Domestic Debt Financing And Economic Development Of Nigeria (1990 – 2004).

ABSTRACT

This study is on Domestic Debt Financing and Economic Development of Nigeria (1990 – 2004). The research considered the sources of domestic debt financing and their effect on economic development of Nigeria. The study employed a statistical framework to test four hypotheses. Secondary data were used for the study. Multiple regression analysis was used to test the relationship that exists between Gross Domestic Product (GDP) as the dependent variable and sources of domestic debt financing – value of treasury bills, value of treasury bonds, value of development stock and banking system’s credit to the public sector as independent variables. The GDP is used as a yardstick for measuring economic performance. The result from our analysis and test revealed that over a 15 year period, there exist a high level of relationship between GDP and the four explanatory variables of domestic debt financing. The analysis showed that the use of treasury bill as a source of financing domestic debt has made significant positive impact on the level of economic development. The use of treasury bonds as a source of financing domestic debt has not made significant positive impact on the level of economic development. Development stock as a source of domestic debt financing has made significant contribution to economic development. Commercial banks credit to government as a source of domestic debt financing has not made significant positive impact on economic development of Nigeria. Based on these findings, it was recommended that the Federal government should keep to the statutory limits imposed by law on treasury bills. The government should make sure that the borrowed resources are productively utilized such that economic and social rate of return is higher than the future servicing cost. The government’s fiscal deficits should be financed through capital market than through the banking system. The government should make adequate provision annually in the budget for the servicing and repayment of domestic debt. The banks should refuse to honour Federal government cheques once the statutory limit is reached. This will go a long way to restore sanity to the system and infuse greater budget discipline.