Macroeconomic Approach to External Debt The Case of Nigeria

"One of the greatest problems facing many Sub-Saharan African countries today is the amount of their external indebtedness. The external debt problem is becoming more acute for a number of reasons. First, the size of the debt relative to the size of the economy is enormous and can lead not only to capital flight but it also discourages private investment. Secondly, debt servicing payments form a significant proportion of the annual export earnings. Meeting debt servicing obligations eats significantly into whatever other facilities can be provided to improve the welfare of the citizens and therefore has macroeconomic implications. Thirdly, the burden of debt for a large number of Sub-Saharan countries threatens not only the execution but also the prospects of success of adjustment programmes being embarked upon. Fourth, the current system of debt management has a dire macroeconomic impact on an economy's output. This paper analyzes the external debt of Nigeria within a general macroeconomic framework recognizing the specific nature of Nigeria's debt. A number of significant findings of this work can however, be highlighted. The broad objectives of the study are to: analyse trends in and causes of debt accumulation and servicing; determine debt service ratios and debt servicing capacity; calibrate a debt viability model and provide appropriate scenarios."