The Structure Of Domestic Debt And Its Impact On Nigeria Economy, (1970 – 2009)

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The primary objective of this research is to study empirically analyze the structure of domestic debt and its impact on Nigeria economy. To see how the debt trends have been over the years. Looking at the empirical works that has been done on the same subject matter or related matters, the impact of domestic debt on Nigeria economy was investigated. This is to know whether debt has a positive or negative effect on the economy. The empirical result revealed after using the ordinary least square (OLS) method of regression analysis that Gross Domestic Product (GDP) has a negative relationship with the ratio of development stock to total domestic debt (SDD) while positively related to BDD (ratio of treasury bills to total domestic debt), CDD (ratio of treasury certificate to total domestic debt) and TDD (total domestic debt). This implies that the development of Nigeria economy as measured by the Gross Domestic Product (GDP) was highly influenced by domestic debt during the period under consideration.



Title Page

Table of Contents



1.1        Background of the Study

1.2        Statement of Research Problem

1.3        Objectives of the Study

1.4        Statement of Research Hypothesis

1.5        Significance of the Study

1.6        Scope of the Study

1.7        Limitation of the Study



2.0    Introduction

2.1    Conceptual Framework of Domestic Debt

2.1.1 Theoretical Framewor

2.2    Debt Character

2.3    Domestic Debt Instruments

2.3.1 Nigeria Treasury Bills

2.4    Debt Structure

2.5    Debt Profile and Management

2.7    The Impact of Domestic Debt on Nigeria Economy


3.0        Introduction

3.1        Sources of Data Collection

3.2        Research Design

3.3        Model Specification

3.4        Method of Data Analysis


4.1        Introduction

4.2        Presentation of Regression Result


5.0    Introduction

5.1    Summary of Findings

5.2    Recommendations

5.3    Conclusion






The beginning of the existing market for government borrowing in Nigeria is the financial reforms introduced by the Colonial Government in 1958. These reforms saw to the creation of the Central Bank of Nigeria (CBN) and the creation of marketable public securities to finance fiscal deficit. In accordance to Central Bank of Nigeria (CBN) ordinance 1958, the bank shall be entrusted with the issue and management of Federal Government loans publicly issued in Nigeria upon such terms and conditions as maybe agreed within the Federal Government and the Bank.

Since the early 1960s, the ratio of domestic debt to Gross Domestic Product (GDP) increased. A decade later by 1974 this ratio went up slightly to 6.9% of GDP. But by 1984, the domestic debt to GDP ratio was over 40%. Although it declined slightly in the 1990s, it has since 2000 moved upward, (Asogwa 2009). He further opined that, Nigeria has not been alone in experiencing escalating levels of government domestic indebtedness, but in comparison to other countries in sub-Sahara Africa, Nigeria’s domestic debt to GDP ratio is clearly on the high side.

One can analyze the evolution of the domestic debt from its size or by considering its different components. The stock of government debt is measured relative to national output. This is shown by the size of the domestic debt structure both in nominal terms as a percentage of total debt has grown tremendously from N0.23 billion at inception and it stood at N1.86 billion as at 1980. It was in 1986, at the inception of Structural Adjustment Progam (SAP) the level of external debt for the first time became larger than the level of domestic debt, (Asogwa, 2009). Ever since then, the stock of external debt has consistently been larger than domestic debt. Alison et al (2003) revealed three theoretical reasons often advanced for government domestic debts. The first, is for budget deficit financing, secondly, is for implementing monetary policy (buying and selling of treasury bills in the open market operation) and the third is to develop the financial instrument so as to deepen the financial markets.

In Nigeria, several factors have been advance to explain the changing domestic debt profile between the 1960s to date (Odozi, 1996, Rapu, 2003). The major factors include – high budget deficits, low output growth, large expenditure growth, high inflation rate and narrow revenue base witnessed since the 1980s. output growth declined as it recorded annual average values of 5.9% in 1980-1984, 4% in 1990 -1994 and 2.8% in 1998 -1999 periods respectively, (Alison el al 2003).

However, growth was recorded in 2003. It is usually expected that as countries expand their output, they also tends to rely more heavily on domestic public debt issuance to finance growth. There is thus a strong cross – country relationship between economic growth and the total size of the debt market.

Public expenditure as a percentage of GDP increased from 13% in the 1980-1989 periods to 29.7% in the 1990-1994 periods. This increased public expenditures to GDP ratio resulted from fiscal policy expansion embarked upon during the oil boom era of the 1970s. However, as the oil boon declined in the 1980s, priorities of government expenditure did not change.

Consequently, the fiscal operations of the Federal Government resulted in large deficits from the average of 0.8% of GDP in the 1970 – 1979 period, the level of deficit increased persistently averaging 5.1% in 1980-1989 and 10.0 in 1990-1994. A very remarkable feature of the government fiscal expansion was the financing of the excess expenditure from domestic sources averaging 79.2% between 1980-2002, since foreign loan was difficult to obtain. cross-country relationship between fiscal deficits (as percentage of GDP) and the size of government debt markets confirms that countries with larger fiscal deficits have issued more government securities in domestic markets, (Alison et al 2003).

Generally, declines in government revenue were met by borrowing from the Central Bank through the instrument of ways and means advances. These advances were never defrayed by the Federal Government but refinanced by the floatation of treasury bills and treasury certificates are rolled over by issuing new ones to pay holders of maturing debt instrument contributing to the continue growth of the debt stock. The research therefore, set out to analyse  the structure of domestic debt and its impact on Nigeria economy.



The increasing domestic debt profile has affected the growth of the Nigeria economy negatively. Some of the identified factors are high budget deficits, low output growth, large expenditure growth, and high inflation rate.

In the light of this, the following statements of research questions are being raised.

  1. What are the factors responsible for the rising domestic government debt profile in Nigeria?
  2. Does the increasing domestic debt profile affect the growth of Nigeria economy negatively?
  3. Does the extra budgetary activities by the government attributes to the rise in domestic debt profile in Nigeria.



The objectives of this study includes:

  1. To identify the factors responsible for the rising domestic government debt profile in Nigeria
  2. To ascertain if the increasing domestic debt profile affect the growth of Nigeria economy negatively
  3. To find out if the extra budgetary activities by the government attributed to the rise in domestic debt profile in Nigeria.



According to Agbonifoh and Yomere (1999), a hypothesis is a tentative answer to a research question. It is often stated in the form of a relationship between a dependent and an independent variable. In the opinion of Kelinger (1976), a hypothesis is a tentative, conjectural statement of the relationship between two or more variables. For the purpose of this study, the null hypothesis (Ho) and alternative (Hi) are used.

  1. Ho:    There are no factors responsible for the rising domestic government debt profile in Nigeria.

          Hi:    There are factors responsible for the rising domestic government debt profile in Nigeria

  1. H0:    The increasing domestic debt profile has not affected the growth of Nigeria economy negatively

          Hi:    The increasing domestic dept profile has affects the growth of Nigeria economy negatively

  1. Ho:    The extra budgetary activities by the government are not responsible for the rise in domestic debt profile in Nigeria.

          Hi:    The extra budgetary activities by the government are responsible to the rise in domestic debt profile in the Nigeria



The extent of a research is to add to existing knowledge, fill an existing gap, etc. it is in this lies the relevance of this study.

This study will be important and beneficial to stakeholders of an organization to know the essence of the structure of domestic debt and its impact on Nigeria economy. It will assist the government to see the reason domestic debt should be properly managed.

This study will help to restore the lost confidence of the public as regard the structure of domestic debt and its impact on the Nigeria economy.

Both academic and other future researchers in this similar subject matter will find it a useful source of learning and research.




The economy is a large component with a lot of diverse and complex parts. This study tends to analyze the domestic debt structure of the 3 tiers of government and its impact on the Nigerian economy by evaluating the major domestic debt instruments which include treasury bills, treasury certificate, development stock in proportion to Gross Domestic Product.

The empirical analysis of the impact of government domestic debt structure on the economy shall be restricted to the period between 1970 and 2009. It is hoped that this will help to achieve the stated objectives of the study.


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