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This work examines the Nigeria’s foreign debt profile, in relation to the debt management plans adopted to manage Nigeria’s increasing debt stock. The theory of dependency is used as a framework of analysis .This views the foreign debt problem as arising from the peripheral nature in the world capitalist economy which Nigeria belongs, including the structures of the international capitalist economy, that ensures the periphery depend on the core for everything including finance, technology et cetera. Data were gathered through qualitative method of data collection from secondary sources like books, journals, government publications and so on. To ensure that data from the secondary sources were given qualitative interpretation and analysis, we applied qualitative descriptive method of data analysis. Through the historical research design we were able to observe and carefully analyzed the Nigeria’s debt management strategies and relate it to the present and future nature of Nigeria’s foreign debt. We find out that Nigeria debt looked sustainable in relation to the GDP, since Nigeria exited from the Paris club debt which returned the country’s debt to sustainable levels. We equally submit that some of the management strategies Nigeria adopted reduced the country’s total debt stock. Finally, we draw our recommendations based on the findings of our research work, which was vividly summarized in our conclusion.
The issues of foreign debt have enveloped the whole of African states; and are of external and internal in nature. Internally, the high importation rate, African huge dependence on foreign aids, high rate of corruption by the government official induces borrowing of loan. Externally, the global economic crisis, the changing on prices of oil in the international market, and so on, initiated debt in Africa states.
Nigerian foreign indebtedness started during the Gen. Obasanjo regime in 1977. The government first set to borrow N600 million (1 billion Us dollar) which was followed with another huge borrowing of N734 million (1.456 billion us dollar) in 1978. Thereafter, there were borrowings by both the federal and state governments which later aggravated the Nigerian debt problem (www.centralbank. org/paymentstem/externaldebt.htm). By 2005 Nigeria external debt stood at N35 billion and its domestic burden stood at N1.87 trillion (Fasan, 2006; Usman, 2007.1-2) servicing of this debt and interest payment on the loan took over 40 billion naira.
Nations embark on borrowing in order to stimulate development that would better the conditions of its citizenry. This was showed in the aftermath of the Second World War that devastated Europe. Germany embarked on reconstruction and rehabilitation through external borrowing under the umbrella of the Marshal plan. Seemingly after the colonial rule countries needed external credits to develop their countries as well as the socio-economic needs of citizenry.
The heavy reliance on external credits for development in the newly independent African countries turn out to be the albatross that trapped most African
countries which Nigeria is among from developing and unable to repay the debt, and got trapped in debt crisis which effected their socio-economic development, foreign policy interest and the nation’s relation in international system. These were occasioned by the unfavourable terms usually attached to these loans, mismanagement and policy inconsistency.
The African debt reached its peak in the early 1980s, when the economic misfortunes of the continent started to rear its ugly head. Prescriptions to revive African economy were offered by IMF which includes deregulations, privatization and liberalization (Obaseki and Bello, 1995). The servicing of these debts became a big problem. The Obasanjo administration in 1999 was faced with this excruciating debt burden and servicing that gulp up to $2 billion annually. This huge debt burden which the Obasanjo administration inherited prompted it to canvass for debt relief/cancellation; that yielded good result in the Paris Club cancellation of $30 billion about 60 percent of total debt owed by Nigeria in 2006 and 2007 (Omemma, 2008). With the annual debt services payments failing from $1.8 billion, it was thought that annual earnings would be directed at enhancing investments in national development and economic growth. Four years after this great achievement, the figures from the Debt Management Office (DMO) shows that Nigeria’s external debt as at last August, 2010 stood at $3.95 billion. Both domestic and external debt portfolio was put at $27.36 billion or $4.104 trillion, representing 13.8 percent of the gross domestic product (GDP) (The Daily Sun, 2010). Thus, the main focus of this study is to critically examine the Nigerian debt profile as regard to the management strategies adopted by Nigeria within the period under study.
1.2 STATEMENT OF PROBLEM
Nigeria owed about $28 billion from 1980 to date; out of which $4.8 billion was incurred during the import licensing period. Similarly, the Federal Government owed the Central Bank of Nigeria (CBN) about N596 billion (about 60 percent of the domestic debt) the financial system about N386 billion and the non-banking sector, additional N6 billion. These sums represent about 10 percent and are larger than the budget allocation for health and education sectors (Debt Management Office, 2003).
In 1999 when the Obasanjo regime came into office, Nigeria owed N537.5 billion domestic debt and N633.1 billion external public debt. The debt problem started from the jumbo external loans and the flippant domestic loan which the regime took in 1978, even when such loans were not needed by Nigeria. Succeeding regimes wallowed in spurious domestic and external borrowings that by the end of 2005, the outstanding domestic debt stood at N1, 525.9 billion, and the external debt increased to $35.95 billion.
This was the situation the country found itself at the inception of the Obasanjo’s regime in 1999. The regime canvassed chiefly for debt cancellation or relief, since $2 billion was used annually to service these external debts. The country had expended over $31 billion on debt repayments.
Seemly, it was uplifting to know that Nigeria was almost free from debt even though all the indices of growth were almost absent, and inflation did not significantly reduce. The little gain we got from the debt reprieve could not be managed adequately to foster economic development in Nigeria. Instead of the Debt Management Office Central Bank and Federal Government to carefully manage the debts; it appears that
the federal government is interested in contacting more debts for the country. This was just as the warming from the former Finance Minister, Okonjo-Iweala who played a major role in the country’s 2005 Paris Club debt relief deal, at the 2010 World Bank/International Monetary Fund Annual Meetings in Washington D.C. She warned that Nigeria should stop the accumulation of domestic debt, to prevent unfavorable consequences such as clouding out private sector.
The main concern of this study can be stated specifically in form of the following research questions.
1. Is debt profile from 1999-2007 sustainable in relation to Nigeria’s GDP?
2. Did Nigeria’s debt profile undermine her development initiatives?
3 Is the debt management plan adopted by the Nigerian government effective in managing her foreign debt?
1.3 OBJECTIVE OF STUDY
The broad objective of this study is to critically assess the Nigeria’s foreign debt profile (1999-2007) and its management plans. However, its specific objectives are:
1. To determine whether debt profile from 1999-2007 sustainable in relation to Nigeria’s GDP.
2. To find out if Nigeria’s debt profile undermine her development initiatives.
3. To ascertain whether debt management plans adopted by Nigerian government is effective in managing her foreign debt.
1.4 SIGNIFICANCE OF STUDY
This research is of both theoretical and practical significance to the students, policy makers, the Debt Management Office (DMO), economists as well as the general public. Theoretically, this research work seeks to fill a gap in existing literature relating to Nigeria’s foreign debt profile and management strategies.
Practically, this study attempts to provide vital information for future academic research bordering on the topic and other related issues/topics. The findings of this study will be relevance to policy makers, diplomatic personnel engaged in negotiating debt on behalf of Nigeria, as well as the Debt Management Office that is saddled with the responsibility of prudently managing Nigeria’s debt in order to achieve the nation’s objectives as regards to debt management.
1.5 LITERATURE REVIEW
In this section of the study, we aimed at conducting a careful review of relevant and related literature focusing on the research questions with a view to identify a gap in the related literature.
Debt Profile and Nigeria’s GDP
Foreign debt (external debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtor can be the government, corporations, or private households. The debt includes money owed to private commercial banks, other governments or international financial institutions such as the IMF and World Bank (Wikipedia, 2010).
The International Monetary Fund (IMF) in its definition sees foreign debt as the gross external debt at any given time; the outstanding amount of those actual
current and not contingent liabilities that require payments of principal and/or interest by the future and that are owed to non-residents of an economy. In this definition however, IMF defines the key elements as follows:
(a) Outstanding and Actual Current Liabilities: For this purpose, the decisive consideration is whether a creditor owes a claim on the debt. Debt liabilities here include arrears of both principal and interest.
(b) Principal and Interest: When this is paid periodically as commonly occurs, it is known as an interest payment. Every other payment of economic value by the debtor to the creditor that reduces the principal amount outstanding is known as principal payment. This definition of external debt does not distinguish between if the payments that are needed are principal or interest or both. The definition does not equally indicate particularly that the timing of the future payments of principal or interest need be known for a liability to be grouped as debt. IMF still went further to assert.
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