ABSTRACT
Nigeria’s
external debt, including its size, structure, source, type, and composition.
The work analyzes the indexes for measuring the debt burden and examines
alternative debt scenarios. It distinguishes between the internal and external
factors influencing external debt accumulation, identifies the changes in the
international environment necessary to alleviate the debt burden, and examines
the relationship between export performance and the debt burden. After
reviewing the structure of the Nigerian economy and its political history, the
work concludes that Nigeria’s debt crisis is the result of structural defects
inherent in the economy since independence. The work finds that the indicators
of the debt burden have been relatively high. The behavior of these indicators,
under varying assumptions, is explored using a growth-cum-debt model. The
external and internal causes of debt accumulation are tested econometrically,
and the results show the most important variables to be the real effective
exchange rate and the terms of trade. The work ends with some policy
prescriptions for dealing with the debt crisis.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
It is generally expected that developing countries, facing scarcity of
capital, will acquire external debt to supplement domestic saving. The rate at
which they borrow externally—the "sustainable" level of foreign
borrowing—depends on the links among external and domestic saving, investment,
and economic growth. The main lesson of the standard "growth with
debt" literature is that a country should borrow externally as long as the
capital thus acquired produces a rate of return that is higher than the cost of
the foreign borrowing. In that event, the borrowing country is increasing
capacity and expanding output with the aid of foreign savings (Bernal,
1987:155).
In theory, it is possible to calculate the sustainable level of foreign
borrowing, based, for example, on the terms, maturity, and availability of
foreign capital. In practice, however, the task is nearly impossible, since
such information is not readily available. Thus, various ratios, such as that
of debt to exports, debt service to exports, and debt to GDP (or GNP), have
become standard measures of sustainability. Even though it is difficult to
determine the sustainable level of such ratios, their chief practical value is
to warn of potentially explosive growth in the stock of foreign debt. If
additional foreign borrowing increases the debt-service burden more than it
increases the country's capacity to carry that burden, the situation must be
reversed by expanding exports. If it is not, and conditions do not change, more
borrowing will be needed to make payments, and external debt will grow faster
than the country's capacity to service it (Ajayi and Kahn 2000: 23).
According to Afxentiou, and Serletis (1996: 30), countries in sub-Saharan
Africa have generally adopted a development strategy that relies heavily on
foreign financing from both official and private sources. Unfortunately, this
has
meant
that for many countries in the region the stock of external eternal debt has
built up over recent decades to a level that is widely viewed as unsustainable.
For example, in 1975 the external debt of sub-Saharan Africa amounted to about
$18 billion. By 1995, however, the stock of debt had risen to over $220
billion. The
standard
ratios reflect this huge build up of debt. The region's aggregate debt -export
ratio rose from 51 percent in 1975 to about 270 percent in 1995
(excluding
South Africa, the ratio was above 300 percent). For all low- and middle-income
developing countries, the average ratio of debt to exports was less than 150
percent. Similarly, the debt -GNP ratio for sub-Saharan Africa was 14 percent
in 1975, but by 1995 it had reached more than 74 percent. Although debt-service
ratios have remained relatively low because of the highly confessional nature
of external financing provided to Africa, many countries in the region have
been unable to service their debt without recourse to rescheduling under Paris
Club arrangements or by accumulating arrears.
The massive growth in external debt in sub-Saharan Africa over the past
two decades has given rise to concerns about the detrimental effects of the
debt on investment and growth, principally the well-known " debt
overhang" effect. Furthermore, there is now considerable evidence that the
build up in debt was accompanied by increasing capital flight from the region.
In other words, sub-Saharan Africa was simultaneously an importer and an
exporter of capital.
Service delivery by key institutions designed to mitigate the living
condition of vulnerable groups were hampered by decaying infrastructure due to
poor funding. By cutting down expenditure on social and economic infrastructure,
the government appears to have also constrained private sector investment and
growth through lost externalities. This has reduced total investment, since
public investment is significant proportion of the total investment in the
country.
External debt arises mainly when a given country's imports is greater
than its exports. So this debt arises directly because of the imbalances
between balance of trade and balance of payment, or indirectly when a country
borrows from richer or wealthy country/bodies in order to finance their
mentioned imbalancement.
And debt, especially external one usually has a devastatic gametic,
macro-economic effect. Yes it's what portrays any nations stand and image
before other nations in the international community. As was the case of my
country Nigeria, when it began to experience this cankerworm called external
debt. This was as a result of fall in the price of the almost mono-export
product of my country called crude oil, in the early 1980's. Things really
meant too bad for the inhabitants of my country. Just because of export is less
than import. What factors lead to its failure? What has been the impact of this
external debt in the Nigerian economy? These and other things is what really
this project is set up to research on.
1.2 STATEMENT OF THE PROBLEM
Nigeria as one of the developing countries in Africa has over the years
involved in the servicing of its foreign debts borrowed either from the world
bank/international monetary fund (IMF). In trying to make an inquiry into the
theory of debt, the use to which debt as a means of financing government
programmes and of course changing the magnitude of such debt which will arise from retirement of some debt, contracting more debt
or redeeming debts of high interest rate and replacing them with ones of low
interest (Emekweue, 1993:127).
However, if the debt is externally created, the primary burden can be
shifted forward in time since there may not be any domestic sacrifice of
resources when such debts are contracted. The servicing of this debt (payments
of interest) has constituted a real burden because domestic incomes are
reduced
by the necessity to transfer resources abroad to service and liquidate the debt
on maturity. It is against this background that the researcher is bound to
envisage conflicts between creditor countries and Nigeria (debtor country) in
term of servicing the loan. Thus, this problem could be stated in the form of
the following research questions:
-What is the basis of Nigerian borrowing loans from foreign countries and
how has this loan benefited Nigeria?
-What is the impact of foreign debt on Nigerian
economy from 1985 – 2005?
-What are the impacts of these loans on the macroeconomic and social
welfare in the Nigerian economy?
-What is the cost benefit of borrowing loans from
foreign countries by Nigeria?
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Item Type: Project Material | Attribute: 90 pages | Chapters: 1-5
Format: MS Word | Price: N3,000 | Delivery: Within 30Mins.
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