Foreign Public Borrowing, Why Is It Always a State Bankruptcy Variable in Nigeria

Foreign public borrowing has become a critical element in Nigeria’s fiscal management, often serving as a tool for financing development projects and addressing budget deficits. However, excessive reliance on external debt has raised significant concerns about its role as a key variable in state bankruptcy risk. This study examines the relationship between foreign public borrowing and the likelihood of state bankruptcy in Nigeria, focusing on the impact of debt servicing costs, exchange rate fluctuations, and debt sustainability. The research employs a quantitative design using time-series data from 2000 to 2023. Data were sourced from the Central Bank of Nigeria (CBN), Debt Management Office (DMO), National Bureau of Statistics (NBS), World Bank, and International Monetary Fund (IMF).Multiple regression analysis was conducted to assess the impact of foreign borrowing (FBL), debt servicing (DS), and exchange rate (ER) on Nigeria's Gross Domestic Product (GDP), a key measure of economic health. The results indicate that foreign public borrowing exerts a significant negative impact on GDP when coupled with high debt servicing obligations and exchange rate volatility. The findings suggest that external debt servicing drains government revenue, reduces fiscal space, and increases the likelihood of state bankruptcy, especially when debt repayment obligations are denominated in foreign currencies.The study concludes that uncontrolled foreign borrowing poses a significant risk to Nigeria's financial stability and economic sustainability. It recommends the adoption of prudent debt management strategies, effective exchange rate stabilization policies, and the promotion of domestic revenue mobilization to reduce dependency on foreign debt. Policymakers are urged to strengthen institutional frameworks for debt accountability and ensure compliance with international standards for debt transparency and fiscal discipline.