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Home Opinions Insight & Analysis The Rising Trend of Debt Forgiveness in Nigeria 
Insight & Analysis - September 23, 2022

The Rising Trend of Debt Forgiveness in Nigeria 

All African countries are drowning in debt, and Nigeria is not left out. This has seen the call for debt forgiveness by the president and vice president of the federal republic of Nigeria from creditors.

President Muhammadu Buhari called for debt cancellation during his speech at the 77th session of the United Nations General Assembly (UNGA) held in New York, the U.S.A., which also marks his last speech as the president of the Federal Republic of Nigeria.

He suggested this due to the challenges facing most developing countries and the reality of the unsustainability of external debt. According to him, this is having a “debilitating chokehold on fiscal space” of debtors.

This was further supported by the Vice president, Yemi Osinbajo, during his speech at the Center for Global Development in Washington DC. He believes this should be considered so that the outstanding payments can be used to fund climate change programs and National Determined Contributions.

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The chronicle of Nigeria’s Debt

Nigeria has one of the highest external debts in sub-Saharan Africa, and the loan history can be traced to the 1970s. The country in 1970 had $1.5 billion in debt. This increased to $2.5 billion in 1975. 

With time, it spiralled out of control and increased to $7.5 billion in 1979 and $8.9 billion by 1980. The loans were mostly from international agencies and countries at a non-concessional interest rate. By 2005, it was $30 billion, of which most was borrowed from the Paris Club of creditors. 

This was during the term of the former president of Nigeria, Olusegun Obasanjo. With the loan increasing and its unsustainability, he called for debt forgiveness for Nigeria from the creditors.

This renegotiation led to a loan relief of $18 billion recorded as aid given to the country. This was based on paying the remaining $12 billion once.

The agreement was met with different reactions due to the country’s financial state. The then administration cleared the debt. In 2006, Nigeria was removed from the Paris Club debt.

The Rise of Nigeria’s debt

By 2015, the country’s debt had increased again to $63.8 billion. This represents the highest debt portfolio since 2007. In 2020, the Debt Management Office (DMO) revealed that the total public debt of Nigeria increased to $84.574 billion.

Currently, in 2022, the government agency managing the national debt (DMO) said that “The total public debt stock, representing the domestic and external debt stocks of the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory, was $103.31 billion (N42.84trillion) as of June 30, 2022. The comparative figures for March 30, 2022, was $100.07 billion (N41.60trillion).”

The external debt as of June 2022 was $40.06 billion (N16.61trillion). 58% of the external debt are concessional and semi-concessional loans from multilateral lenders, such as the World Bank, the International Monetary Fund (IMF), AfreximBank, and African Development Bank (AfDB), and bilateral lenders, such as Germany, China, Japan, India, and France.

On the other hand, the domestic debt stock was $63.24 billion (N26.23 trillion). This was due to new borrowings by the FGN to part-finance the deficit in the 2022 Appropriation (Repeal and Enactment) Act and new borrowings by state governments and the FCT.

What experts are saying

There is, however, concern about the country’s dependency on loans. One such concern is the loan agreement between Nigeria and China that includes a sovereign clause. This clause is perceived to lead to Nigeria losing its sovereignty in the event of a payment default.

Despite the different reactions, Rotimi Amaechi, the Transportation minister, said there is no need to be alarmed as it is a norm when borrowing. He said, “It is a standard clause, whether with America you signed it or with Britain or any country because they want to know that they can recover their money.”

The clause, therefore, gives China a way to recover its money through arbitration in the case of default. “They are saying; if you cannot pay, do not stop us from taking back those items that will help us recover our funds,” he said.

This means they have the right to ask for a part of Nigeria in exchange for their money.

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