Nigeria Clears Her Debt To The Paris Club

Paris Club buys back Nigeria’s debt at a discount

Nigeria has cleared the remaining balance of her indebtedness to rich nations grouped under the ‘Paris Club’ Friday. For over two decades Nigeria’s indebtedness to this group of creditors has been hovering over $30 billion.

This debt repayment was made possible by an unprecedented deal arranged between the creditors and Nigeria. In the deal negotiated last year, Nigeria agreed to pay $12 billion in exchange for the remainder ($18bn) or 60% of the debt being written off. Nigeria made a down payment of $6 bn last year and was supposed to complete payment during the first quarter of 2006. The final payment of that obligation was confirmed Friday by Nigeria’s Debt Management Office.

With this payment, the only significant foreign debt obligation is the $5 bn Nigeria owes the ‘London Club’ group of private creditors.

Nigeria’s finance minister Dr. Ngozi Okonjo-Iweala, said that a significant portion of the money freed from debt servicing will be used to improve the lot of ordinary Nigerians. With the announcement of the transfer of the last portion of the debt, the country can now have a sigh of relief.

The IMF endorsed Nigeria’s reform and said the policies have already increased investor confidence.

The genesis of Nigeria’s debt crisis could be traced back to almost three decades ago.

International creditors poured in billions of dollars into the Nigerian economy during the late seventies and early eighties when Nigeria was looked upon as an emerging economic power on the African continent. Unfortunately for Nigeria, the country was saddled with a succession of inept and corrupt rulers. Most of the income generated from oil and that borrowed was thus stolen and diverted into private bank accounts. To appreciate what corruption and graft did to the Nigerian economy, you need to look at the evolution of the national currency (Naira). In 1980 one Naira was stronger or equal to the US dollar. Today, One dollar is worth more than 125 Naira.

The indebtedness of African countries has of recent become a very contentious issue. Friends of Africa’s poor have been campaigning for the cancellation of these debts that have virtually held the continent in servitude. According to a 2005 Brookings Institution report, Nigeria owed $19 bn in 1985 and had borrowed  $15bn more. By last year she had repaid over $35bn and still owed $36bn. Nigeria only mirrors the same pattern of African indebtedness. Scarce resources are used to service interests and penalties on the debts while the principal remains the same for decades. It is this vicious cycle of the debt trap that is making some people to look at African indebtedness as a moral issue rather than an economic one.

 Some Western leaders led by Britain’s Tony Blair brought a lot of pressure to bear on the G-8 nations to be softer towards indebted nations.

It is generally seen that this breakthrough (first of its kind) in Nigeria is the practical result of that pressure.