Evaluating Symmetric Causality between External Debt and Macroeconomic Variables in Nigeria

Within the global economic environment, the common pursuit of sustainable growth, infrastructure development, and poverty reduction prevails. However, the Nigerian government has encountered significant hurdles in its efforts to attain macroeconomic stability and the necessary conditions for economic prosperity. Consequently, the government has turned to external sources, primarily through debt acquisition, as a solution. This reliance on external debt is rooted in Nigeria’s struggle to effectively address the savings-investment gap, a challenge driven by various factors, including limited domestic savings, insufficient foreign exchange earnings, poor productivity levels, and inadequate tax revenues. Despite the visible increase in Nigeria’s external debt in recent times, noticeable improvements in macroeconomic indicators have remained elusive, raising questions about the effective allocation of these borrowed resources. In response to this discord, this study delves into the complex interaction between external debt and macroeconomic variables within the Nigerian economy. By employing a thorough analysis using the symmetric - Granger (1981) causality framework, covering the period from 1986 to 2020. Except for economic growth, which shows a causal relationship with external debt, the results showed no causal relationship between external debt and investment, economic growth, or exchange rate. Consequently, these results emphasize the importance for the government to explore alternative means of obtaining funds, rather than relying extensively on external debt, especially when pursuing projects with productive objectives.