Research Article Open Access

The Impact of Domestic Debt on Private Credits in Nigeria: A Structural VAR Approach, (1981-2015)

Abstract

The rapid increase in Nigeria’s domestic debt has raised many questions about fiscal sustainability of current economic policies which is intensified by short maturity period of most government domestic debts, and the fact that the banking sector still remains the dominant holder of Federal Government domestic debt instruments to finance huge fiscal deficits have negative implications on the private sector in Nigeria. Hence, this study examines the impact of domestic debt on credit to private sector on Nigeria’s economic growth between the periods of 1970 to 2015 adopting the Structural VAR technique of estimation to investigate the response of credits to private sector to innovations from domestic debt. This study concludes that since domestic debt induces prolonged crowding out effect on the credits to private sector in Nigeria, the federal government should carryout fiscal reforms in order to stem the current crowding out effect of domestic debt policy through restructuring and rescheduling of domestic debt

Phillip A, Victoria S, Md Azharul I, Omankhanlen AE, O luwaseun A and Temioluwa

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