The Impact of External Debt on the Nigerian Economy

Journal of Sustainable Development in Africa (Volume 10, No.3, 2008) ISSN: 1520-5509 Clarion University of Pennsylvania, Clarion, Pennsylvania THE IMPACT OF EXTERNAL DEBT ON ECONOMIC GROWTH: A COMPARATIVE STUDY OF NIGERIA AND SOUTH AFRICA Folorunso S. Ayadi University of Lagos Felix O. Ayadi Texas Southern University Abstract This paper investigates the impact of the huge external debt, with its servicing requirements, on economic growth of the Nigerian and South African economies. The external debts of Nigeria and South Africa are analyzed in a new context utilizing traditional, but innovative, models and econometric techniques. The Neoclassical growth model, which incorporates external sector, debt indicators, and some macroeconomic†¦show more content†¦South Africa’s loan increased from 40% to 70% of foreign debt. Its total foreign indebtedness increased steadily as loans were acquired from the IMF, whenever the foreign bankers turn down its request for loan. In addition, indebtedness was stabilized through gold swap. The debt problem became endemic in 1984, as about two-thirds of its outstanding loans had a maturity of one year or less. The public sector was responsible for the 16% of South Africa’s foreign debt; 44% of South Africa’s foreign liabilities were inc urred by the banking sector; the remaining 40% were private liabilities. When Chase Manhattan withdrew substantial credit lines from South Africa in 1985, a major foreign debt crisis became glaring. The impact of credit freeze and refusal to roll credit over on South Africa led to a drop in the value of rand (South African currency) and temporary closure of the financial and foreign-exchange market. Liabilities not affected by the freeze include trade credits, credits guaranteed by the Paris Club, member governments, and loans from IMF and Central Banks. Also compounding South Africa’s debt problem was the large proportion of debt that was denominated in hard non-dollar currencies, but appreciated in dollar terms as the dollar weakened. Since then, South Africa’s external debt has been high and continued to follow a predictable upward trend, exerting substantial negative impact on productivity and growth. The Deutsche Bank (2008) showed the South AfricanShow MoreRelate dThe Petroleum Revenue And Economic Growth Essay1610 Words   |  7 Pagesdomestic product. Petroleum sector is the mainstay of Nigerian economy since its discovery in commercial quantity in Oloibiri, Bayelsa State Nigeria in 1956. From 1970 to 2009, the income from petroleum stood at 82 percent with 18 percent from non-oil revenue. According to the world bank, â€Å"Nigeria is the biggest exporter of oil in Africa with the largest natural gas reserve in the continent†. One of the main sources of petroleum income to the Nigerian government is the petroleum Profit Tax. 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