Sovereign Debt and Financial Stability in Nigeria Ali Nuhu Abubakar

Abstract

This study investigates the relationship between sovereign debt and financial stability in Nigeria. Sovereign debt, when well-managed, can drive economic growth, but excessive borrowing may threaten financial stability. The research examines historical data on Nigeria’s debt and financial performance, exploring key determinants and outcomes. Using both qualitative and quantitative methods, the study assesses whether Nigeria’s current debt trajectory is sustainable and its implications for future economic stability. The results indicates that exchange rate has a strong and significant positive relationship with Nigeria’s public debt, indicating that currency depreciation is closely tied to rising debt levels. However, inflation and GDP growth rates do not have significant independent effects on sovereign debt, although there are some trends (positive for inflation, negative for GDP growth) that suggest possible relationships. The paper recommends that government to strengthen domestic revenue generation to reduce dependence on debt, improve the efficiency of public spending to ensure that borrowed funds are directed toward projects with high economic returns and monitor financial stability indicators closely to prevent debt crises.

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