Effect of Public Debt on Inflation Rate in Nigeria

Abstract

This study examines the effect of public debt on inflation rate in Nigeria for the periods of 1985 to 2020 using Autoregressive Distributed Lag technique to analyze the data. The study employs ex post facto research design with the use of time series secondary data. The study measures public debt with domestic and external debt while the consumer price index was used to measure the inflation rate in Nigeria. The study tests for stationarity of the time series secondary data with Augmented Dickey Fuller Test and the result of the results of the test suggest that domestic and external debts were stationary at first difference, except inflation rate that was stationary at level. The study found that domestic debt has significant positive effect on inflation rate in Nigeria, while external debt has no significant effect on inflation rate in Nigeria. Based on these findings, the study concludes that there is inflationary effect of domestic debt in Nigeria. The volume of domestic debt increases the price level. External debt has become an important source of budget deficit financing. Increases in government external debt tend to increase inflation in Nigeria. The study recommends that Government must increase her revenue base and lower its recurrent expenditure .Commitment to budget discipline should be encouraged for fiscal discipline on the part of the government and its agencies.