Back in 2005 Nigeria did something unprecedented its history. It reached a deal with a band of external creditors to wipe out over $18 billion of dollars that 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 debt balance of about $25.9 billion in 2004 we had shrunk our foreign debts to about $3.5 billion in 2006. 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. We all know how that optimism has fared 5 years after.
What we also know is that our foreign debts now stands at a whopping $10.3 billion up 191% from the $3.5 billion that it was after our debt write off deal. How did this happen under our watchful eyes? A look at the data from the Debt Management Office provides an interesting insight.
Firstly, was an increase in loans from the World Bank , International Development Association (IDA). The IDA is the part of the World Bank that helps the world’s poorest countries. From a balance of about $1.4 billion in December 2006 the loan had more than tripled to $6 billion by June 2015. The loans started to increase again in 2009 three years after the debt repayment deal and during President Yaradua’s reign.
Then came China
Another major cause of the increase in our external debts was the loans from the Chinese Exim bank. Back in 2006 Nigeria had zero loans coming from China. However, as at June 2015 Chinese loans to Nigeria stood at about $1.3 billion. Nigeria obtained its first loan from China back in 2012 when it closed the year with a debt balance of about $683 million. The loan doubled to $1.29 billion by the end of 2014 contributing about 13% of the total external debt stock of the country.
More room to borrow?
Nigeria’s foreign debt to GDP is ratio is still about 2% whilst total public debt to GDP is about 13% leaving us in a somewhat perceived comfortable position. Our total debts in dollar terms was $63.8 billion as at June 2015 with the foreign debts contributing $10.3 billion of that amount. This is certainly not 2005 and shouldn’t be a major concern for the government. However, with a government that is bent on pushing its welfare policies, what we want to avoid is a repeat of the past when our foreign debts rose from $18.9 in 1985 to about $35.9 billion by 2004.