The causes of Nigeria’s external debt burden could be grouped into six areas and these are:
- Inefficient trade and exchange rate policies.
- Adverse exchange rate movements.
- Adverse interest rate movements.
- Poor lending and inefficient loan utilization.
- Poor debt management practices.
- Accumulation of arrears and penalties.
The diagram below shows the reasons and causes of Nigeria"s external debt burden:
Reckless and Inefficient Borrowing…
- Massive external borrowing took place in the 1980s, largely to offset the collapse in oil prices; crucially:
- Borrowing was not linked to future growth or exports
- Insufficient regard given to economic viability of projects
- Poor implementation due to weak absorptive capacity and governance problems
- Mismatch between loan terms and project profiles
- Interest rate risk as LIBOR rates escalated
- Leakages associated with governance problems
Devastating Impact of Arrears, interest and penalties…
- Huge Arrears, penalties and interests accumulated over the years between 1985-1998
- Payments to creditors unilaterally curtailed
- In December 2000 rescheduling agreement made, debt profile:
- Principal balance=1.48 bil.
- Principal arrears=$10.31 bil.
- Interest arrears=$4.45 bil.
- Late interest=$5.18 bil.
- Debt stock affected recently by US$ depreciation – over $6 billion increase recorded between 2002-2004
- Further arrears build up since rescheduling in 2000
- Payments to creditors not fully met due to budget constraint