An examination of the economic impact of public debt on fiscal sustainability in Nigeria: A case study of Lagos State (2000–2020).
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Background of the Study:
Nigeria’s fiscal sustainability has been critically challenged by escalating public debt over the past two decades. In Lagos State, as the nation’s commercial nucleus, increasing reliance on debt financing has become both a tool for economic stimulus and a potential source of fiscal instability (Adebayo, 2023). The accumulation of public debt has been linked to budgetary constraints, high debt servicing costs, and reduced fiscal space for developmental expenditures. Policy measures during this period aimed at debt restructuring, revenue enhancement, and expenditure rationalization have yielded mixed results. Some reforms improved fiscal discipline and stimulated investment, while others led to adverse effects on macroeconomic stability and public service delivery (Ibrahim, 2024). The interplay between debt accumulation and fiscal policy efficacy remains a central concern, as increased borrowing can crowd out productive investments if not managed prudently. Additionally, the external environment—including global interest rate fluctuations and oil price volatility—has further complicated Lagos State’s debt management strategy (Okoro, 2025). This study investigates the mechanisms through which public debt influences fiscal sustainability, examines the institutional responses, and evaluates whether debt-induced constraints have undermined or bolstered economic growth in Lagos. In doing so, it contributes to the ongoing discourse on optimal debt management practices and fiscal policy reforms that can secure sustainable development outcomes.
Statement of the Problem:
Despite several policy interventions aimed at managing public debt, Lagos State continues to experience fiscal imbalances that jeopardize sustainable development. Persistent high levels of debt have resulted in increased debt servicing costs, limiting the availability of funds for critical infrastructure and social services (Adebayo, 2023). Moreover, inconsistent revenue generation and external shocks have exacerbated fiscal vulnerabilities, making it difficult for policymakers to maintain fiscal discipline (Ibrahim, 2024). These challenges underscore a critical gap between debt management policies and their practical outcomes, warranting a comprehensive examination of how public debt affects fiscal sustainability in Lagos. The study seeks to identify key weaknesses in current debt policies and propose measures to enhance fiscal resilience (Okoro, 2025).
Objectives of the Study:
• To evaluate the relationship between public debt levels and fiscal sustainability in Lagos State.
• To assess the effectiveness of debt management policies implemented during the study period.
• To propose strategic recommendations for improving fiscal stability amid rising debt.
Research Questions:
• How does public debt affect fiscal sustainability in Lagos State?
• What are the main challenges in implementing effective debt management policies?
• Which policy measures can strengthen fiscal resilience in the face of high debt levels?
Research Hypotheses:
• H1: Increased public debt has a negative impact on fiscal sustainability in Lagos State.
• H2: Effective debt management policies are positively correlated with improved fiscal outcomes.
• H3: External economic shocks significantly exacerbate the adverse effects of public debt on fiscal stability.
Significance of the Study:
This study offers critical insights into the dynamics between public debt and fiscal sustainability in Lagos State. The findings will assist policymakers in refining debt management strategies to safeguard fiscal stability and promote sustainable development. By highlighting both successes and challenges, the research contributes to academic debates and practical policy adjustments necessary for improved economic governance (Adebayo, 2023; Ibrahim, 2024).
Scope and Limitations of the Study:
This study is limited to examining public debt and its fiscal impacts in Lagos State, focusing solely on policy and economic indicators without extending to other states.
Definitions of Terms:
• Public Debt: The total amount of money borrowed by the government to finance public expenditures.
• Fiscal Sustainability: The ability of a government to sustain its current spending, tax, and other fiscal policies over the long term without jeopardizing economic stability.
• Debt Servicing: The repayment of interest and principal on borrowed funds.
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