Public Debt Sustainability and Incidences of Poverty: Empirical Evidence from Nigeria

Abstract

This paper examined the implications of public debt sustainability on poverty incidence in Nigeria. Specifically, the impacts of external debt stock and interest payment on external debt, proxy for external debt servicing on poverty headcount was estimated using Stock-Watson Dynamic Least Squares (DOLS). Data were extracted from the National Bureau of Statistics (NBS) and World Bank World Development Indicators. The Augmented Dickey-Fuller tests results show that the series are difference stationary as they are integrated of order one. The result of the Johansen-Juselius cointegration test reveals that the series have long run relationship. Thus, the null hypothesis of no cointegration is rejected at 5 percent level. The estimated cointegrating regression model shows that external debt stock as a share of GNI has significant positive relationship with poverty headcount as 10 percent increase in external debt stock induces 7.59 percent increase in poverty headcount. This is a pointer that policy intervention should focus on the effective management of the borrowed funds from external sources in order to drive the process of economic development. On the other hand, it was found that interest payments on external debt as a proportion of GNI is negatively related to poverty headcount. This is suggestive that the extent of debt servicing in Nigeria seems not to undermine the sustainable path of debt management and the developmental goal of poverty reduction. Accordingly, it is recommended for improved fiscal consolidation across various levels of government in Nigeria with a view to keeping the economy on the path of sustainability in terms of external debt management.

Keywords: Debt Servicing, Poverty Incidence, Public Debt, Sustainability


Article Review Status: Published

Pages: 12-26 (Download PDF)

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