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Debt interest and arrears gradually
choke off Nigeria’s economic recovery

By Areh Sunday
Reporting from Lagos, Nigeria

Nigeria’s total debt overhang at the end of 2002 stood at $31 billion, representing an increase of more $2.6 billion from the previous year. Officials at the Debt Management Office, or DMO, say this represents an upsurge of 9.33 percent. They attribute the increase to the interest components of payment arrears that accumulated in 2001 and the sharp depreciation of the US dollar against the currencies in which the debts are denominated. For interest on payment arrears alone for 2001, $49.33 million accrued as penalty while almost $3 billion accrued as effect on depreciation of the dollars.

Multilateral creditors got the lion’s share of the debt repayments—40.41 percent. London club creditors got 22.83 percent, Promissory notes 16.44 percent, non-Paris Club 4.87 percent and others 1.63 percent. Managing this huge debt profile has been a major clog in the economic wheel of the country. By 1991, Nigeria owed the London Club of creditors a consolidated sum of $5.4 billion.

The profile of Nigeria’s debt actually began to depreciate in the second half of the 1980s and reached precarious levels in the mid-1990s. A light improvement was recorded between 2000 and 2001 but worsened in 2002. Although progress was made in rescheduling and restructuring the debt, a DMO document concludes, “Nigeria still faces a precarious debt situation as measured by traditional indicators.”

The debt burden remained severe when compared with a debt stock to export ration of well over 180.2 percent and a debt stock to GDP ration of about 62.25 percent in 2002.

The DMO document classifies the situation as “standard cases of debt overhang,” classifying the country “as a severely indebted poor country.”

This has continued to prevent government from having enough money to service the needs of the people in the real sectors of the economy. This is because the budgetary share of debt service on external debt, which in 2002 exceeded $3 billion, severely diminishes the proportion of resources available for social and economic development and constitutes a major threat to the sustenance of Nigeria’s nascent democracy.

For instance, debt service in 2000 was $1.9 billion, which was four times the federal government’s budgetary allocation to education and 12 times the allocation to health. In 2001, debt service was $2.1 billion, or six times the allocation to education and 17 times the allocation to health.

The picture for 2002 was not better. Debt service was $1.2 billion, more than three times the total allocation to health and 13 times the allocation proposed for agriculture.

Over this period the cost of doing business in the country also shot up as all major export guarantee agencies suspended cover for exports for Nigeria, pending the regularization of the debt situation.

Consequently, up-front payments are required on transactions by Nigerian importers. The much-needed inflow of foreign resources for the stimulation of investment, growth and employment have been hampered.

Areh Sunday is an independent journalist in Lagos, Nigeria