PROJECT TOPIC- IMPACT OF FOREIGN DEBT MANAGEMENT ON NIGERIAN ECONOMY 1980-2005
This study was carried out to know the impact of foreign debt management on Nigerian economy. The study takes a systematic approach to the subject matter, by devoting chapters to stated objectives of which include: A background study of Nigeria’s external debt management and also examine the various policy measures for resolving external debt problem from the period of 1980 to 2005. The method of multiple regression analysis, using the ordinary least square techniques was adopted in the study Also an assessment is made on various empirical studies carried out on eternal debt management problem. The empirical analysis to investigate is whether external debt and exchange rate have significant relationship with Nigeria’s GDP. In the analysis, it was observed that the explanatory variables are jointly significant in explaining changes in Nigeria’s economic growth performance. Also certain recommendations was put forward such as: The government should abandon the persistent Laussez fair policy on external debt borrowing and much import meaning the importation of good’s and services must be cut-down. There is also need to diversify the economy into productive base to enhance foreign earning. A judiciously exchange rate policy should be perused to avoid valuation of domestic currencies aid fluctuations.
- BACKGROUND OF THE STUDY
Debt crisis is a serious problem facing the third world countries today, Nigeria being one of them. This problem could be traced from the era of colonization and a s a result of incorporation of Nigeria into the third world capitalist system. This problem experienced by these economics has created doubt as to whether development is indeed possible in these nations.
Though, there is nothing wrong if a country goes into borrowing. What matters is the management of the debt. For a country to develop, it needs capital and where this is not available, it ends to pose a huge problem for economic growth and development of the said economy. A country finds itself in debt when there exist a gap between domestic savings and investment and export earning which increase in absolute term over time.
Nigeria is an oil producing and exporting country and the only organization of petroleum exporting. Countries (OPEC) member that belong to special group of debtors in the developing the debt problem has persisted after several years of the implementation of the SAP (Structural Adjustment Programme). In fact, the burden of the debt over hanging has become more severe.
A question that arises here is, the said loans received, what were they actually channeled into? Were they invested into productive investment? Investment that would yield enough revenue that will be able to repay the principal capital or even service the interest accruing on the principal capital. The debt crisis experienced by Nigeria has created quite a number of problems which has slowed down the pace of growth on the economy, but what can be done about this situation we find ourselves into?
Nigeria’s position gets worse as the gap widens and debt cumulate side by side with perpetual accumulation of interest rates. That notwithstanding, Nigeria has maintained a constant flow of net import and this is why the country is compelled to continue to borrow increasing amount of capital to develop her economy.
Thus, African countries have acquired a large sum of external finance overtime to bridge the gap between domestic savings and investment. This process was influenced by the believes of the traditional concept of bridging the savings investment gap in order to accelerate the process of economic growth and development.
This conventional wisdom was that the gap between savings and investment can be bridged either by reducing domestic investment to a level consistent with domestic savings or augmenting domestic savings with borrowed foreign capital. In the former, case, economic growth would either exacerbate, stagnate or decline and income would be depressed, while in the latter, economic growth would accelerate if the loan were optimally deployed to finance viable project.
However, of the entire numerous problem facing Nigeria today, the debt problem stands out clearly as a very pernicious and malignant one. Debt as many would imagine, constitute a very large and big hindrance to the development process especially within the context of a dependent capitalist formation. In a debt ridden economy, for instance, economic benefit which would have been channeled into social profitable investment outlet were diverted into debt servicing.
A sustainable external debt service position depends on among other things, the deployment of external borrowing in productive investment. In order to resolve the debt problem facing the economy today, the federal government embarked on various policy measures aimed at resolving the debt crisis. One of such policy was the SAP (Structural Adjustment Programme) introduced in July, 1986.
SAP was expected to remove all the problems in Nigeria economy. But unfortunately, SAP created more problems than it came to solve. However, Nigeria often wonders how debt has been accumulated and essentially how it has constituted a bottleneck to economic development. It has been blamed by some people that mismanagement of the currency’s resources contributed to the debt problem.
It was also viewed in some quarters that the debt problem was as a result of the exploration of the economy by multinational co-operation and agents for their own interest. On other hand, some group see debt crisis as being related to the monoculture nature of the economy. That is, it is totally dependent on one major exporting commodities, oil and neglect of the agricultural sectors.
It is clear that before Nigeria was colonized, agriculture was the main stay of the economy. But the advert of colonization disrupted and disorganized the well integrated and articulated system of production in Nigeria and introduced a new structural arrangement that was oriented towards the need of the metropolitan economy.
But after the Nigeria civil war, there has been a decline in the relative position of agriculture with respect to crude petroleum production. In 1975, petroleum share rose to 7.6% and 19.67% (I.A Olalokun). Nigeria accrued billions of Naira from the export of her petroleum crude oil during the period of 1975/74 to 1977/78. This is the period often referred to as “The oil boom years”.
But unfortunately, federal government embarked on non-productive project like all African games, the federal capital territory, the establishment and running of the different River Basin Authorities, Rural Development Authorities, Operation Feed the Nation and Green Revolutions. This is against the economic idea of investing in productive ventures like Iron and Steel industries, the liquefied natural gas, the petro chemical industry etc.
During this period, party patronage and inflated contract became customary. The government went as far as telling the world at large that Nigeria is not in need of money. The importation of everything from foodstuffs, cloths, shoes, cement became vague. Middle men, strive in every corner of the country. Agricultural production for export was neglected.
In any case, from all indications, the future of Nigerian economy does seem to be as rosy as some government officials would have believe. For instance, it is not likely that the country’s peripheral and dependent position in the international division of labour will change. If anything the SAP has tended to consolidate and reinforce Nigeria’s position in this division of labour thereby increasing her weakness of changes that are difficult to control in the world economy, by laying too much emphasis on the promotion of exports of non-oil commodities, such as cocoa, groundnut, palm oil, palm kernel etc.
The Adjustment Programme has simple rationalized the role apportion to the Nigeria economy by the imperialist country of Europe and North America since the industrial revolution in the eighth century. The consolidation or Nigeria’s age long position in the international division of labour by SAP means that fate of the economy will continue to be determined by forces exogenous to Nigeria economy.
Since capitalist world economy is inherently imbued with incessant – booms and slumps, it therefore implies that the Nigeria economy will continue to experience fluctuation as it is in extricable to the capitalist world economic system. According to Ekuerhare (1986) “We must stress the point that the crisis has been occurring in a perniciously persistent condition of under – development of the Nigerian economy”.
Ojo (1989) opined that “it is no exaggeration to claim that Nigeria huge foreign debt burden is one of the hard nut of the Structural Adjustment Programme”. Ekuererhare (1986) also postulates that “also retarded is her economy political and social growth, that the crisis has also been manifested as its degree of severity increase in the 1980’s frequent political regime changes. Also associated with the crisis has been a spectre of social and political retrogression have ring Nigeria economy over three decades.
PROJECT TOPIC- IMPACT OF FOREIGN DEBT MANAGEMENT ON NIGERIAN ECONOMY 1980-2005
- STATEMENT OF THE PROBLEM
Nigeria foreign debt burden has made the economy not to move forward in increasing her economic growth and developments, Management of this external debt is essential to accelerates economic growth and development and the federal government has embarked on various policy measures to make sure that this external debt is managed carefully. Some of these policy measured are the SAP debt conversion and debt rescheduling which have contributed greatly in the proper management of the debt.
- OBJECTIVE OF THE STUDY
The objectives of the study are as follows:
- The causes trend and magnitude of foreign debt.
- The impact of foreign debt management on Nigeria
- To determine the various policy measures introduced at managing foreign debt in Nigeria.
- To examine the theoretical framework of the study.
- In addition, concluding remark from observation made as possible solutions from resolving the debt crisis facing Nigeria.
This study will embrace the use of secondary data as the main source of information. The required materials will be attained from written works, such as text, federal and state government publication, central Bank of Nigeria publication, seminar, conferences, Newspaper, Journals and other sources.
Multiple regression models will be used in analyzing the data collected to test the correlation coefficient that exist between the three variables. This will be analyzed by computation.
The researchers are guided by the following hypothesis:
- Ho = External debt does not impact positively on economic growth in Nigeria.
- Hi = External debt does impact positively on economic growth in Nigeria.
- Ho = exchange rate does not impact positively on economic growth in Nigeria.
- Hi = Exchange rate does impact positively on economic growth in Nigeria.
- SIGNIFICANCE OF THE STUDY
- This study will serve as a reference point for further research.
- Further researchers will also benefit so much from the study as the result constitutes a major source of secondary data on the problem of foreign debt as it affect GDP. This research work will also aid further researchers to know various policy measures embarked to resolve the external debt.
- This study is also embarked upon so as to help the present researcher and further researchers to understand the relationship between GDP, Foreign debt and Exchange rate.
- SCOPE AND LIMITATIONS OF THE STUDY
This study will focus it attention on when the debt actually started becoming a problem to Nigeria economy. The period to be covered will be between 1980-2005. In other words, Nigeria external debt increased tremendously immediately after the introduction of the Structural Adjustment Programme (SAP) in July, 1986.
However, due to considerable difficulty, the researcher was however constrained by the following factors:
- Financial Resources: To facilitate intensive and proper data collection.
- Time: This was also a major constraint being that there is little or no time when combined with the academic calendar of the institution.
Insufficient data: Data were rather inadequate for proper research, more so, access was not allowed to the available data as at when needed.