The Impact of External Debt on Aggregate Expenditure of Nigerian States: Policy Implications and Recommendations

  • Funmilayo Bukola ALONGE
  • Anthony Buyide Afolalu
Keywords: public debts, economic growth, fiscal landscape and stimulation of economic growth, external debt

Abstract

This study examines the relationship between external debt and aggregate expenditure of Nigerian states and provides policy recommendations based on the findings. The data obtained from the study demonstrates a positive and statistically significant impact of external debt on the aggregate expenditure of the states in Nigeria. The results indicate that subnational governments rely on external loans to finance their budgeted expenditure, suggesting that most states operate deficit budgets. The population of the study was made up of all the thirty-six (36) of the Nigeria which were divided into six(6) geopolitical zones. Four states were selected from each geopolitical zones as the sample of the study. The study covered fourteen years between 2006 and 2020. Graph and descriptive statistic like mean, median, standard deviation skewness were correlational analyse were employed to describe and analysis the data.The coefficients of State Allocation (STA) or Federal Allocation Account Committee (FAAC) and Internally Generated Revenue (IGR) are also statistically significant, indicating that state governments in Nigeria rely on both federal allocations and internally generated revenue to prepare their aggregate expenditure in the budget. Based on these findings, several policy recommendations are proposed: firstly, other states are encouraged to emulate the model of Lagos State, which effectively invests borrowed debts in productive sectors; Secondly, domestic debt is encouraged, and the federal government is advised to introduce stringent measures to monitor and control states' accessibility to domestic debts; thirdly, the Nigeria Debt Management Office is urged to pay close attention to policies relating to external borrowings and ensure that external debt is approved and utilized for productive purposes, particularly projects with high foreign exchange content;and lastly, monitoring institutions such as the Central Bank of Nigeria (CBN) and the Nigeria Debt Management Office should establish mechanisms for monitoring debts, ensuring that they are engaged in productive activities.

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Published
2023-12-26