Authors : K. Ibrahim Ayuba, B.T. Fatimah Wati Ibrahim and Shazida Jan Bt. Mohd. Khan
Abstract: This study assesses the domestic debt sustainability due to the fluctuation in revenue of most African States, principally when it relates with the effects of the financially crisis and global economic turm oil that emanates from western countries. The situation has become a vexed issue particularly for policy makers from mineral (oil) resource nations. However, oil sector remains the major revenue in Nigeria and the largest economy in the continent. Therefore, the linkage with the shortage in revenue gap from traditional sources to fund government budgets in recent time makes it crucial yet disturbing. For this reason, it becomes inevitable to usher fiscal policy reforms in Debt Management Office (DMO), pension’s funds, bounds market and geared to deepen the financial system to aid and sustain growth and development. Accordingly, this policy has led to an upsurge in domestic debt/borrowing over external debt/borrowings. Consequently, the policy has raised several concerns and has become more worrisome regarding sustainability of the debt. More specifically, this study aims to assess whether this policy path is sustainable or not. In order to achieve this objective, the researchers adopt the celebrated Hamilton and Flavin Inter temporal Budget Constraint (IBC) framework approach using ARDL bounds testing cointegration technique with annual data set for the period 1981-2013 fiscal years. It can be found from the data analysis that the government domestic debt do not show any cointegration in the long run signifying that government domestic debt do not comply with the IBC rule. Hence forth, policy makers should implement strict compliance to obey the IBC. Furthermore, government should ensure a sustainable and innovative debt management system and pursue alternatives to oil revenue management by diversifying the revenue base due to unsustainability of the stance. Since consolidation may not be an option due to the dangerous level of welfare and development.
K. Ibrahim Ayuba, B.T. Fatimah Wati Ibrahim and Shazida Jan Bt. Mohd. Khan, 2016. Sustainability of Domestic Debt in Nigeria: An ARDL Bounds Testing Cointegration Approach. International Business Management, 10: 2823-2830.