Analysis of the Impact of External Debt on the Nigerian Economy: The Implications and Consequences of the Recent Request for $2.2 Billion Loan
Abstract
Towards the close of 2024, there was the request and approval of a new foreign loan of $2.2 billion (about N3.3 trillion) for President Bola Tinubu by the National Assembly amid Nigerian debt that has skyrocketed to N121.67 trillion ($91.46 billion) as at June 2024 as reported by the Debt Management Office (DMO). This situation appears worrisome as increasing external debt may be unsustainable. Many scholars have written articles on the impact of external debt on growth of the Nigerian economy but the approaches have been partial and inconclusive. This study examines the impact of external debt on the Nigerian economy as a whole, using the total differential systems modeling and analysis approach (ecostatometrics) as well as explore the implications and consequences of the new loan of $2.2 billion on the Nigerian economy as a whole. The result revealed that even though external debt impacts positively on growth, it promotes poverty and unemployment as the Poor in Nigeria increased by 3.81e-06 million as a result of External debt and 7.1e-06 million absolute poor were exterminated as a result of external borrowing; while the Unemployment rate increased by 5.16e-07%. This result will be useful to both government and citizens of Nigeria. An examination of the Markov plots of the new loan of $2.2 billion showed that the impact of external debt on the Nigeria economy will quickly die down in about two years so that by 2027, the impact would have expired in all the cases. Not until external loans are converted into physical infrastructure including factories and industries, would the full benefits of external borrowing be realized. Some recommendations were adequately made.
Keywords
External debt
Nigerian economy
Total differential systems modeling approach
References
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