Nexus between Public Debts, Poverty and Unemployment Rates in Nigeria: A Vector Auto Regression (VAR) Approach

Abstract

Notwithstanding the upsurge in public debts, it is absurd and worrisome to note that socioeconomic indicators like poverty and unemployment have shown gloomy pictures in Nigeria. The absurd situation makes it unclear on the precise nexus between public debts and unemployment rate on the one hand and poverty rate on the other hand. Consequently, this paper analyzed the nexus between public debts, poverty and unemployment in Nigeria. Secondary data of public debts (measured by internal and external debts), poverty and unemployment rates were obtained from the Central Bank of Nigeria statistical bulletin and National Bureau of Statistics during the period 1981-2021. Using an unrestricted vector auto-regression model, the study indicated that neither internal nor external debts had any significant impact on poverty; however, they influence the level of unemployment rates in Nigeria. Impliedly, most of the public debts incurred within the period of investigation were not growth-oriented and could partly be explained by the fact that most of the borrowings were mainly to finance trade deficits, which were mainly consumable goods. The paper recommended that the current debt-to gross domestic product ratio of less than 20 percent should be sustained to ensure that debt remains within the internationally recommended threshold for developing economies like Nigeria. Also, future public borrowings should be targeted at specified productive sectors of the economy that would engender growth in the long -run in terms of job creation and poverty alleviation; this can be achieved via the procedure of tying every public borrowing to specific growth-driving project that are oriented towards job creation and alleviation of poverty.