External Debt Servicing, Exchange Rate Volatility, and Construction Sector Performance in Nigeria: Macro-Financial Transmission Channels and Sectoral Vulnerability

This study investigates the critical relationship between Nigeria’s escalating external debt servicing obligations, extreme exchange rate volatility, and the resultant impact on the performance of the construction sector. The Nigerian construction industry, a vital engine for economic growth and infrastructure development , is subjected to intense macroeconomic pressure due to fiscal fragility and monetary instability. Furthermore, the extreme depreciation of the Naira (which plummeted from N460.70 per US dollar in May 2023 to N1,738.74 per US dollar in November 2024) acts as a shock multiplier, dramatically increasing the local currency cost of servicing foreign debt. This monetary instability is transmitted to the supply side via a strong exchange rate pass-through, causing debilitating input cost inflation. This cost shock is exacerbated by policy, as key construction inputs (including cement and steel products) are restricted from the official foreign exchange window, forcing the sector to rely on the parallel market . The findings demonstrated that this interdependent vulnerability where debt amplifies foreign exchange risk and foreign exchange instability institutionalizes cost inflation undermines project viability and inhibits the sector’s capacity to close the nation’s infrastructure deficit. Strategic policy responses require structural revenue diversification, adherence to risk-mitigating debt management strategies, and a critical review of foreign exchange restrictions on essential construction materials to stabilize costs and foster sustainable sectoral growth.