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The continuous increase in Nigeria's public domestic debt profile has raised concerns regarding its effect on economic growth as well as on the crowding-out of private lending in the economy. Using the Ordinary Least Square (OLS) regression technique and time series data from 1980 to 2009 to evaluate the modified Barro Growth Model, the results show that domestic debt in Nigeria has an inverse and significant impact on economic growth. This gives credence to the long run traditional hypothesis of effect of domestic debt on economic growth. The study also found that domestic debt robustly crowds-out private lending in Nigeria such that a 10% increase in domestic debt results in a 2.2% decrease in private lending and the consequent adverse effect on economic performance. To this end, the study recommends that government should put in place adequate macroeconomic policies to restructure its revenue base and minimize tax evasion and avoidance. The study also recommends an analysis of the economic and social profitability of domestic debt finance projects to ensure that they are self liquidating.

Keywords

Public Domestic Debt, Budget Deficit, Public Expenditure, Private Sector Lending and Money Supply

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