Topic: A CRITICAL ANALYSIS OF THE EFFECT OF DOMESTIC DEBT ON THE NIGERIAN ECONOMY

Chapter One

INTRODUCTION

1.1 Background of the Study

1.2 Statement of Problem

The need to finance rising government expenditure has been identified to the rapid increase in the stock of Nigeria’s domestic debt. A recent study by (Abbas and Christerisen 2007) analyzing optimal domestic debt level in low income countries like (Nigeria) and emerging markets between 1999 and 2004 found out that moderate level of marketable domestic debt as a percentage (GDP have significant positive effect on economic growth. the study also provide evidence that debt level exceeding 35 percent of total bank deposits have negative impact on the economic growth. The money borrowed was not utilize for the benefit of the citizens and for the growth of the Nigerian economy due to the corrupt practices, bad policies and mismanagement of funds by some selfish Nigerians in government. The effect of the global crisis of the Nigerian economy was no doubt reflective on the capital market, with the withdrawal of investment by foreign investors and the crash in the price of crude oil, thereby resulting in the fall in share price in the stock market, and other effect of the banking sector and the economy at large. Nigeria’s foreign economic relations revolve around it role in supplying the world economy with oil and natural gas, even as the country seeks to diversify its exports harmonize tariffs in line with a potential customs union sought by the economic community of West African states (ECOWAS), and encourage inflows of foreign portfolio and direct investment. In October 2005, Nigeria implemented the ECOWAS common external tariff, which reduced the number of tariff bonds. Prior to this revision,tariffs constituted Nigeria’s second largest source of revenue after oil exports. In 2005 Nigeria achieved a major breakthrough when it reached an agreement with the paris club to eliminate its bilateral debt through a combination of write-down and buybacks. This research therefore will attempt to investigate and profer solution to: The effect of domestic debt, principal portion of economic growth. The effect of the cost of servicing domestic debt and economic growth. The effect of domestic debt instrument on economic growth. The effect of domestic debt on Gross Domestic product (GDP).

1.3 Aim and Objectives of the Study

The objective of the study is to: Investigate the effect of the cost servicing domestic debt on budget and economic growth. Investigate the effect of domestic debt on the principal portion on economic growth. To investigate the effect of domestic debt instruments on economic policies (monetary and fiscal policies). To investigate the effect of domestic debt on Gross Domestic product (GDP).

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