Nigeria

• Total external debt: Nigeria had a debt stock of $22.2 billion in 2005
• Total external debt service: $8.8 billion in 2005
• Total debt cancellation: $18 billion in 2005
• Population: 131.5 million in 2005
• Poverty:70% of Nigerians live on less than US$1 a day.
• Literacy rate:67%
• Average life expectancy:43.7 years
• Public Spending:In 2004 debt repayments were more than twice the public health expenditure.
• Human Development Index rank: Nigeria was ranked at 159 out of 177 countries in 2006

Statistics are from the World Bank and UNDP Human Development Report 2006.

Where did the debt come from?
Nigeria's debt has accumulated extortionate amounts over the years due to a combination of irresponsible lending and exorbitant interest rates and penalties. In 1970, despite just having come out of a civil war, Nigeria had external debt of less than $1 billion. Buoyed by high oil prices in the 1970s, Nigeria spent unsustainable amounts of money on post war reconstruction and capital projects. With a great deal of encouragement from western creditors, Nigeria began to borrow to add to the oil revenue-driven expenditures. When oil prices dropped in 1978, the country suffered a severe shock and rather than adjust to the new economic reality, it continued borrowing to maintain the high level of expenditures. Apart from a short-lived democratic republic from 1979 to 1983, Nigeria was ruled by military dictators from 1966 to 1999, who seized powers in coups d'etat and counter-coups during the Nigerian military juntas of 1966-1979 and 1983-1998. Nigerian governance during these periods helped to fuel borrowing. By 1985 total external debt had climbed to $19 billion (much of it on non-concessional terms), debt service had increased to US$4 billion a year or 33% of exports of goods and services, the economy was in the doldrums growing at 1% per annum and it was clear that Nigeria could not sustain such high levels of debt service.

Why should the debt be cancelled?
The Director of Nigeria's Debt Management Office claims that most of the debts are based on fraudulent loans made to dictators that misused the money. One recent study of 63 projects funded by foreign loans concluded that 75% of the funding had gone to failed projects; various military regimes between 1983 and 1998 racked up debts of $14 billion, much of which was simply stolen. In 1987, under the military dictatorship of Ibrahim Babangida, Nigeria signed an agreement with the IMF and obtained a loan of $1.6 billion. One dictator, General Sani Abachi, is reckoned to have stolen between $2 to $5 billion in the 1990s. In the 1990s, military dictators cut off relations with its Paris Club creditors, and debts ballooned. By 2004 Nigeria, with original loans of $17 billion, had repaid $18 billion, and still owed $34 billion. Since the current democratic government came to power, it has been consistently paying off debt whilst trying to negotiate a deal with its creditors to end their debt burden.

Debt cancellation status
Nigeria is officially classed as a low-income country by the World Bank. Nigeria is excluded from HIPC although its per capita income levels and ratio of debt to gross national product are comparable with those of the 40 countries included in the HIPC initiative today. In 2002, Nigeria's debt was 93% of its GNP - a higher percentage than that of 15 countries on the HIPC list, including Burkina Faso, Senegal and Uganda. In fact, Nigeria was originally classed as a HIPC country in 1998, but this categorisation was later cancelled, because Nigeria is eligible for non-concessional loans through the International Bank for Reconstruction and Development as well as concessional loans from the International Development Association, making it a “blend” country. However, this was true when it was originally classed as a HIPC country in the first place, and nothing had changed since then except for democratic elections. The official logic for Nigeria's exclusion from the HIPC list also includes its $20 billion annual exports of oil. Such huge exports do not comply with the criteria set by the World Bank to decide countries eligible for HIPC. The World Bank concludes that with the oil, Nigeria can service its debts on condition that the country puts its resources into proper use for development. Other reasons why the big economies say they are reluctant to give debt relief include the problematic relationship between the country and the International Monetary Fund. The ongoing problems and accusations led to Nigeria's decision to break off formal links between Nigeria and the IMF in 2002. This meant further negotiations of debt relief were not possible, as these were dependent on the successful realisation of the medium-term IMF program. The Nigerian government did not actively seek to enter the HIPC initiative because 85% of Nigeria’s debt was bilateral – i.e. to individual countries – and only 8% to multilateral institutions like the World Bank, whereas HIPC focuses on multilateral debt (although bilateral creditors are expected to adjust their debts, too, for HIPC countries). So Nigeria decided a deal with the Paris Club (where countries negotiate together over their bilateral debts) was more appropriate.

Nigeria's Paris Club debt deal
In 1985, Nigeria owed $19 billion to the Paris Club of creditors and $6 billion to the London Club. Nigeria sought what was then traditional debt relief from the Paris Club and rescheduled four times: in 1986, 1989, 1991, and 2000. Each time it had a rescheduling Nigeria had to agree to stringent IMF programmes that were ultimately not successful. None of the Paris Club rescheduling offered the needed relief. However, the London Club rescheduling of commercial debt in 1992 did help to decrease Nigeria’s unsustainable commercial debt burden by 60%.

During the 1990s Nigeria’s military dictators effectively broke off working relationships with Paris Club creditors. Interest on these arrears and large penalties for non-payment constitute the main reason why Nigeria’s debt ballooned so uncontrollably. In December 2000, for example, Nigeria went to the Paris Club to ask for help paying its debt. In its preparations Nigeria’s Debt Management Office (DMO) worked out that of the $21 billion that was being negotiated, about 24% was penalty and 22% was interest on arrears. In 2001 Nigeria had borrowed a total of about $13 billion from the Paris Club of creditors, but had so far paid about $17 billion in service payments, and still owed a massive $22 billion – due largely to compounding of interests, accumulation of arrears and penalties on late payments. These figures demonstrate the mismatch between the ideal of lending to poor countries at very low rates of interest and the reality that the poorest end up paying well above the market rate.

Because of increasing demands for additional expenditure on services such as education, healthcare and roads, as well as an expanding police force and judiciary, the House of Representatives (Nigeria’s lower legislative chamber) passed a motion in March 2005 asking the Executive to stop debt repayments. The lower house stated that interest and penalties imposed by creditors had turned Nigeria’s debt into an unbearable burden. The motion was not passed in the Senate (the upper house), and it was agreed with President Obasanjo to give creditors one more chance for a negotiated settlement before opting for the extreme route of repudiation.

In June 2005 a deal on Nigerian debt reduction finally emerged from the Paris Club. This deal did not include debts to multilateral agencies and private creditors, which constitute 8% of Nigeria's debt. The deal offered a cancellation of 60% of Nigeria's bilateral debt amounting to $18 billion, if Nigeria paid up the outstanding 40%, or $12 billion, within six months. It was the largest debt deal secured by any African nation. The UK’s share of this amount was $3 billion for having cancelled $5 billion. The $12 billion came from Nigeria's savings from oil production that had been earmarked for poverty reduction. This money needs to be paid back to Nigeria so that it can be used for education, health care, and other poverty fighting initiatives. The odious nature of the debt, meaning that loans were obtained through corrupt and unjust methods, needs to be recognised. Rich nations should not force Nigeria’s children to pay for past dictatorial regimes propped up by Western loans.

Conditions
Conditions imposed on Nigeria by the Paris Club include having national policies monitored by the IMF under the Policy Support Instrument, which promotes tightened macroeconomic policy (higher exchange rates and lower government spending), and promoting the accumulation of foreign exchange through export led development. This interference by the IMF into Nigeria’s economic policies undermines national sovereignty.

What do campaigners say?
While campaigners welcomed the debt cancellation in 2005, they criticised the fact that Nigeria was having to pay to rich countries $12 billion that had been earmarked for social spending.

"As we applaud your unequivocal leadership in the fight against poverty in Africa, we encourage you to actually put your policy commitments into action by not accepting the $3 billion due to your government as an example, and prevailing on other Paris Club countries to do the same."
Nigerian civil society organisations in an open letter to Tony Blair, December 2005

"$12 billion in Nigeria would have gone a long way towards saving children, immunisation, healthcare, all kinds of things. But the donors got greedy. They said, 'Take the oil revenue that you have responsibly been saving up, and instead of investing it in your needs, give it to us.' To the donors I say 'Return that money. Where is it needed? Not in our coffers."
Jeffrey Sachs in reflection of the debt deal, November 2005

"The people who gave these loans knew that the money was not being spent wisely. Perhaps they even took their own cut. Yet the ordinary people of Nigeria have to pay back the loan ... This is the injustice of it all.”
Former President Obasanjo addressing the House of Representatives, 2005

The Director of Portfolio Management in the DMO, Dr. Abraham Nwankwo described the Paris Club as a “debt enhancing” not “debt reduction” association. “Experience has shown that [a Paris Club agreement] only succeeds in keeping debtors in a vicious circle of heavy burden” he said.

Last updated: August 2007