Public Debt and Macroeconomic Stability in Nigeria: A Time Series Analysis

This study examines the relationship between public debt and macroeconomic stability in Nigeria over the period 1990–2023, employing a time series regression framework. Against the backdrop of Nigeria's escalating debt profile—which surpassed ₦87 trillion by the end of 2023—the paper investigates how external and domestic debt accumulation influences key macroeconomic stability indicators, while controlling for GDP per capita growth rate, inflation rate, population growth rate, trade openness, institutional quality proxied by the corruption perception index, natural resource dependence measured as oil revenue to total revenue ratio, human capital proxied by life expectancy, and infrastructure development measured by access to electricity. Grounded in the Debt Overhang Theory, the Ricardian Equivalence Hypothesis, and the Keynesian perspective on fiscal policy, the study develops a conceptual framework linking public debt to macroeconomic stability through transmission channels of investment crowding out, fiscal space compression, and exchange rate volatility. Utilizing data sourced from the World Bank's World Development Indicators, the Central Bank of Nigeria Statistical Bulletin, Transparency International, and the Debt Management Office, the study applies Ordinary Least Squares regression with appropriate diagnostic and post-estimation checks including tests for serial correlation, heteroscedasticity, multicollinearity, normality of residuals, and structural stability. The results reveal that external debt exerts a statistically significant negative effect on macroeconomic stability, while domestic debt shows a marginally significant but negative relationship. Among control variables, inflation rate, institutional quality, and trade openness emerge as significant determinants. The findings suggest that Nigeria's debt accumulation has crossed the threshold beyond which additional borrowing undermines macroeconomic fundamentals, corroborating the non-linear debt-growth hypothesis. The paper contributes to the literature by integrating structural and institutional variables often omitted in existing Nigerian studies, offering a more nuanced understanding of the debt-stability nexus. Policy implications point toward the urgent need for debt restructuring, revenue diversification away from oil, institutional strengthening, and the adoption of a fiscal responsibility framework that ties borrowing to measurable productive outcomes.