Abstract:
An economy with deficient domestic savings and dwindling income from export faces the problem of decline in the rate of investment and growth. External borrowing thus becomes an avenue through which such country can augment the shortfall in the level of domestic savings and income for her investment requirement. Nigeria's domestic savings and income were able to carry her investment needs between 1970 and 1978. This was a period when the country earned so much money from the oil sector owing to the increased international oil prices. The nation contracted few loans during this period which were based on concessional and bilateral terms with longer maturity and very soft terms. However, with the crash in oil prices and decline in oil revenue, the need-arose to borrow from the international capital market at higher interest rate and shorter maturity period. The impact of these loans on investment and economic growth is the basis for this research. Investment is postulated to be dependent on income, foreign debt, interest rate and foreign debt service. Econometric research methods have been employed to do this impact analysis. In addition, ratio of debt and debt service against various macro-economic indicators has been used to further analyse the impact of external debt on the economy. The data for this research came from secondary sources such as bulletin of the Central Bank of Nigeria (CBN) and the Federal Office of Statistics (FOS). Findings show that foreign debt had varying impacts on the level of investment and economic growth. Recommendations were proffered with a conclusion that the level of investment and economic growth would be enhanced if the right policies were put in place and appropriate steps taken towards the reduction of the country's debt burden.
