Domestic Debt Sustainability and Private Sector in Nigeria: Implications on Employment

A strand of literature supported sourcing of fund internally via debt relative to foreign debt. The principal and interest on such internal debt is a reinvestment into the economy which would frequently have a chain investment effects. This study investigates the domestic debt sustainability level, crowding out effect and its implication on employment in Nigeria. Through the application of Maastricht Treaty Indicators, it was revealed that the domestic debt level in Nigeria is not sustainable. The long-run equation, using employment as the dependent variable showed that there is a negative relationship with domestic debt, employment, aggregate output and credit to private. The correlation analysis shows that aggregate output has a negative relationship with employment and credit to the private sector. The findings were in line with previous studies that emphasised the need for broad-based growth in Nigeria. The implications of the result showed that the gradual increase in domestic debt in Nigeria has a crowding-effect on the private investment which had resulted in negative implications on employment generation through the private sector. Hence, the study recommended the need for a proper channel of investment through domestic debt with the aim to increase the productive capacity of the economy, Among others.