Impact of COVID-19 on external debt in Nigeria

Abstract

External debt is very important for the growth of any economy. It is basically used for augmenting the revenue of a country and to finance, sometimes, long-term capital project, for which domestic debt cannot be adequate. The COVID-19 pandemic came up with increase in government expenditure and fiscal deficit. This may not be unconnected to COVID-19 induced expenditure like buying of COVID-19 test kit, evacuation of Nigerian nationals in different parts of the World, to mention but a few. The current effort investigates the effect of COVID-19 on external debt in Nigeria. Vector Autoregressive Model was employed as the estimation technique after testing for the stationarity of the variables. It was found that past external debt, exchange rate and fiscal deficit are the major determinants of external debt in Nigeria. The study also found out that COVID-19 exerts a weak influence on external debt in Nigeria. The study therefore recommend the urgent need of the government in switching and streamlining discretionary spending in order to make resources available to fund the COVID-19-related economic effect.