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Debt Relief
Origin of Nigeria's Debt
Origin of Nigeria's Debt

Nigeria's External and Domestic Debt

Nigeria’s external indebtedness dates back to pre-independence period. However, the quantum of the debt was small until 1978. The debts incurred before 1978 were mainly long-term loans from multilateral and official sources such as the World Bank and the country’s major trading partners. The debts were not much of a burden on the economy because the loans were obtained on soft terms. Moreover, the country had abundant revenue receipts from oil, especially during the oil boom of 1973-1976.

However, the fall in oil prices and hence oil receipts in 1977/78 forced the country to raise the first jumbo loan of more than $1.0 billion from the international capital market. The loan, which had a grace period of three years, was used to finance various medium and long-term infrastructural projects, which did not directly yield returns for its amortization.

The recovery of the oil market from 1979, with oil prices rising to an all-time high of US$39.00 per barrel in 1980/81, led to the notion that the economy was buoyant. Consequently, some deflationary measures put in place in 1978 were relaxed. A consumption pattern that favoured imported goods emerged which was aggravated and sustained by the import substitution industrialization strategy that depended heavily on imported raw materials and machinery as well as overvalued exchange rate regime.

Many of the projects included in the Fourth National Development Plan (1981-1985) had high import content. The plan was based on an estimated foreign exchange inflow of US$30 billion per annum but between 1981 and 1982 monthly imports bills averaged US$2 billion (or US$24 billion per annum) while monthly export receipts sank drastically to an average of US$1.5 billion (or US$18 billion per annum).

Besides indiscriminate and excessive importation, there were cases of over-invoicing of imports and under-invoicing of exports. Predictably, the euphoria of the oil boom was short-lived and when oil prices collapsed in 1982, the economy immediately suffered considerable strains. The production and consumption patterns that emerged during the oil boom could not be sustained in the face of declining foreign exchange earnings. Rather than address the problem of declining foreign exchange revenue both the Federal and state governments embarked on massive external borrowings from the international capital market (ICM).

Unfortunately, that was also the period of excess loanable funds in the Western World. The International commercial banks with idle “petro-dollars” in their vaults went out selling loans to unsuspecting developing countries in the guise of assisting their economic development, a phenomenon usually referred to as the recycling of petro-dollars. Thus, pressure soon mounted on the various sectors of the economy resulting in huge imbalances in government finance, low international reserves, deficits in the balance of payments, and the accumulation of trade arrears in respect of insured and uninsured trade credits. That led Nigeria to the refinancing agreement of 1983 in respect of letters of credit amounting to $2.1 billion. Trade debts contracted through open account and bills for collection, which were outstanding as at 31st December 1983 were refinanced through issuance of promissory notes. As trade arrears continued to mount the country could not also service her external debts.

A critical point was reached in 1986 when creditors refused to open new credit lines for imports to Nigeria. Therefore, the government approached the creditors for debt relief leading to the restructuring arrangements with the Paris Club in 1986, 1989, 1991 and 2000. The arrangement provided for the capitalization and restructuring of accumulated debt service arrears, their penalties, late and moratorium interests as well as maturities within the consolidated periods.

The debt stock therefore increased with leaps and jumps, even when no new loans were contracted. Nigeria’s external debt stock till 1977 was less than US$0.8 billion. Beginning from 1978, the external debt stock began to grow astronomically, rising from US$0.763 billion in 1977 to US$5.09 billion in 1978 and U$8.855 billion in 1980, an increase of over 73.96 percent between 1978 and 1980.
By 1985 the debt profile had deteriorated seriously due to persistent inability of the country to meet its external debt service obligations. This resulted in mounting arrears and unmanageable growth of the debt stock relative to available resources. The external debt stock, which was about US$8.855 billion in 1980, grew to nearly US$19 billion by 1985. Correspondingly, the debt stock as a percentage of total export earnings and GDP rose to uncomfortable levels of 154% and 24 %, respectively.

In that year, the debt service payment due was a little above US$4 billion, which was about 33% of the total export earnings. However, the actual debt service payment for the year was about US$1.5 billion. As at December 31st, 2001, the country’s external debt stock amounted to US$28.35 billion, which was about 59.4% of the GDP and 153.9 % of export earnings.

The total external debt outstanding as at 31st December, 2002 stood at US$30.99 billion as against US$28.34 billion in 2001 indicating an increase of US$2.64 billion or 9.33 per cent. The increase was largely a result of the interest component of payment arrears that accumulated during the year and the sharp depreciation of the US dollar against other currencies in which the debts are denominated. The interest component was made up of contractual interest of US$1.41 billion and late/penalty interest of US$0.049 billion, while the increase due to the effect of the depreciation of the US Dollar was US$1.75 billion. Some debts, which were accepted after further reconciliation with the creditors and drawdown on some multilateral and post cut-off loans also contributed to the increase. The combined effect of the above factors was however mitigated by the buyback of London Club Par Bonds of US$0.601 billion.

The debt stock as at 31st December, 2002 comprised US$25.38 billion or 81.89 per cent owed to the Paris Club, US$2.96 billion or 9.55 per cent to the Multilateral Institutions, US$1.44 billion or 4.65 per cent to the London Club, US$1.15 billion or 3.72 per cent to the Promissory Note holders while the sum of US$0.056 billion or 0.18 per cent was owed to non-Paris Club creditors.

The growth in the stock of debts owed to the Paris Club creditors (official debts) since the mid-1980s was accounted for partly by unpaid new maturities falling due and the outcomes of non-concessional rescheduling. To address its debt problem, Nigeria had four rescheduling agreements with the Paris Club (in December 1986, March 1989, January 1991 and 2000 respectively), which provided for traditional rescheduling terms with market-related interest rates. Nigeria defaulted on these agreements due to high debt service obligations and adverse cash flow position, which contributed to the build up of its debt profile. Private debt arrears were consolidated in 1991 under the Brady Plan. The stocks amounted to US$5.8 billion. 62 percent of it was bought back at 40 cents per dollar while the remaining US$2.043 billion or 38 percent was collateralized with the United States Treasury zero-coupon bonds maturing in November 15, 2002. The official creditors rose from 20.8 percent in 1985 to about 78 percent in 2001.

The total external debt outstanding as at 31st December 2004 stood at US$35.94 billion as against US$32.92 billion in December 2003, indicating an increase of US$3.03 billion or 9.20 percent.

As was the case in the year 2003, the increase in the debt stock was largely as a result of the interest component of additional payment arrears that accumulated, and continued depreciation of the US dollar against other currencies in which the debts were denominated. The additional interest of US$1.54 billion was made up of contractual interest of US$1.30 billion and late/penalty interest of US$0.233 billion, while the increase due to the effect of the depreciation of the US dollar was approximately US$1.49 billion.

A further breakdown of the total debt outstanding showed that the principal balance was US$30.29 billion; principal arrears amounted to US$1.94 billion, interest arrears and late interest were US$3.36 billion and US$0.357 billion respectively. The increase in the external debt stock was due primarily to arrears that were incurred as a result of non-servicing of the non-ODA (non-official development assistance) bilateral debt: arrears on this debt accounted for 96.6 percent of total arrears.

The total external debt service payment for the year 2004 was US$1.75 billion compared to US$1.81 billion in 2003, reflecting a decrease of US$0.054 billion or 3.01 percent. The external debt service payments of US$1.75 billion comprised of principal repayments of US$1.17 billion, and interest payments and commitment charges of US$0.589 billion.

Payments to the Paris Club creditors took the lion’s share amounting to US$0.994 billion or 56.67 percent. The sum of US$0.487 billion or 27.77 percent was paid to multilateral institutions, US$0.090 billion or 5.14 percent to London Club, US$0.171 billion or 9.76 percent to the Promissory Note holders and US$0.012 billion or 0.66 percent to non-Paris Club Bilateral creditors.

It is important to note that the US$1.75 billion debt service paid in 2004 is actually well below the debt service due for the year of US$2.99 billion. This arises from the fact that Nigeria has not fully serviced its Paris Club debts, as an amount of US$2.23 billion was due while only US$0.99 billion was paid. The shortfall transforms into arrears and attracts severe penalty interest. This very process has contributed to the explosion in Nigeria’s external debt stock over the years.


Domestic debt is defined as debt denominated in local currency. The management of domestic debt in Nigeria has hitherto been conducted by the Central Bank of Nigeria (CBN) through the issuance of government debt instruments, which consisted of:

• Nigerian Treasury Bills
• Nigerian Treasury Certificates
• Federal Government Development Stocks
• Treasury Bonds
• Ways and Means Advances.
It is important to note that the above does not include contractor debts and supplier credit owed by the government, which is estimated at about N650 billion. Neither does it include contingent liabilities, which are loans guaranteed by the Federal Government, nor inter-agency debt.

The domestic debt stock outstanding as at 31st December 2004 amounted to N1,370.32 billion, compared to N1,329.72 billion as at December 31st 2003. This figure represents an increase of N40.63 billion or 3.1 percent over the previous year’s figure. This is the lowest annual growth in the domestic debt stock for eight years: growth averaged 22 percent per year over 1997-2003, and peaked at fifty percent growth in 1998. Between 1995 and 2003, domestic debt increased more than fourfold.

The increase of N40.63 billion in the domestic debt stock was made up of new issues of Treasury Bills valued at N46.52 billion, which was partly offset by repayments of Treasury Bonds and FGN Development Stocks valued at N5.67 billion and N0.22 billion, respectively.

As at the previous year (2003), the Treasury Bills remained the dominant instrument, accounting for N871.57 billion or 64 percent of the total domestic debt stock. The balance of the total domestic debt stock was made up of Treasury Bonds (N424.94 billion or 31 percent), Federal Republic of Nigeria Government Development Stock (N1.25 billion or 0.1 percent) and the 1st FGN Bonds (N72.56 billion or 5.3 percent).

In the year 2004, the DMO made plans to build on the success of the 1st FGN Bonds floatation that were first issued in 2003. The DMO embarked on the arrangements to commence the issuance of bonds on a regular basis in small tranches that the market could accommodate.

The DMO commenced the smoothening and restructuring of the Treasury Bills in 2004. The restructuring entailed extending the maturities of the existing Treasury Bills by issuing tenors of 6, 12, 24, and 36 months, to refinance part of the existing 91-day Treasury Bills.

The Nigerian Bond market remained undeveloped; particularly the secondary market for government securities and the DMO put in place a framework for the development of a vibrant secondary market.

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