Effect of Public Debts on Capital Project Financing in Nigeria

This study explored the effect of public debts on capital project financing in Nigeria using data ranging from 1981 to 2023. The study adopted the unit root test as a preliminary test, while the Autoregressive Distributed Lag (ARDL) was used for the estimation proper. With the mixed integration of the variables under the unit root testing, the ARDL was deemed appropriate for the estimation. While public debt was measured by domestic debt, external debt, and debt servicing, capital project financing was measured by government capital expenditure. From the findings, the ARDL bounds test, which was applied to test for cointegration, revealed a long-run relationship among the variables under consideration. The long-run estimates of the model hold that both external and domestic debt had a favorable and noteworthy long-term effect on Nigeria's capital project financing, implying that an increase in external debt and domestic debt significantly enhanced capital project financing in Nigeria. However, the study discovered that debt servicing had a negative and substantial effect on funding of capital projects, meaning that the higher the cost of debt servicing, and more capital project financing was diminishing in Nigeria. The significance of the ARDL model demonstrated that the long-term components of the capital project finance model are interconnected. According to the estimates, changes in the amount of domestic debt had a greater impact on financing capital projects than did changes in the amount of external debt and debt servicing. This finding revealed that Nigeria's capital projects are being funded in part by its external and domestic debt. Hence, policymakers should ensure that debt is contracted for capital creation-based economic development rather than for selfish or political reasons, and that the government uses borrowed funds to fund economically beneficial projects that will increase output and reduce the debt load.