Title: IMPACT OF GOVERNMENT BUDGET ON EXTERNAL DEBT: LESSONS FOR FINANCIAL LITERACY AND EDUCATION IN NIGERIA

Authors: Thomas, Bariere, Phd, Ikole Dornubari, Phd and Michael, Saro S., Phd

Abstract: This study investigates the relationship between government budgetary allocations and external debt in Nigeria, focusing on how recurrent and capital expenditure patterns influence external debt accumulation and debt service dynamics. Using annual data between 1990 and 2024 from the Central Bank of Nigeria and related sources, the paper applies unit root testing and an ARDL (autoregressive distributed lag) framework to examine short run dynamics and long run cointegration between external debt and budget components. The analysis finds no long run cointegrating relationship between external debt and the principal budget aggregates. More so, external debt exhibits strong short run persistence and partial adjustment. Recurrent expenditure is negatively associated with external debt in the short run (marginally significant). In contrast, capital expenditure shows positive but statistically insignificant effects,an outcome consistent with chronic under execution of capital budgets. The paper concludes that reducing reliance on external borrowing requires strengthening budget credibility and execution, enhancing domestic revenue mobilization, building fiscal buffers against oil price shocks, and ensuring that external loans are well selected as well as implemented on productive capital projects.

Keywords: External Debt, Government Expenditure, Fiscal Deficit, Budget execution, Debt Sustainability.

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