Revisiting the External Debt Servicing – Economic Growth Nexus in Nigeria: Evidence From the Autoregressive Distributed Lag Approach

This study examines the influence of external debt servicing on the economic growth of Nigeria. To achieve this purpose, the study utilizes annual time-series data from 1986-2025 by applying the Autoregressive Distributed Lag (ARDL) bounds framework to evaluate the short-run and long-run relationships among real gross domestic product (RGDP), external debt service-to-GDP ratio (SERVGDP), real effective exchange rate (REER), and gross fixed capital formation (GFCF). Findings from the study reported a statistically significant negative long-run effect of external debt service-to-GDP ratio on real Gross Domestic Product (GDP) growth, suggesting that rising debt servicing obligations divert resources and constrain fiscal space for productive investment. The study also confirms a steady state long-run cointegrating association among the variables during the study period. Specifically, the finding which revealed a negative long-run elasticity of debt servicing on economic growth indicates that Nigeria's external debt service burden remains a significant impediment to sustainable economic growth. The study recommends based on the findings that the Nigerian government should prioritize debt restructuring to reduce debt service pressures; and to ensure that future external debts are specifically tied to productive capital projects with verifiable economic returns. These measures are expected to improve debt sustainability and ensure that external borrowing supports, rather than impedes economic performance in Nigeria.