Domestic Debt and Private Sector Credit in Nigeria: An Empirical Investigation

Government domestic borrowing and private sector access to credit are two complex economic scenarios that require absolute harmonization for an economy to thrive. There is no economy that survives without the private sector operation which also relies on accessibility to funds. This study examines the impact of government domestic debt on private sector credit in Nigeria. Data for the study have been collected from the Central Bank of Nigeria Statistical Bulletin, 2018 edition, Debt Management Office and the World Bank. The variables on which data are sourced include private sector credit, domestic debt, interest rate and the inflation rate. The scope of the study spans from 1988 to 2018 and the data are analyzed using the ordinary least squares multiple regression technique. The study finds that domestic debt has a significant positive impact on private sector credit while the interest rate exerts substantial negative influence on the private sector credit. However, inflation rate is found insignificant in explaining the growth of private sector credit in this study. These findings lead to the recommendation that government domestic borrowing activities should always be done with the interest of the private sector businesses in mind. The study further suggests moderation of interest rates by the relevant authorities in order to boost private sector access to finance and encourage entrepreneurship in the country.