An Appraisal of the Effects of Public Debt on Nigeria’s Fiscal Sustainability
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Background of the Study
Public debt is an essential tool for financing government operations, yet its sustainability is crucial for long-term fiscal stability. In Nigeria, rising levels of public debt have raised concerns about fiscal sustainability, particularly as the country continues to face economic volatility. Between 2023 and 2025, reforms in debt management and borrowing practices have been implemented with the goal of stabilizing debt levels and ensuring that borrowing does not crowd out essential public investments (Ogunleye, 2023). The theoretical framework posits that a sustainable debt regime is one where the cost of servicing debt does not compromise the government’s ability to invest in growth-enhancing sectors. Empirical evidence suggests that excessive debt, if not managed prudently, can lead to higher debt servicing costs, reduced fiscal flexibility, and ultimately, lower economic growth (Afolabi, 2024).
The debate over public debt in Nigeria centers on finding the optimal balance between leveraging debt for development and maintaining fiscal prudence. While moderate levels of borrowing can finance infrastructure and social services, excessive reliance on debt may jeopardize long-term fiscal stability. Recent reforms have emphasized transparent borrowing practices, diversified funding sources, and rigorous monitoring of debt sustainability indicators. This study examines the impact of public debt on fiscal sustainability in Nigeria, evaluating whether recent debt management reforms have succeeded in maintaining a stable fiscal environment and supporting sustainable economic growth.
Statement of the Problem
Despite efforts to implement prudent debt management reforms, Nigeria continues to experience challenges related to high public debt. The primary problem is that rising debt servicing costs and inefficient allocation of borrowed funds are undermining fiscal sustainability (Ibrahim, 2024). These issues are compounded by external shocks, such as fluctuations in global interest rates and oil price volatility, which further stress the fiscal framework. The mismanagement of public debt has led to reduced fiscal space, limiting the government’s ability to invest in critical development projects. This study seeks to investigate the relationship between public debt and fiscal sustainability in Nigeria and to identify the key factors that hinder effective debt management, ultimately proposing strategies to enhance fiscal prudence and economic resilience (Nwankwo, 2023).
Objectives of the Study
- To assess the impact of public debt on Nigeria’s fiscal sustainability.
- To identify the challenges and inefficiencies in current debt management practices.
- To recommend policy measures to improve debt sustainability and fiscal performance.
Research Questions
- How does public debt affect fiscal sustainability in Nigeria?
- What are the primary challenges in managing public debt effectively?
- Which policy reforms can enhance the sustainability of Nigeria’s debt regime?
Research Hypotheses
- H1: Excessive public debt negatively affects fiscal sustainability.
- H2: Inefficient debt management practices exacerbate fiscal imbalances.
- H3: Transparent and diversified debt management improves fiscal sustainability.
Scope and Limitations of the Study
This study examines public debt management in Nigeria from 2023 to 2025 using government financial data, international debt reports, and fiscal sustainability indicators. Limitations include external economic shocks and difficulties in isolating debt effects from other fiscal variables.
Definitions of Terms
– Public Debt: The total amount of money borrowed by the government.
– Fiscal Sustainability: The ability of a government to maintain its fiscal policies without excessive borrowing.
– Debt Servicing: The process of repaying the principal and interest on public debt.
– Debt Management: Strategies and practices for handling government borrowing and repayment.
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