ABSTRACT
This research work is on the problem and challenges of Nigeria contributing pension scheme to Nigeria civil servants specifically as it effect regular payment of pension, arrear/debt of pension, issue of ghost pensionnaire, effect of change of jobs and pension administrator and the level of implementation and supervision of rules, regulation and standards in the industry.
The researcher employed questionnaire, chi-square for the research work. This method was applied because information could be source from Nigeria Civil Servants PenCom workers and pensionnaire retirees.
The result indicate that payment of pensionnaires are not regular, arrears/debt of pensionnaires has not been cleared, issued of ghost worker are still not cleared, and low level implementation and supervision of rules and regulation of PenCom; all these constitute problems and challenges for PenCom and pensionnaires.
Finally, Having found the above problem and challenges of Nigeria pension scheme to Nigeria Civil Servant the researcher recommended that an institution should be build to train staff to handle pension matter and serious measure should be taken to fish out ghost workers and pay arrears of pensionnaires.
TABLE OF CONTENT
TITLE PAGE – – – – – – – – – i
CERTIFICATION – – – – – – – – ii
DEDICATION – – – – – – – – – iii
ACKNOWLEDGEMENT – – – – – – – iv
ABSTRACT – – – – – – – – – v
TABLE OF CONTENT – – – – – – – vi
CHAPTER ONE: Introduction
1.1 Background of Study – – – – – – 1
1.2 Statement of problem – – – – – – 4
1.3 Objective of Study – – – – – – – 5
1.4 Research Questions – – – – – – – 6
1.5 Statement of Hypothesis – – – – – – 6
1.6 Scope and Limitation of Study – – – – – 7
1.7 Significant of Study – – – – – – – 8
1.8 Definition of Terms – – – – – – – 9
REFERENCES – – – – – – – – 11
CHAPTER TWO: Review of Related Literature
2.0 Introduction – – – – – – – – 12
2.1 Meaning of Contributory Pension Scheme – – – 13
2.2 Types of Pension Scheme Reform – – – – 15
2.3 Review of the Nigeria Pension System Pension
Policies and Development in Nigeria – – – – 17
2.4 Feasible Options for Effective Pension System – – 20
2.5 Statement of Key Principles – – – – – 22
2.6 Goals and Objective of the Pension Reform Act 2004 – 23
2.7 Institutional and Legal Framework – – – – 30
2.8 Implication of the Contributory Pension Scheme – 32
2.9 Overview of the Act Investment and
Risk Management – – – – – – – 35
2.10 Benefits of the Pension Scheme – – – – – 39
2.11 Role of Financial Institution in
Pension Administration – – – – – – 42
2.12 Opportunities and Challenges for Financial
Institutions in Pension Industry – – – – 45
2.13 Problems and Challenges before Pension
Industry in 2010 – – – – – – – 49
REFERENCES – – – – – – – – 59
CHAPTER THREE: Research Design and Methodology
3.1 Introduction – – – – – – – – 62
3.2 Research Design – – – – – – – 62
3.3 Population of the Study – – – – – – 63
3.4 Sampling procedure – – – – – – – 64
3.5 Data Collection – – – – – – – – 65
3.6 Test of Validity and Reliability of
Research Instrument – – – – – – 65
3.7 Procedure for Data Collection – – – – – 66
3.8 Questionnaire Design – – – – – – 66
3.9 Data Analysis – – – – – – – – 67
REFERENCES – – – – – – – – 68
CHAPTER FOUR: Presentation and Analysis of Data
4.1 Introduction – – – – – – – – 69
4.2 Data Presentation – – – – – – – 69
4.3 Test of Hypothesis – – – – – – – 83
4.4 Analysis of Data – – – – – – – 88
CHAPTER FIVE:
5.0 Summary of Findings, Conclusion and
Recommendation – – – – – – – 90
5.1 Summary of Findings – – – – – – 90
5.2 Conclusion – – – – – – – – 91
5.3 Recommendation for Policy – – – – – 92
5.4 Area of Further Study – – – – – – 93
BIBLIOGRAPHY
APPENDIX
CHAPTER ONE
1.0 BACKGROUND OF STUDY
1.1 INTRODUCTION
The Nigeria Pension Schemes exist to provide post- retirement benefits to employees. It was introduced by the colonial master to provide income and security for old age British citizen working in the country upon retirement.
According to Adesina B. (2006:7) Nigeria first ever legislative instrument on pension matters was the pension ordinance of 1951, which had retrospective effect from 1st January, 1946. Then followed by the National Provident Fund (NPF) scheme established in 1961 was the first legislation enacted to address pension matters of private organizations. Pension Act No. 102 of 1979 came up 18 years later, as well as the Armed Forces Pension Act No. 103 of the same year. In 1987 Police and other Government Agencies’ Pension scheme was enacted under Pension Act No 75. This was followed up by the Local Government Pension Edict which foresaw the establishment of the Local Government Staff pension Board of 1987.
By 1993 the National Social Insurance Trust Fund (NSITF) scheme was established by Decree No. 73 of 1993 to replace the defunct NPF, in 1994 employees in private sectors were equally accommodated by the scheme, for lost of employment income in old age, invalidity or death.
Most pension schemes in the public sector have the problem of been poorly funded or unfunded, owing to inadequate budget allocation. This situation resulted to outstanding pension deficits of about two trillion naira before the commencement of the Pension Reform Act of 2004 (PRA). A part from this the administration of the scheme was generally weak, inefficient and non transparent. There was no authenticated list/data base on pensionnaires, while 14 documents are required to file pension claims. Also there was a restrictive and sharp practice in the investment and management of pension fund, this created the problem of pension liabilities to the extent that pensionnaires were dying on verification queues and over three hundred parastatals schemes were bankrupt before the new scheme came on board.
On the issue of private sector, most employees were not covered by any form of retirement benefit arrangements. Most of their pension schemes were that of resignation rather than retirements. Therefore at that period the pension schemes in Nigeria were largely unregulated, without standard or supervision and highly diversified before the advent of the PRA 2004. Meanwhile, before the enactment of Pension Reform Act of 2004, there were three regulators, namely Securities and Exchange Commission (SEC,) National Insurance Commission (NAICOM) and the Joint Tax Board (JTB). (Ahmad M. K. 2006:2).
Moreover, the Pension Reform Act of (2004), according to Atedo N.A (2006:19) ‘the Act’ a compulsory contributory pension scheme (“the scheme” or “CPS”) has been established for all categories of workers in the Federal Capital Territory, Federal Public Service and in the Private Sector. This scheme waved the era of pay-as-you-go and put in place a full funding of scheme which is compulsory for all. It provides the categories of schemes to apply to the National Pension Commission (‘Pension’) to continue but be managed according to the Act. The major differences between the new and previous scheme are under the Contributory Pension Scheme (CPS) employer and employees make founded contributions into a Retirement Savings Account (‘RSA’) for the benefit of the employee or his legal beneficiaries under the CPS, PenCom is the sole regulator for all pension funds they are required to be managed and administered by private owned and licensed PFAs selected by each employee, while the PFA appoints the PFC to be in charge and responsible for the assets as a third party. PenCom also issue guidelines for the investment of pension fund. Each employee is to receive pension for life for which he/she contributed for under CPS.
Based on the foregoing, the researcher is to study the challenges and problems of Nigerian contributory pension scheme to Nigeria Civil Servants.

1.2 STATEMENT OF PROBLEMS
Nigerian Contributory Pension Scheme is to enable the contributors like Nigerian Civil Servant, Public Servants, Private Employee and Voluntary Contributors to enjoy retirement benefit at their old age, not withstanding this importance, the contributory pension scheme is faced with a lot of challenges and problems.
When the issue of pay-as-you-go (P.A.Y.G) scheme was involved it became unsustainable due to lack of adequate and untimely budgetary provisions and increases in salaries and pensions. There were lack of effective regulation and supervision of the system, no prompt payment of the contribution due to salaries not paid on time or arrears of salaries owned. It was poorly funded or unfunded, owing to inadequate budget allocations.
The administration was generally weak, inefficient and non transparent improper investment and management of pension funds created problems of liabilities pension scheme in Nigeria were largely unregulated, without any standard or supervision and highly diversified.
In 2004 the Pension Reform Act (PRA) went into solving the above problems and challenges. They inherited the debt owed or arrears of pension, they were faced with issue of ghost pensionnaires and no accurate data base on pensionnaires. The cost of information technology as regard the materials and other items required to meet their promise of timelessness in prompt payment of pension, as and when due with date. What about workers/employee who changed from their previous work to a new one and those that decided to move from one pension administrator to another? Moreover, there are issues of risk management as regard investment of funds collected from the contributors. The rules, regulations and supervision of the system were ineffectively implemented. It is against this problems and challenges of Nigeria contributory pension scheme to Nigeria Civil Servant that the researcher wished to carryout the research work.

1.3 OBJECTIVE OF THE STUDY
The study will examine the problem and challenges of Nigeria contributory pension scheme to Nigeria Civil Servants. Thus, the study is set out to achieve the following objectives:
i. To know if the pensionnaires on regular bases receive their retirement benefits as and when due with date.
ii. To find out if the debt or arrears of pensionnaires inherited by PenCom has been cleared.
iii. To know if the issue of ghost pensionnaires has been nailed to bud.
iv. To determine the effect of change of job and pension administrator in the pension scheme
v. To know if proper supervision and implementation to the set of rules, regulations and standards for administration are maintained.

1.4 RESEARCH QUESTION
The research is set out to answer the following questions:
i. Do pensionnaires receive their retirement benefits regularly as and when due (monthly basis) in Nigeria?
ii. What is the position of debt/arrears of pensionnaires inherited by PenCom in the contributory pension scheme in Nigeria?
iii. Do we still have ghost pensionnaires in the contributory pension scheme in Nigeria?
iv. What effect do change of jobs and pension administers have on the contributory pension scheme in Nigeria?
v. What is the impact of improper supervision and implementation to the set of rules, regulations and standards for administration are maintained?

1.5 RESEARCH HYPOTHESIS
The research will be guided by the following hypothesis:
H0: The debt or arrears of pension inherited by PenCom do not serve as a challenge and problem to Nigeria Contributory Pensions Scheme to Nigeria civil Servants.
H1: The debt arrears of pension inherited by PenCom serve as a challenge and problem of Nigeria Contributory pension Scheme to Nigeria civil Servants.
H0: Change of jobs and pension administrator do not serve as a challenge and problems of Nigeria Contributory Pension Scheme to Nigeria civil Servants.
H1: Change of job and pension administrators serves as a challenge and problem of Nigeria Contributory Pension Scheme to Nigeria Civil Servant.
H0: Ghost pensionnaires do not serve as problem and challenges of Nigeria Contributory Pension Scheme to Nigeria Civil Servants.
H1: Ghost pensionnaires serve as a problem and challenge of Nigeria contributory pension scheme to Nigeria Civil Servants.

1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of this study is centered on challenges and problem of Nigeria Contributory Pension Scheme to Nigeria Civil Servants. It will be viewed from some pension administrators, ministry and forms and shall cover Enugu metropolis as a source of information to enable the researcher carryout his project work.
It is necessary to mention that the researcher was beset with many problems in the course of this work. There was dearth of data to divulge some of the questions which were not answered, due to uncooperative attitude of some workers in the selected areas. Most often information was not revealed by the administrators/institutions due to reasons best know to them as confidential and restricted areas. The researcher believed that those problems may affect the result of this work. Apart from the aforementioned all other errors and omissions are precisely those of the researcher.

1.7 SIGNIFICANCE OF THE STUDY
The research is systematically meant to be practical and educative in the sense that it is going to assist in exposing some of the challenges and problems of Nigeria contributory pension scheme to Nigeria Civil Servants.
Essentially, this work is a step in a right direction to assist and enlighten the general public on the challenges and problems of Nigeria contributory pension scheme to Nigeria civil servant.
Furthermore, there is a need to provide a reference document for further investigation and evaluation of challenges and problems of PenCom to Nigeria Civil Servant. This research work will go a long way to increase the availability of literature in field of finance.
Finally, the study is aimed at been beneficial to policy maker, regulators, public and private employees and employers, voluntary contributors, general public, Enugu State, the federal Government and administrators of pensions.
1.8 DEFINITION OF TERMS
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Impact of loan granting and it’s recovery problems on commercial banks in Nigeria. A Study of First Bank

CHAPTER ONE

BACKGROUND OF THE STUDY: 

Virtually, every business has a credit relationship with a financial institution, especially banks. Some rely on periodic short term loans to finance temporary working capital needs. Others primarily use long-term loans to finance capital expenditure, new acquisitions or permanent increases in capital. Regardless of the type of loan, all credit request mandate a systematic analysis of the borrower‟s ability to repay as at when due.

Commercial banks carry on ordinary banking business with the general public, changing cash for bank deposits and bank deposits for cash, transferring bank deposit from one corporation to another, giving bank deposit in exchange of bills of exchange, providing of trustees and executor‟s services, providing safe custody of funds and valuables as well as foreign exchange remittance.

Though commercial banks differs from country to country, their profit and banking motives are the same. Their activities are of interest to their customers, workers (staff), and above all, shareholders. The commercial objective of the bank is to maximize profit, though other social and economic functions tends to deflect banks from profit maximization.

The aims and objectives of commercial banks have therefore paved way for their customers to make and obtain credits, in form of loan of which the researcher is interested in.

Lending has become a vital function on operation because of its direct effect and impact on economic growth and business development.

In a market oriented economy, there are two main participants that move the economic growth; these are the suppliers of invisible funds and the users of the funds for productive purposes. These two participants are spread widely in the economy and may not have direct relationship with each other. For this, there is the need to have an intermediary to link them up. The banking sector mobilize surplus funds from small and big savers who have no immediate need for such funds. The users of these funds are the business entrepreneurs and investors who have brilliant ideas on how to create additional wealth in the economy but lack the necessary capital to execute their ideas. These groups of people approach banks to obtain loan.

Subsequently, lending is a risky venture which banks only engage on after a rigorous and satisfactory analysis of the project for which lending is being made. The main preoccupation of banks is extending loans to their customers. Thus, the formulation and implementation of such lending policies are some of the important responsibilities of the management of the bank. The lending policy of a bank must be specific on how much loan will be made available to whom, what period and for what reason. For this reason, lending policies should be well documented so that lending officers will be able to know the areas of prohibition and the area of where they can operate. Also, such policies should be subjected to periodic review to make the banks keep abreast with the dynamic and innovation nature of the economy as well as competing with other changing economic sector.

Therefore, the basic objectives of credit analysis t=is to assess the risks involved in extending loans to bank customers. In financial circle, risk typically refers to the volatility in earnings. Lenders are particularly concerned with adverse fluctuation in net income or cash flows, which hinder the borrower‟s ability to service a loan. Some risks can be measured with historical and projected financial data, while others such as those associated with borrower‟s character and willingness to repay a loan are not directly measurable.

STATEMENT OF PROBLEMS:

Banks in recent times has failed as a result of loan recovery problems. Loan is the major source of bank profitability.

However, in going about their lending activities, banks have their own objectives among which are profitability, growth, safety, suitability and liquidity.

Loan, when not recovered could adversely affect banks. It is easily granted than recovered. It usually needs proficiency i.e. competency and expertise in the recovery process. It sometimes become an uphill task to recover. When they are not recovered, the impact is often disastrous to the bank. It can lead to illiquidity, insolvency and even distress as the case may be.

There is therefore a need for arriving at strategies for efficient loan recovery. That is the peak of the problem.

OBJECTIVES OF THE STUDY 

Having known that lending objectives of a commercial bank is to provide growth, profitability and liquidity, and its representing chunk of deposit as a source of income to the bank, the cumulative effect of loan default will be a loss of confidence in the banking system.

The researcher therefore aimed at:

1. Finding out the several problems facing loan recovery
2. The effects of loan default on commercial banks
3. The measures that will help to reduce the incidence of loan

RESEARCH QUESTION 

1. What are the several problems faced during loan recovery?
2. What type of loan do commercial banks grant?
3. Who are the loan beneficiaries of commercial banks?
4. Are there measures to reduce the limit of loan default?
5. What are the effects of loan defaults on commercial banks?
6. What are the sectorial allocation of commercial bank‟s loan?
7. What are measures that will help to reduce the incidence of loan default?

RESEARCH HYPOTHESIS

Ho – the measures taken by banks do not reduce the incidence of loan default.

H₁ The measures taken by banks to reduce the incidence of loan default

SCOPE OF THE STUDY 

The research work is to analyze the problems of loan recovery on commercial banks (First Bank Plc) in Ojo-Alaba, Ojo Local Government Area of Lagos State.

Due to limited time and the level of this project work, the researcher decided to systematically and meticulously narrow it down to a study that will cover two distinct areas namely:

The problem of loan recovery and how to control loan default.

The researcher wants to avoid unnecessary details that are not concerned with the problem of loan recovery in commercial banks.

The study is limited to first bank branch in Ojo-Alaba, Lagos State.

SIGNIFICANCE OF THE STUDY 

This study is intended to analyze the problems of loan recovery in commercial banks in Nigeria and their poor system of management of loan. The result of this study will be immense important to some of us and even the bankers in particular. Banks will become conscious in their loan disbursement. They have to determine the kind o people that will benefit from the loan disbursement, the type of loan to give the criteria to use in granting loan and the procedures to be used for loan recoveryDownload Full Material-N5000

ABSTRACT

The issue of linkage between external sector financing and economic growth has attracted wide debate within the context of domestic and international economies. Earlier studies have found that the inability of the developing countries to direct resources to productive use has been a disincentive to domestic capital formation resulting in repudiation to loan repayment, slow pace of economic growth, unfavourable credit terms and foreign exchange variations. Most of the studies however failed to align the contributions of each source of external financing to economic growth and also failed to use the human factor index or the standard of living as a major economic growth determinant. Against this backdrop, the study sought to assess the effect of increase in external debt on economic growth; examine the effect of loans from each of the external debt sources on economic growth; examine the effect of external debt services on per capita GDP; analyze the effect of external debt service outlets to each of the creditors on the nation’s GDP and to examine the impact of external debt stock on the standard of living of the average Nigerian. Five models were formulated in line with the five hypotheses. Variables employed alongside the models include: (1) Aggregated external debt stock and economic growth, (2) Disaggregated external debt stock and economic growth; (3) Aggregated Eternal Debt Services and Economic Growth (4) Disaggregated External Debt Services and Economic Growth and (5) Standard of living and External Debt. The study adopted ex-post-facto research design and secondary data used were sourced from CBN Statistical Bulletin, Debt Management Office and CBN Annual Report, covering 30-year time series period (1981-2010). Descriptive statistics (means, standard deviation, etc) was employed and Augumented Dicker-Fuller (ADF) analysis for unit root tests was conducted. The Johanssen Co integration test was performed to establish the nature of co integration in the models. Ordinary Least Square (OLS) regression technique was used to test the hypotheses at 5% level of significance. The results indicated that (1) Aggregate external debt stock in Nigeria does not have significant positive effect on economic growth; (2) External debt stock borrowed from the various creditors has significant effect on economic growth in Nigeria; (3) External debt services paid out over the years have insignificant and negative effect on economic growth in Nigeria;  (4) Effect of external debt services to the various creditors on economic growth in Nigeria is insignificant; and (5) External debt has a negative and significant effect on the standard of living in Nigeria. The study concludes that as a developing country, Nigeria should make judicious use of all loans (borrowed) and should also enter into other forms of bilateral relationships that could reduce her foreign exchange risk and balance of payment disequilibrium. The study recommends that Nigeria’s external debt policies should be reviewed regularly; the debt service obligations should be properly aligned with the debt stock and that external debt management policies should be made to deepen the economy and also avoid the debt overhang syndrome that characterized Nigeria’s debt management initiatives before her final exit from the Paris Club. In contributing to knowledge, the study adopted modified versions of Malik (2010); Levine and Renart (1992); Karagol (2007); Adesola (2009); Uzochukwu (2011); and Fosu (2007). The study also contributed in terms of geography to knowledge by providing evidence in respect of a developing country, Nigeria.

 

CHAPTER ONE

 

INTRODUCTION

 

1.1       BACKGROUND TO THE STUDY

According to Claudio (2004:4), “the history of developing nations reveal that they have been subjected to repeated economic crises with serious consequences for their long term growth prospects and that the links of these crises to the external sectors performance including the problem of external debt and its sustainability have attracted prolonged debate”. Nations have various reasons for contracting external debt with other nations and borrowing by countries occurs as a result of their inability to generate enough domestic savings to carry out productive activities (Ezeabasili, et.al., 2011). In Nigeria for instance, external debt is secured and channeled to serve as balance of payment support, project tied loans, budget deficit financing, meeting some developmental goals of the various levels of government, embarking on infrastructural development etc. Osinubi, et.al. (2006) observes that the need for government to finance its deficit budget leads to incurrence of external debt. Ezeabasili (2006), Adam (2007) and Anyanwu (1997) are of the opinion that countries borrow to supplement their domestic savings and allow the affected countries to carry out productive activities and if the borrowed funds are channeled to productive investments and the investments enjoy macroeconomic stability, they will be able not only to accelerate their economic growth but also to settle their debt obligations comfortably (Hameed, et. al., 2008). Other studies that have found relationship between debt and growth include Cohen (1995), Borenszteim (1990), Elbadawi, et.al. (1997), Patilo, et.al. (2002), Adeyemi (1996) and Indermit, et.al. (2005). The first external loan contracted in Nigeria was US $28 million in 1958. As a measure to curtail the rising debt profile, the federal government in 1978 promulgated Act No 30 of the same year limiting Federal government external loan to N5 billion. In the same year, a jumbo loan of US $1 billion was raised from the international capital market. Thereafter, the spate of borrowing increased with the entry of state governments into external loan contractual obligations coupled with fall from oil revenue (Adesola, 2009). Fajana (1990) and Olukoshi, et.al. (1990), observe that although the windfall from oil exports led to a considerable economic activities in Nigeria, it did very little to create a solid economic foundation for the country. Muttalab (1984) and Obi (2005) also observe that although the loans obtained by Nigeria from the international financial market were ear marked for specific projects, the disbursement was unrelated to the rate of progress of the projects on ground suggesting that the fund may have been looted by few government officials in collusion with or knowledge of the creditors.

 

The need to separate debt management from the Ministry of Finance gave rise to the creation of Debt Management Office in 2000 and the office was charged with the responsibility of managing both domestic and foreign debt in Nigeria. Again, in 2005 the government established a fiscal responsibility council and subsequently enacted a fiscal responsibility Act, 2005. These and other efforts were made to keep the nation’s debt stock at a sustainable level.

Claudio (2004) has observed that external debt sustainability is consistent with the objective to keep a debt level that promotes economic growth. Arrow, et.al. (2007) observe that sustainable development is an economic programme along which average well being of present and future generations taken together does not decline over time. As Metwally and Tamaschke (1994) and Geiger (1990) observe, capital inflows have significant impact on growth-debt relationship because when there is a considerable level of inflow of capital, economic growth will be accelerated thus less need for external borrowing. Ogunmuyiwa (2011) however argues that causality does not exist between external debt and economic growth as causation between debt and growth was found to be weak and insignificant in Nigeria.  Indermit and Brian (2005) posit that large budget surplus is associated with rapid economic growth. Savvides (1992), Edo (2002), Udoka, et.al. (2010) and Bullow, Rogoff (1990) are of the opinion that debt overhang acts like a high tax margin on the country and could provide disincentive to domestic capital formation. This virus inflicted the Nigerian economy before her total exit from the strong hold of Paris and London club of creditors. Shortly before the exit, her total external debt stock was N4.9 trillion in 2004 (CBN Statistical Bulletin, 2009). In 2006, Nigeria external debt stock was $3.54 billion, in 2007 it rose marginally to $3.67 and in 2008, it further inched up to $3.72billion, dropped slightly in 2009 to $3.62billion only to rise sharply to $8.43billion in March 2010 (Mgboji, 2010). As at 30^th September 2011, the external debt stock stood at $5.63 billion made up of $3.316 billion owed by federal government and $2.317 billion owed by the states (Onwuka, 2011). These figures are alarming considering the fact that the country is expected to keep a sustainable level of debt stock after her debt relief experience in 2005. As Sacks (1989), Arslanalp and Henry (2004) argue, the problem faced by debt relief countries is lack of good institutions and if the poor institutional framework is not corrected, any new debt relief initiative would not achieve the objective to promote economic growth.

It is worrisome to note that in spite of the relief package secured in 2005, the World Bank ranked Nigeria as the 87^th most indebted country in the World and 139^th for purchasing power parity per capita GDP and debt service ratio (ratio of debt service to export) of 1.10% as against the international threshold of 20% (World Bank Report 2010). These phenomena contrast with the expectations that the resources freed from Paris and London Club as well as further debt procured externally would add value to the economy through employment creation, promotion of quality health care delivery, increased capacity utilization, infrastructural development, reduction in inflation rate, enhanced export revenue, reduction in foreign exchange risk, all of which will translate to economic growth (Uzochukwu, 2011; Lora and Olivera, 2006).

As already observed, studies have been conducted on Nigeria external debt and economic growth nexus reflecting on related developments before and shortly after the debt relief. The findings revealed various degrees of interaction on the effect of aggregate external debt stock on gross domestic product but failed to relate these interactions (whether positive or negative) to the various sources of external debt to ascertain the extent to which each source of external borrowing contributes to economic growth in Nigeria. This information is necessary to enable the Debt Management Office (DMO) reappraise Nigeria’s bilateral relationship with her external creditors The timing and scope of the study also failed to accommodate data relating to recent developments, including the exit from both the Paris and London Club which drastically reduced the external debt stock owed by Nigeria. Also, one of the reasons for extending debt relief package to Nigeria was to free resources to improve the standard of living in Nigeria.

Bearing the above short comings in mind, this study is considered timely as it is designed to espouse on the need to disaggregate debt stock and debt services to the various creditors (Paris Club, multilateral, London Club and Bilateral creditors) to ascertain the contribution of each source to economic growth, a measure that would enable Nigeria reappraise both her bilateral trade and other associated forms of external relationship. It is also considered a necessity to accommodate data on the recent development in the management of Nigeria’s external debt and also to appreciate the need to use per capita income as a major control variable to demonstrate its response to changes in external debt per capita in recognition of the importance of human factor index as a measure of economic growth.

 

1.2         STATEMENT OF THE PROBLEM

The inability of a developing country like Nigeria to conserve enough domestic resources to bridge her budget gaps necessitates her continued reliance on external sector financing which is usually characterized by very stringent lending conditions, unfavorable foreign exchange variations and repudiation tendencies that cause debt overhang. This as revealed by previous studies ( Savvids, 1992; Edo, 2002; Udoka ,et. al. 2010; and Bullow, 1990) has been a disincentive to domestic capital formation and consequently lead to deprivation of adequate basic necessities to the citizens (Karagol, 2002 and Fosu, 2007). The first external loan in Nigeria was $28million and obtained in 1958. In 1978, Act No 30 was promulgated limiting external borrowing to $5billion. Following a drop in oil revenue and indiscriminate borrowing from external sources by the state governments in the 1980’s (Olukoshi, 1990), the loan stock increased in 1981 from N2331m to N298614m in 1990 and N3097384m in 2000, without significant improvement in baseline scenario like capacity utilization which rather dropped from 73% in 1981 to 40% in 1990 and 36% in 2000 with a slight increase to about 55% in 2010. This gave rise to a widespread agitation for debt rescheduling and cancellation by many indebted poor countries especially Nigeria (World Bank 2002). By 2004, the nation’s debt stock reached its peak, amounting to N4890270m. This called for a renewed effort to seek for debt relief that was obtained in 2005 and even after the total exit from the Paris and London Club in 2006, the country resorted to deficit financing in 2009 and 2010 by issuing debt instruments worth N524billion and N867billion respectively, a development that was perceived as a renewed ugly practice which according to Nwankwo (2010), made the country to pay $42billion as interest and penalty on a loan of $13.5billion in 38 years to the Paris Club.

The problem therefore exists and revolves around the scenario whether the nation’s external debt stock could have contributed significantly to economic growth in Nigeria; whether the quantum of external debt services in aggregate terms and also to the various creditors could have been made to cause improvement in the nation’s GDP and whether the external debt stock and its servicing conditions could have freed resources to improve the standard of living of the citizens in Nigeria.

The resolution of this problem is critical in order to fill the gap created by previous studies which were narrow in scope and timing and also did little in aligning the effect of aggregate and various sources of external debt and their services to economic growth. According to Levy and Chowdhurry  (1993); Malik (2010); Bawada (1994) and Audu (2004), high debt stock is associated with rising debt burden and could also cause pervasive poverty rate, endemic corruption and decayed infrastructural facilities ( Okonjo-Iweala, Soludo and Muhtar, 2003) both of which could result to slow pace of economic growth. Government is expected to borrow for projects that could repay the amount borrowed and create jobs rather than borrowing to finance budget gaps that are largely recurrent (Uzamera, 2011). This has associated foreign exchange risk (Muoghalu, 2006) and stringent borrowing conditions that could contribute to the poor performance of external capital in debtor countries and thus inhibit delivery of welfare packages to the citizens (Dinneya, 2006). This causes a drop in the standard of living of the citizens (Uzochukwu, 2011).

This study is poised to largely find resolution options to the problem.

 

1.3       OBJECTIVES OF THE STUDY

The main objective of this study is to assess the impact of external debt on economic growth in Nigeria.

Other specific objectives that guided the study are:

1. To assess the effect of increase in external debt on economic  growth in Nigeria, using

per capita Gross Domestic Product (GDP) as proxy  for  economic growth.

 

2. To examine the effect of loans from each of the external debt sources (Paris Club, Multilateral, London Club and Bilateral Creditors) on economic growth in Nigeria.

 

3. To examine the effect of external debt services on Nigeria’s per capita Gross Domestic Product (GDP).

 

4. To analyze the effect of external debt service outlets to each of the creditors (Paris Club, Multilateral, London Club and Bilateral Creditors) on the nation’s GDP.

 

5. To examine the impact of external debt stock on the standard of living of an average Nigerian (using per capita income  as a proxy for standard of living in relation to external debt per capita).

 

1.4       RESEARCH QUESTIONS

The following research questions were formulated for the study:

1. To what extent does increase in external debt affect growth in the nation’s gross domestic product (GDP) measured at current market price?
2. To what degree do the sources of external debt mix (Paris Club, Multilateral, London Club and Bilateral Creditors) contribute to increase in the nation’s Gross Domestic Product (GDP)?
3. To what extent have external debt services contributed to improvement in the nation’s GDP?
4. How far does each of the creditor categories (Paris Club, Multilateral, London Club and Bilateral Creditors) of external debt services contribute to improvement in the Nation’s GDP?
5. To what extent does the nation’s external debt stock contribute to improvement in the standard of living of an average Nigerian?

 

1.5       RESEARCH HYPOTHESES

The following hypotheses were formulated for the study:

H₁.       Increase in external debt stock does not have significant positive impact on economic growth and vice versa.

H₂.       The application of loans borrowed from each of the external debt sources has no significant positive effect on Nigeria’s economic growth

H_3.       External debt services have no significant positive effect on per capita Gross Domestic Product (GDP) at current market prices.

H₄          The external debt service outlets do not have significant positive impact on per capita Gross Domestic Product (GDP)

H₅.       The nation’s external debt stock does not have significant positive effect on the standard of living in Nigeria.

1.6       SCOPE OF THE RESEARCH

The period covered by the study was between 1981 and 2010. This period is significant because as Abubakar (1990) observes, the external debt burden which the country carries started taking its toll on the economy in the period from 1982 onwards, from which time the nation joined the league of Highly Indebted Poor Countries (HIPC). The choice for 1981 is also in line with the new uniform accounting year which runs from January to December as against April to March which was adopted before 1981 for GDP computations (CBN statistical bulletin, 2009).

Scope as per content of the study examined a segment of the nation’s total public debt obligation that was owed to external creditors and the extent to which these obligations impacted on her economic growth using such influential social and economic factors like GDP, per capita income, inflation rate etc.

 

1.7       SIGNIFICANCE OF THE STUDY

This study will be of immense benefit to the following:

Government and its Agencies

External debt management is a key management initiative that enables developing countries to appraise the need for external sector financing in relation to the contributions of the various sources of financing in not only deepening the economy but also integrating the economic conditions to the global economic network. As a developing country therefore, Nigeria needs a sound and pragmatic debt management policy that will enable the debt management office (DMO) to balance the need for economic and social transformation with the desire to fill this need with external sector financing. Other government agencies like the Central Bank of Nigeria (CBN) and Fiscal Responsibility Council will benefit from the study as it will act as an impetus for them to draw and implement debt related policies. Such policies revolving around placement of debt ceilings, establishment of debt sustainability indices as well as the need to prosecute defaulters if properly implemented will help to build strong institutions. The study will also be useful to the government and its agencies to reappraise her bilateral and multilateral relationship with her creditors more so as the study is also designed to identify the extent of contribution to economic growth by each of the sources of external debt.

 

 

Private Business Units:

These are the private businesses, agencies, organizations and institutions which activities are designed to add value to the economy. They require external financing to facilitate their programmes and such funds are usually provided by creditors who also operate within the context of both external and domestic economy. The findings and recommendations of the study will serve as impetus for prudent management of the resources including the borrowed funds and the knowledge gained will be of immense benefit to them.

Public

The findings and recommendations of the study are expected to avail the reading public information on debt related issues that will enable them carry out self assessment exercises on the performance of project that require the external fund, especially as it affects their communities and living standard. Reactions emanating from such exercises are expected to ignite the interests of the various pressure groups on the need for prudent management of the borrowed funds by the beneficiaries. Such interest will provoke the consciousness of the users of borrowed funds on the need for prudent application of the nation’s resources to the critical areas.

Academics

As an academic exercise designed to contribute and fill knowledge gap, it is expected that students and researchers especially in finance and other related discipline will gain literature awareness and empirical consciousness on the impact of external debt on economic growth. Such awareness will create a basis for embracing further studies in this contextDownload Full Material-N5000