The study aimed at assessing the effect of increasing government debt profile on economic prosperity of Nigeria. Specifically, the study examined the extent that Gross Domestic Product (GDP) was affected, during the period of study, by rising domestic debt, external debt, and cost of borrowing in Nigeria. The data for analysis were sourced principally from CBN Bulletins and Debt Management Office. The null hypotheses that domestic debt, external debt, and cost of borrowing do not significantly affect Gross Domestic Product, were tested through a multiple regression analysis. The findings indicate that Domestic Debt has a positive and significant effect on Gross Domestic Product in Nigeria with coefficient of 1.005965 and p-value of 0.0000. Furthermore, the external debt stock reveals a negative and non-significant effect on Gross Domestic Product with coefficient of -0.083963 and p-value of 0.5909, while Cost of Borrowing exposes a positive and non-significant effect on Gross Domestic Product in Nigeria with coefficient of 0.038835 and p-value of 0.7589. The R-squared (Coefficient of Determination) indicates that 98% of the variations in Gross Domestic Product in Nigeria could be explained by changes in Domestic Debt, External Debt and Cost of Borrowing. The implication of the findings is that economic prosperity is facilitated by Domestic Borrowing while External Borrowing must be avoided where possible because of its’ negative effect on GDP. In addition, the effect of Cost of Borrowing on GDP is purely dependent on the appropriateness of use of borrowed fund. The study recommended that government should first explore internal sources of fund whenever borrowing is unavoidable in preference to foreign/external sources, reduce or avoid external borrowing and properly apply the borrowed fund for its economy to prosper.
Keywords: External Debt, Gross Domestic Product, Nigeria, cost of borrowing, economic prosperity, internal debt
