The Effect of Public Debt on Economic Growth and Stock Market Trends in Nigeria
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Background of the Study
Public debt is a central issue in the formulation of fiscal policy, influencing both economic growth and financial market performance. In Nigeria, the accumulation of public debt between 2023 and 2025 has sparked intense debate regarding its effects on economic expansion and stock market trends. High levels of public debt can have a dual impact: while they may finance productive investments that spur growth, they can also lead to fiscal instability, higher interest rates, and investor uncertainty. Recent research suggests that the relationship between public debt, economic growth, and stock market performance is nuanced and depends on factors such as debt sustainability, fiscal discipline, and market confidence (Eze, 2023).
Government borrowing is often used to fund infrastructure projects and stimulate economic activity; however, if not managed prudently, it can crowd out private investment and lead to an unsustainable fiscal burden. The stock market, sensitive to macroeconomic signals, may react negatively to rising debt levels if investors perceive a risk of default or inflationary pressures. Conversely, when debt is managed effectively and used for productive purposes, it can enhance economic growth and support stable market trends (Adewale, 2024). This study will explore how public debt influences both economic growth and stock market performance, providing a holistic view of the fiscal dynamics in Nigeria.
Statement of the Problem
The rapid accumulation of public debt in Nigeria has raised significant concerns regarding its impact on economic growth and stock market trends. Despite attempts to channel borrowing into productive investments, the negative perceptions associated with high debt levels have led to market volatility and dampened investor confidence (Eze, 2023). The complexity of the debt-growth relationship is heightened by external shocks, inflation, and inconsistent fiscal policies, which collectively obscure the benefits of public borrowing. The difficulty in disentangling the positive effects of debt-financed investments from the negative impacts of fiscal mismanagement poses a serious challenge for policymakers (Adewale, 2024).
Investors and economic analysts remain divided on whether the current debt trajectory is sustainable or if it portends a future economic slowdown. Moreover, the lack of transparency in debt management and limited data on the allocation and productivity of borrowed funds further complicate the evaluation of its true impact. Consequently, there is an urgent need to critically assess how public debt levels affect both economic growth and stock market performance, and to identify policy measures that can mitigate the adverse effects of excessive borrowing while maximizing its growth potential.
Objectives of the Study
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To analyze the impact of public debt on economic growth in Nigeria.
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To evaluate the influence of public debt on stock market trends and investor behavior.
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To recommend debt management strategies that support sustainable economic growth and market stability.
Research Questions
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What is the relationship between public debt levels and economic growth in Nigeria?
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How does public debt influence stock market performance and investor sentiment?
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What policy interventions can mitigate the negative impacts of high public debt?
Research Hypotheses
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H1: High public debt negatively affects economic growth in Nigeria.
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H2: Increased public debt correlates with greater stock market volatility.
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H3: Effective debt management policies can mitigate the adverse impacts on growth and market performance.
Scope and Limitations of the Study
This study focuses on public debt and its effects on economic growth and stock market trends in Nigeria during the period 2023–2025. Data is drawn from government debt records, market analyses, and economic surveys. Limitations include data reliability issues, external economic shocks, and challenges in separating debt impacts from other fiscal variables.
Definitions of Terms
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Public Debt: The total amount of money owed by the government.
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Economic Growth: An increase in a country’s economic output, measured by GDP.
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Stock Market Trends: Patterns and movements in stock market performance over time.
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Debt Management: Strategies used by the government to control and utilize borrowed funds effectively.
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