DEBT Soetan1 & Osadola Oluwaseun Samuel2 Abstract Many


Dr. S. O. Soetan1
& Osadola Oluwaseun Samuel2

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Many nations in West Africa generated
huge revenue majorly from foreign trade and investment during the period of the
economic boom of the 1970. These countries however embarked on projects that
could either not be completed or were of little benefits to their citizens.
Most of the funds meant for such projects were either embezzled or mismanaged
due to high level of corruption among the leaders. Hence, the fall out of crude
oil in the 1980s, led to recession and economic deterioration as manifested by
fiscal crisis, foreign exchange shortage, balance of payment problems and
external debt crisis. These had enormous effect on the economies of West
African nations. Indeed, beginning from 1982 and through 1984, the countries
had become saddled with negative trends in economic growth, as indicated by
decline in Gross Domestic Products, persistent current account and budget
deficits, as well as a huge backlog of uncompleted projects. Thus, this
research paper however discusses the various causes of debt burden as well as
its various effects on nation building in Nigeria. It also examines the various
debt management strategies and policies used by developing countries to control
the rising debt burden. This paper derives its strength from both primary and secondary


Keywords: Debt Burden,
West Africa, Nigeria, Nation Building



forty eight countries of Sub-Sahara Africa spend approximately $13.5billion (Adam, 2004) every year repaying debts to enrich foreign creditors for past
loans of questionable legitimacy. These debt repayments divert money directly
from basic human needs such as healthcare, education, and fundamentally
undermine African governments’ fight against the AIDs pandemic and their
efforts to promote sustainable development.

their independent, most countries in West Africa became indebted to
international countries through loans collected for political and economic
stabilities. The massive revenue surpluses of oil money in Western Banks in the
1970s, made them to give loans with little thought to their purpose or to their
recipients capacity to repay such loan. Many were made to retain the loyalty of
corrupt regimes and much of the money went into the hands of visionless and
wasteful government.

the 1980s when the shocks of the 1970s oil crises rising interest rates and
falling global price for primary commodities began to take a toll, the debt
crisis in the developing world began to unfold. (Sam, 2005)

Historical Background of Debt
Burden in Nigeria/West Africa

the period of the economic boom in the early years of 1970s, West African
government generated revenues which gave room for infrastructural and developmental
projects which they could not complete due to embezzlement and misappropriation
of funds meant for such projects. It was of no surprise that the Nigerian
Economy dropped in the early 1980s when the price of oil collapse in the
International market. This led to recession and economic deterioration.

Ghana for example, an average price of $1,600 per metric tons of cocoa was used
to project export revenues over the 1989/1991 period. (Adam, 2004) However, in 1991, the
average world cocoa prices were below the expected price. Due to plummeting world
price of coca, Ghana lost some $200 million in 1990. This loss in export
earning has made it difficult for Ghana to pay back the large loans it has
contracted, while at the same time making new loans that is much more
indispensable. Although Ghana did not enter the Economic Recovery Programme
with serious debt problem, she is currently in one. The country’s total
external debt has doubled in the course of the ERP, from $1.5billion in 1983 to
$3.3 billion in 1990. (Ayadi, 2003) Some two third of
the annual exports are required to keep up repayment of principal interest. The
greatest beneficiaries of the ERP has been Ghana’s external creditors and foreign
companies with Ghanaian operations whose affiliates are subordinates and has
been able to repatriate profits and dividends, for many years. Pressure of debt
payment is a major obstacle to an improvement in the living standards of the
masses of Ghana.

Ivory Coast, a boom in cocoa and coffee price in 1976 led to dramatic increase
in the country’s terms of trade from 77.9 in 1975 to 100.5 in 1976 and 140.2 in
1977. The agriculture price stabilization fund kept producer’s price stable
during this period and thus accumulated large surpluses for government revenue
(amounting to 16 percent of GDP in 1977). The government used these resources
to embark on an ambitious investment program, which was to have a significant
adverse effect on macro-economic balances in the decade that follow. (Sam, 2005) Although not quite
matching the earlier period, GDP grew by 6.5 percent annually between 1975 and
1979 with strong growth in Agriculture at 4.2 percent and industry at 13.4

price boom was short-lived, between 1977 and 1980, export price fell by 30
percent, and the country’s terms of trade declined from a peak of 140.2 to only
98.1 percent. Furthermore, the term of trade also declined by 38 percent in
1980. This single shock dominated all macro-economic accounting in Cote
d’Ivoire during the 1980s. A major destabilizing event toward the end of the
1970 was a dramatic fall in national savings from 25 percent of GDP in 1977 to
only 10 percent in 1980 and 6.8 percent in 1981. (Adam, 2004)

low level of savings, combined with the poor export performances meant that; a
large proportion of the investment program had to be financed through foreign
borrowing, particularly by the public sector. While external borrowing
scheduled under the program amounted to CFA franc 327billion, public sector
external borrowing also amounted to CFA franc 436billion. (IMF/World, 2004) This accumulation of
debt was to dominate macroeconomic policy for the foreseeable future.

addition, back in the 1960s when shortage of foreign exchange became one of the
bottlenecks to national economic development, external borrowing became crucial
to the Nigeria economy. Perhaps, the country attempted to rely too heavily on
foreign resources in the 1960s up to the early 1970s in the construction and
development of infrastructural facilities. This explains why the first National
development plan anticipated that 50% of the funds for the total public capital
programme of 307.8million naira would come from foreign financing. But the
outcome was very disappointing because at the end of the plan period, external
assistance actually amounted to only 25% of realized capital programme. (Izedonmi,

with these trends bedeviling West African economies, the fear that their
governments would not be able to payoff their debts became something to be
worried about by the western banks, who were desperate to recover their capital
from African leaders. To prevent African leaders from defaulting, they used the
IMF and World Bank to intervene. It should be noted that the IMF and World Bank
were exploitative in nature.

Why West African Nations were Debt

of the major causes of debt burden in West African countries was the collapse
of price in the international oil market as well as the decline in the volume
of crude oil export. In Nigeria for instance, price and production of oil
export fell from 2.2 million barrel per day in 1978 to around 1.0million per
day in 1981-1982. (Obademi, 2013) This effect was as a
result of over-dependent in crude oil export. It was a period when agricultural
production was neglected.

notable cause of debt burden in West Africa is the poor economic management
coupled with the misuse of resources and colossal wastage of public funds. (Sam, 2005) Africa countries
debt servicing problem have by and large been the result of low levels of
economic growth, particularly in national income and exports, and high interest
rate in the face of low export revenues. The increase in the interest rates
also added to the debt crisis. During the first oil price hike, the real
interest rates were low and even created negative effect in the developed
countries due to inflation. This reduced the real burden of the debts of the

fiscal and monetary policy of a country has a tremendous impact on
indebtedness. For instance, as the domestic economic situation deteriorates and
the balance of payment begins to worsen, confidence in a country’s economic
management may weaken, leading to a capital flight and a decline in net
lending. With output and exports decline, reserves almost exhausted and debt
servicing obligations increasing, a country’s low foreign exchange resources
are insufficient even to maintain existing level of growth. Therefore, a
country gets to a situation where the default on his debt servicing obligations
reflects on principal repayment. (Ayadi, 2003)

must be noted here that the adoption of the structural Adjustment Programme was
also instrumental to debt crisis especially in Nigeria. The adoption did not
differ from the standard prescription of IMF and World Bank in practice,
judging from the type of policy instruments, monetary, incomes, exchange rate,
commercial policy instruments and the making of choices that are capable of
achieving desired results under disciplined implementation framework. Given the
limitation of the adopted policy instrument in some circumstance, the
adjustment programme should also have been mindful of the capability intensity
and timing of the instrument. The type of adjustment required, therefore is one
that recognizes the continuous nature of adjustment process not just a one shot
affair. It should be one that recognizes the strengths and weaknesses of policy
instrument in relation to the objective of restructuring, as well as the one
that offsets the harsh effects of adjustment with compensating social policies
and programs. (Jegede, 2014)

Effect of Debt Servicing on Nigeria’s

did not experience any debt servicing difficulties until 1983. (Adam, 2004) Before then, both
the absolute size of debt service payment and its proportion of export of goods
and services were relatively small. For example, total debt service payment
increase from the paltry $192million in 1974 to the phenomena $450.30million in
1985, representing 245.3% increase. The growth in the relative importance of
private lending to Nigeria is also reflected in the structure of debt service
repayment. (Obademi, 2013) For example, in
1978, 17.5% of total debt service payment went to private creditors and 82.5%
to official creditors. In 1983, the reserve was the case, 90,2% of debt service
payment went to private creditors while 9.8% to official creditors. Between
1974 and 1983, total debt service payment to private creditors grew at an
average annual rate of 154.7%. Then dominance of private sector debt is further
depicted by the fact that in 1983, private creditors accounted for 92.8% of
principal repayment and 88.1% of interest payment. (Amakom, 2003)

servicing of the huge debt stock has continued to be very burdensome on the
economy. Given this difficulty in servicing existing loans and meeting current
obligation, the external debt problem certainly looms large. Obviously, the
burdens of interest payment has tended to the nation’s resources and reduce the
possible expenditure of resources and reduce the possible disproportion high
percentage of export earning to meet debt service obligation means increasing
inability of the countries to pay for import of goods and services vital for
economic growth.

addition, International Monetary Fund encourages the Nigerian government to
downsize government department. This often means a rise in unemployment and a
cut in wages among the work force in Nigeria. The wages fell by 50 to 60
percent which also led to over 20 percent increase in unemployment rate among
the working force. Also, despite the HIPC initiative, the economic debts to GDP
ratio rose from 27.4% in 2008 to 34% in 2009 and also, the debt service to
export ratio also increase to 16.2% from 15.9% in the same period. (Mbanwusi,

financial debt problems in which Nigeria faced also jeopardize its efforts to
meet the Millennium Development Goals (MDGs) targeted for 2015. (CBN,
Statistical Bulletin, 2015) This however
affected the level of development as well as the pace of development over the
years. The interest rates on the various debts are outrageous and it became a
habit to use loan in refinancing maturing debts obligations.

in the 1980s and 1990s was required to adopt restrictive monetary policies in
response to economic turmoil with severe economic and social cost due to her
participation in the Enhanced Structural Adjustment Facility (ESAF) of the IMF. (Mbanwusi,
This Structural Adjustment Programme idea was that, Countries like West Africa
are to open their sea ports to the importation of commodities and export of
their local manufactured products. This was not favourable to the countries
involved due to their minimal level of manufacturing capital goods. The few
manufactured goods in Nigeria for instance, couldn’t compete in the
international market due to the unequal exchange factor. The little revenue
generated from export was used to pay for the imported goods. This led to the
country’s inability to generate or increase domestic savings and adversely
affected the local industries bringing about an increase in unemployment. This
also brought about a rise in consumer goods hereby decreasing domestic

Nigeria Debt Management Strategies
and Policies

government adopted and participated in a number of strategies and measure to
deal with debt problems. Under the Structural Adjustment Programme (SAP) for
example, Nigeria adopted some strategies to ameliorate debt burden which
includes; acquisition of domestic debt, restructuring of domestic debts, and
servicing of the debt.

are some other measure used in managing debts in Nigeria, these include:

1.      Embargo
on New Loans: This policy was applied in 1984 by the then military
administration of General Buhari on state Government borrowing from external
sources, that no ministry, Extra-material Department, Agency or parastatal
should henceforth enter into negotiations or accept foreign loans without the
express permission of the head of state. (Amakom, 2003)

2.      Nigerian
government for example fixed the maximum level of debt commitment for their
various level of institutions/government.

3.      They
introduce debt buy-back and collateralization which involves the purchase by a
debtor of its own debt for cash, usually at a discount. The debtor reduces its
obligation while the creditor receives some payment.

4.      The
creditor’s banks formed a bank advisory committee known as the London Club to reschedule
debts on case by case basis with Nigeria. (Obademi, 2013) It negotiates an
agreement with a debtor country which involves rescheduling the debt for
repayment within a number of months or years depending upon the capacity to
repay and the size of the loan. However, the rescheduling depends upon the
Structural Adjustment Programme under the IMF’s supervision.

5.      The
debt conversion programme was established in January 1988 and debt conversion
committee was set up to follow key objectives like:

Improving Nigeria external debt position
by reducing the stock of outstanding foreign currency denominated debt in order
to alleviate the debt service burden.

Stimulating employment generating
investment in industries with significant dependence on local inputs.

Encouraging the creation and development
of export oriented industries thereby diversifying the export base of the
Nigeria economy and

Encouraging capital inflow and attract
foreign investors by improving the economic environment. (Ayadi, 2003)

measures include, the Banker Plan of 1985, Paris Club Plan of 1987, African
Development Bank plan and Brady plan of 1989, IMF facilities like; SAP,
External fund facility, Enlarge Access policy, Enhanced SAP and compensatory
and Contingence financial facility.

Bank facilities which includes; Structural Adjustment lending, Reduction facility,
Special programme of Assistance and the Trade investment and policy loan.
Toronto and Trinidad Terms, Enhanced Toronto terms, Houston Terms and the Naples
Terms etc. (Izedonmi, 2012)

is important to note that despite all these measures and policies put in place
to reduce the debt rate of countries in West Africa, especially Nigeria, public
debts has continue to grow distressingly. (Chinaenewem, 2013)

Why the Strategies and Policies

embargo placed on new loans and directions to state governments to restrict
their borrowing to a minima level have not been particularly effective as
indiscriminate quest for external loans have not reduced. (Chinaenewem,
Although the rescheduling have conferred short term relieves from debt services
obligations, the debt overhang has however hardly reduce. The relief conferred
by the debt rescheduling strategy though enables the country to avoid outright
difficulties, it is important to note that it has not only been temporal but inadequate
even in cost efficiency. These costs includes continued payment of interest on
the amount of debt outstanding, hindering of development and in the long run,
building up of obligations for the future and creating problems for future
governments. The rescheduling involves the compounding of principal and
interest in the consolidation period.

is no provision for interest cancellation in the strategies put in place. (Adam, 2004) For example,
multilateral loans such as World Bank’s loans must be serviced as at when due
to avoid suspension of disbursement as well as granting of new loans. Also,
defaulting on the par bonds and promissory notes carry serious penalties like
seizure of the assets of Central Bank of Nigeria and the Nigeria National
Petroleum Corporation abroad. (CBN, Statistical Bulletin, 2015)

the case of Non-Paris Club bilateral debts, defaulting attract a penalty of
between one and three percent increase above the normal rate charges. Such
defaults would also affect the credit rating of the country. According to the
debt management office, failure to honour the country’s debt obligations will
not only undermine Nigeria’s effort to secure substantial debt relief in the
medium term, or secure restoration of the much needed western countries export
credit guarantee covers for imports of goods and direct investment into the
country. Nigeria’s Paris Club eligibility was suspended by the club in reaction
to the Federal Government’s suspension of the IMF supervised standby
arrangement in April 2002. (CBN, 2000) These among others
made it clear that the debt management policies could not save the problems of
debt in Nigeria but could only provide a temporal relief.


of development through external borrowing is not a new phenomenon to Nigeria or
other developing nations. Some of the developed countries also depend on
external borrowing for major investment projects. External indebtedness is not
harmful, what is detrimental to many West African countries is their
inabilities to pay back their debts as at when due, resulting in a great burden
on their economy as well as their national development. The solution to the
problem of West Africa’s external indebtedness lies in acknowledging the fact
that most nations in West Africa need to restructure their monetary and financial
policies, both to meet current exigencies and generate further growth. The
international economic system need to provide the right climate for developing
countries of West Africa to make the right structural adjustments.

government need to adopt drastic measures at the national level to curb public
spending, wastage, misuse and mismanagement of resources, corruption, excessive
dependence on foreign technical and managerial skills and competence; local
production should be encouraged. Nigeria policy makers need to make serious and
deep rooted structural adjustment in their industrial, agricultural, and trade
policies in order to address external debts as an integral component of their
developmental plans and priorities.



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Department of History
and International Studies, Ekiti State University, Ado-Ekiti Ekiti State
Nigeria, 08034299268, [email protected]

2 Post Graduate Student, Department of History and International Studies, Ekiti State
University, Ado-Ekiti Ekiti State Nigeria, 08066825100, [email protected]