are often undermined by inefficient utilisation of borrowed funds and the high cost of debt repayment. These results imply that external debt is not inherently detrimental, but excessive or poorly managed debt can impede developmental progress. Based on these findings, the study recommends that multilateral and bilateral loans should be tied to productive and people-oriented projects, commercial borrowing should be undertaken cautiously under favourable terms and overall debt management should be guided by a robust sustainability framework to ensure long-term economic and social development.