Who Pays Back Nigeria’s Debts?
Once again, Nigeria has a debt problem. Fourteen years after former President Olusegun Obasanjo and his economic team led the country to exit the debt trap of the 1980 and 1990s, Nigeria is once again wallowing in a second debt trap with absolutely no idea of how to exit. Nosa James-Igbinadolor looks at how and why Nigeria got there.
There was a time when Nigeria was relatively free of foreign debts. Looking back now, one would be hard pressed to remember those halcyon years of relatively good economic management under former President Olusegun Obasanjo driven by an erudite economic team led by Dr. Ngozi Okojo Iweala, but, the government paid back Nigeria’s debts.
“Nigeria will not owe anybody in the Paris Club one kobo,” the President Olusegun Obasanjo had said in a statement after Nigeria paid a final installment of $4.5 billion to the Paris Club of creditors in a deal that allowed the country to pay off about $30 billion in accumulated debt for about $12 billion, an overall discount of about 60 per cent. The country committed to using foreign reserves, salted away as oil prices soared, to cancel its debt, which had been racked up during decades of military rule.
Debt relief championed by the former President had become a central issue in the fight against poverty. Nigeria, which owed about $36 billion in overall debt, was at that time, one of the most indebted nations in the world. But we did pay back in 2006 and ended the debt trap, with just a little over $3 billion hovering around as external debt.
That was until 2015 when President Muhammadu Buhari assumed office. According to statistics published in March 2020 by the Debt Management Office (DMO), Nigeria’s total external debt stock as at December 2019, stood at $27.676 billion. In May 2015, when the President took office, the total debt profile of the country stood at $10.316 billion. Thus, in less than five years, the country’s debt has tripled in size with little to show for it except higher spending on recurrent expenditure, limited capital expenditure and a lot of stolen wealth.
Ike Brannon, a Senior Fellow with the Jack Kemp Foundation, in a 2019 analysis for Forbes, posited that “Nigeria’s biggest economic problem, though – and the issue that requires real political acceptance from Buhari’s government – is the country’s growing public debt. Since assuming office in 2015 President Buhari’s government has added considerably to the nation’s debt, which now exceeds $85 billion. In essence, the nation’s debt is about where it was in 2005-06, just before Nigeria benefited from massive debt relief as part of a program coordinated by the Paris Club, IMF, World Bank and the African Development Bank. To have squandered the debt reduction in just 14 years and have no tangible economic progress to show for it is beyond disappointing.”
Nigeria’s Eurobonds accounted for $10.86 billion or 39 per cent of external debt as at April 7, 2020. The country paid $771 million in interest on its Eurobonds last year compared with $329 million in debt service to multilateral creditors, according to the DMO. Total borrowings from China as at March 31, 2020 stood at $3.121 billion, which the DMO asserts to be concessional loans with interest rates of 2.50 per cent per annum, 20 years tenor and seven years grace period (moratorium).
“The $3.121 billion loans are project-tied loans. The projects (eleven – 11 in number as at March 31, 2020), include: Nigerian Railway Modernisation Project (Idu-Kaduna section), Abuja Light Rail Project, Nigerian Four Airport Terminals Expansion Project (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway Modernisation Project (Lagos–Ibadan section) and rehabilitation and upgrading of Abuja–Keffi–Makurdi Road Project,” the agency stated