1.1 BACKGROUND OF STUDY
One most important objective of macroeconomic policies in recent years has been the attainment of sustainable economic growth and development of an economy most especially the Less Developed Countries (LDCs) (like Nigeria) which are characterized by low capital formation due to low levels of domestic savings and investment. No government is an island on its own; it would require aid so as to perform efficiently and effectively. It is expected that these LDC’s when facing a scarcity of capital would resort to borrowing from either internal or external sources so as to supplement domestic saving. Hence, borrowing may be considered as a second best alternative to capital formation during periods of depression in an economy.
Nigeria has an economy that is very dependent upon its oil sector. The oil sector accounts for about 95% of Nigeria’s foreign exchange earnings, they have oil reserves estimated between 24 billion and 31.5 billion, and produce 90 million tons per year. Oil revenue constitutes about 14% of Nigeria’s GDP and roughly 90% of its income. Essentially, Oil revenues are as well the main source of financing government expenditures and imports of goods and services, as increasing oil prices over the years has boosted public expenditures on social and economic infrastructures. Yet the many years with oil money have not brought the population an end to poverty nor, at least until recently, have they enabled the economy to break out of what seems like perennial stagnation in the non-oil economy. The problem with Nigerian economy has been traced to failure of successive governments to use oil revenue and excess crude oil income effectively in the development of other sectors of the economy.
Nigeria has been a member of the Organization of the Petroleum Exporting Countries (OPEC) since 1971. Nigeria was the fifth largest producer in OPEC in 1986 and estimated to have reserves of sixteen billion barrels, 2.23% of the world reserves. Nigeria oil boom could rightly, be traced to the mid-seventies when there was crisis in the Middle East which led to an increase demand and sale of Nigeria oil. This resulted in considerable foreign exchange earnings by the government. The government embarked on fiscal policy expansion during the oil boom era of the 1970s. Public expenditure as a percentage of GDP increased from 13 per cent in the 1960-69 periods to 29.7 per cent in the late 1980s. However, towards the close of the decade, the international oil market started experiencing a glut and the prices of oil fell drastically low. But as the oil boom declined in the 1980s, priorities of government expenditure did not change. In addition, the revenue base of the federal government in relation to the GDP declined continuously during the period. From 19.5 per cent of GDP in the 1970s, this declined to 11 per cent of GDP in 1990s and further to 9 percent in 2000. Consequently, the fiscal operations of the federal government resulted in large deficits. From an average of 0.8 percent of GDP in the 1970-1979 periods, the level of deficit increased persistently averaging 5.1 percent in 1980-1994 and 10.0 in 1990-94.
In order to avoid economic problems like inflation, political and social crisis inherent in the period (1980-1985), the government of Shagari opened the gate way to borrowing. Loans were raised primarily to finance a number of projects. Being a loan from private sources, it attracted higher interest rates while the maturity period was shorter. At the end of 1990, the level of total debt outstanding increased more than two-fold from the preceding years level of N1, 265.7 million. Since then more loans have been raised in the private capital market as funds from the bilateral and multilateral institutions dwindled. This caused a remarkable shift in the structure of the debt outstanding and consequent increase in debt burden.
Actually, the borrowing was done with the hope that there would be a turnaround in the international oil market perhaps in no distance future. It was equally, hoped that the borrowed fund would be a turnaround in the purchasing of domestic goods. However, the expected turn around did not materialize. Rather it came to a point that the amount borrowed was greater than the national income.
Nigeria has not had a stable macroeconomic background since the late 1990’s up to the early 2000. The GDP growth has been fluctuating widely, peaking at an all time high of 10.2% in 2003. The inflation rate, which had reached an all time high of 29.3% in 1996, dropped in the early part of 2000 but has kept fluctuating. The performance of major monetary aggregates did not show any appreciable improvement. They have grown very rapidly in most of the years, exceeding set targets, sometimes by wide margins. The excessive fiscal operations of the three tiers of government were financed principally through increased debt. There are two major sources of debts in Nigeria the internal and external sources: the internal sources include development stocks, treasury bills, treasury certificate, treasury bonds and ways and means of advances, while external debt sources include bilateral and multilateral sources such as world bank, International monetary fund (IMF), African Development bank. There are London group of creditors and the Paris club group of creditors.
The gross increase in the total debt stock has exposed the nation to high debt burden and has resulted to the poor growth of the nation’s output. Nigeria’s high debt burden has had grave consequences for the economy and the welfare of the people. The servicing of the debt has severely encroached on resources available for social-economic development and poverty alteration. What appears undisputable is the increasingly large debt service requirement which imposes considerable stress on the Nigerian economy even when the improved resource inflow is factored into the country’s cash flows.
1.2 STATEMENT OF THE PROBLEM
Despite the government conscious effort in managing the nation’s debt, the issue of debt has still been a burden to the Nigerian economy. Large debt service payment obligations and debt burden has depressed investment and hence economic growth through its illiquidity and disincentive effects. The country has been experiencing resource underutilization, high incident of poverty and decay of infrastructures.
1.3 AIMS AND OBJECTIVES
The main of the study is the socio-economic and political impact of debt in Nigeria: a critical analysis of Buhari’s Administration 2015-2019. Other specific objectives include:
1. To determine the relationship between debt and the political economy of Nigeria.
2. To determine the causes of debt in Nigeria.
3. to examine the extent to which debt affect the socio-economic development of Nigeria.
4. to proffer solution to the causes of debt in Nigeria.
1.4 RESEARCH QUESTION
1. what is the relationship between debt and the political economy of Nigeria?
2. what are the causes of debt in Nigeria?
3. what extent do debt affects the socio-economic development of Nigeria?
4. what is the solution to the causes of debt in Nigeria?
1.5 STATEMENT OF RESEARCH HYPOTHESIS
1. H0: debt has no socio-economic and political impact in Nigeria.
2. H1: debt has a socio-economic and political impact in Nigeria.
1.6 SIGNIFICANCE OF STUDY
This study will serve as a tool in revamping government policies towards loan procurement and debt servicing in Nigeria.
The study will also be of great benefit to the government of Nigeria in understanding the impact debt has on the socio economic and political development of Nigeria.
Finally, the study will also serve as a yardstick for further research and documentation on Nigeria’s debt situation.
1.7 SCOPE OF STUDY
The study will cover the socio-economic and political impact of debt in Nigeria: a critical analysis of Buhari’s Administration 2015-2019.
1.8 LIMITATION OF STUDY
1. Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
2. Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.9 DEFINITION OF TERMS
Socio-economic: Socioeconomics is the social science that studies how economic activity affects and is shaped by social processes. In general it analyzes how modern societies progress, stagnate, or regress because of their local or regional economy, or the global economy.
Political: relating to the government or public affairs of a country.
Impact: the action of one object coming forcibly into contact with another.
Debt: a sum of money that is owed or due.
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