Public Debt and Economic Performance: A VECM Analysis
Public Debt and Economic Performance: A VECM Analysis

Summary/Abstract: Public debt is a prominent policy tool for governments worldwide used to finance public expenditure and stimulate economic growth. However, the relationship between public debt and economic growth is complex and has generated a lot of debate. This study examines the relationship between public debt and economic growth in Nigeria. Time series data spanning from 1981 2022 were gathered from CBN Statistical bulletin. Unit root test was carried out to determine the stationarity of the data set. All the data were integrated at 1st difference 1(1). The data was subjected to Johansen Co-integration test and it was established that the data set were co-integrated. The VECM model was used to estimate the relationship among the variables. Findings indicate that domestic debt had significant but negative long run relationship with real gross domestic product. External debt was positively related with RGDP though not significant. Debt servicing had a negative but non-significant relationship with real gross domestic product. The study amongst other things recommended that borrowing should be aligned with productive investments that can generate economic returns such as infrastructure, education and healthcare rather than being used for recurrent expenditures. Also it is important that debt servicing is sustained at manageable levels thereby optimizing debt repayment structure to minimize fiscal stress and strengthening institutional and governance frameworks.

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