CHAPTER ONE
INTODUCTION
1.1 BACKGROUND OF THE STUDY
The accumulation of external debt is a common phenomenon of the third World countries at the stage of economic growth and development where the supply of domestic savings is low, current account payment deficit is high and import of capital is needed to increase domestic resources.
The management of Nigeria’s external debt has been a major macroeconomic problem especially since the early 1980s. For many years now, the country’s debt has been growing in spite of the efforts being made by the Government to manage and minimize its crushing effects on the nation’s economy. Such efforts range from the various refinancing and restructuring agreements to debt conversion programme and the deliberate allocation of substantial resources towards servicing the debt. Of particular concern to the authorities, is the heavy debt burden it imposes when compared with the country’s debt service capacity.
In recent years, however, some observers have held different perceptions about Nigeria’s capacity or otherwise to service her debt. This is largely because of the improved income to the country arising from export of crude oil, Nigeria’s major export. Moreover others have argued that bad governance, especially during the military rule,largely accounted for the mismanagement of the Nigerian economy and therefore, the people should bear the brunt. Whatever position one holds, what appears undisputableis the increasingly large debt service requirement which imposes considerable stress on the Nigerian economy even when the improved resource inflow is factored into the country’s cash flows. Indeed, the issue of sustainability of Nigeria’s debt profile continued to be the focus of research and public debate until the recent initiative of the Paris Club of Creditors which appears to address the issue in a more meaningful way.
Even then the conditions and adequacy of the debt relief have continued to generate further debate.
The objective of this paper is to review Nigeria’s external debt and the burden it imposes, and use the various indicators and prevailing global economic circumstances to justify the need for substantial debt relief for the country.
However, during the late 70s and early 80s, commercial banks began playing a big role in international lending by recycling surplus OPEC ‘’petrodollars’’ and issuing general purpose loans to less developed countries to provide balance of payment support and expansion of export sectors. While foreign borrowing can be highly beneficial providing the resources necessary to promote economic growth and development, it has its cost. In recent years, these costs have greatly outweighed the benefits for many developing nations. The main cost associated with the accumulation of a large external debt is ‘’debt serving’’.