By Emeka Anaeto, Economy Editor
As the presidency gets ready to emplace the federal cabinet to face the daunting economic challenges figures from the Debt Management Office, DMO, of the federation has indicated a massive reversal of debt relief obtained nine years ago. An official of Central Bank of Nigeria, CBN, told Vanguard last weekend that foreign debt would hover around USD10.7 billion by end 2015, showing over 200 per cent up from USD3.5 billion recorded by the debt relief deal of 2006. DMO records show USD10.3 billion as at June this year.
Firstly, was an increase in loans from the International Development Association, IDA, a part of the World Bank that helps the world’s poorest countries. From a balance of about USD1.4 billion in December 2006 the loan had more than tripled to USD6.0 billion by June 2015.The data shows that the bulk of the reversals were coming from the multilateral institutions, the World Bank Group, which had hitherto dominated the foreign debt profile of Nigeria.
The group was responsible for over 73 per cent of Nigeria’s foreign debt as at 2006. The loans had started increasing in 2009, during President ShehuYaradua’s regime, just three years after the debt repayment deal. The DMO data also shows that another major cause of the increase in Nigeria’s foreign debt was the loans from the Chinese Exim bank.
In 2006 Nigeria had zero loans coming from China but as at June 2015 Chinese loans to Nigeria stood at about USD1.3 billion. Nigeria obtained its first loan from China back in 2012 when it closed the year with Chinese debt balance of about USD683 million. The loan doubled to USD1.29 billion by the end of 2014 contributing about 13 per cent of the total external debt stock of the country.
A financial analytics company, Nairametrics, had noted “back in 2005 Nigeria did something unprecedented in its history. It reached a deal with a band of external creditors to wipe out over USD18 billion of what was crushing the economy. That was former Minister of Finance Ngozi Okonjo Iweala’s signature deal in her first stint as Finance Minister”. From a total debt balance of about USD33 billion in 2005 Nigeria’s foreign debt was crashed to about USD3.5 billion in 2006.
In October 2005, Nigeria and the Paris Club announced a final agreement for debt relief worth USD18 billion and with additional buy backs with other debtors an overall reduction of Nigeria’s debt stock by USD30 billion was effected. The deal was completed on April 21, 2006, when Nigeria made its final payment and its books were cleared.
Nairametrics noted, “back then the mood around the country was so positive and optimistic as the proponents of the debt repayment deal believed that with a leaner debt balance Nigeria can now concentrate on fixing its dilapidated infrastructure”.
Nigeria, the largest economy with the largest population in Africa, has been the continent’s most indebted nation until the Paris Club debt relief deal. With USD36 billion in external debt, and about150 million people then living on less than a dollar a day, and a fledgling democratic government attempting reforms, Nigeria should have been a strong candidate for debt relief. Yet, in part because of its oil revenues, Nigeria slipped through the cracks of debt relief programs.
Centre for Global Development, CGD, had provided analytical support to Nigeria’s debt relief efforts in 2005. According to Mr.Todd Moss, who led CGD’s work on Nigeria’s debt, the completion of the deal, which saw Nigeria exit from Paris Club debt, was historic.
He stated “in the short-term it will mean that the budget can focus more on promoting private sector growth and development. But the longer-term implications could be much more important. Debt has been hanging over President Obasanjo and is one of the major barriers to consolidating the aggressive reforms being undertaken by his economic team. This gives them momentum to push further”.
With the reversal of the scenario the burden is building up at a time oil revenue is in decline. However, economic analysts note that the ratio of Nigeria’s foreign debt to GDP is still about 2 per cent whilst total public debt to GDP is about 13 per cent leaving the economy in a somewhat perceived comfortable position. Some analysts believe the ratio should be about 20 per cent for Nigeria.