Impact of External Debt on Nigeria’s Foreign Reserve Portfolios

Abstract

This study examines the impact of external debt and external debt servicing on the international reserves of Nigeria. The theoretical underpinning of the study was anchored on dual gap theory and the self-insurance theory of external reserves. The after effect research design was adopted to examine the components of the study in retrospect. Historical data spanning 1981 to 2018 was collated from the World Development indicators and analyzed using the error correction mechanism as the unit of analyses and estimated employing the least square technique. The empirical findings indicate that external debt stock exert a negative and statistically significant impact on Nigeria’s foreign exchange reserve portfolios. It further emerged that external debt service payments exert a positive but statistically insignificant impact on the international reserves of Nigeria. The study concludes that external debt stock and external debt service payments has no significant impact on the international reserve portfolios of Nigeria. The study recommends that, the fiscal managers of Nigeria should exercise cushion in external borrowing in order to ensure that concomitant external debt service payments does not deplete the international reserves of the country