Domestic Debt Servicing, Inflation rate and Domestic Debt Stock in Nigeria: An Empirical Analysis

Countries borrow when they are unable to generate enough revenue to meet up their expenditures on productive activities to improve economic growth and development which transient into better standard of living. Nigeria’s case of borrowing over the years has been on the increase that has attracted lot of attentions. This study examines the effect of domestic debt servicing and inflation rate on domestic debt stock in Nigeria. An ex-post facto research design was employed. Secondary quarterly data were collected from Central Bank of Nigeria Statistical Bulletin for twenty years period spanning through 2000 - 2019. Employing Johansen Cointegration and Vector Error Correction Model, the study established a long run relationship among the variables. The Ordinary Least Square result shows that domestic debt servicing has significant effect on domestic debt stock in Nigeria, while inflation rate has no significant effect on domestic debt stock in Nigeria. The study recommends that the Debt Management Office should be more proactive by reforming part of the short-term domestic debt to long term through repayment of portion of short-term domestic debt when they mature. Also, the Federal Government should invest the borrowed funds in projects that will ultimately repay the interest and principal in the nearest future.