A major contributor to the success of Nigeria’s debt relief attempts in the 1980s to early 2000s rested on the fact that the creditor base was less fragmented than it is today. Moreover, private and bilateral creditors were hardly in the mix.  

In 2004, 85.82 per cent of Nigeria’s sovereign debt was owed to the Paris Club, while commercial and multilateral creditors had 6.12 per cent and 7.86 per cent, respectively. On the other hand, data from the DMO shows a more diversified creditor portfolio as of July 2024. About 50.41 per cent ($21.6 billion) of total sovereign debt is owed to multilateral creditors, which include the IMF, World Bank Group and AfDB. 13.72 per cent ($5.887 billion) is owed to bilateral creditors such as Exim Bank of China, Agence Française Development and Exim Bank of India. Finally, a larger percentage of 35.24 per cent ($15.118 billion) is in commercial loans such as Eurobonds. Information regarding these commercial loans is often private as the bondholders are largely unknown. Interest rates of these facilities tend to be higher than concessional loans, hovering often between six to nine per cent, which has meant considerably larger debt service payments. Securing full private creditor participation and aligning it with established frameworks like the Common Framework, also presents significant challenges, as exemplified by Zambia’s experience. This makes it apparent that Nigeria might not enjoy the fruits of debt relief in areas where it is most needed. 

Nevertheless, three African countries: Zambia, Ghana and Chad, have reportedly encountered recent success in debt relief/restructuring under the G20 Common Framework (the CF). The CF was introduced in 2020 and was modelled after the Paris Club to facilitate debt restructuring for low-income countries and assist them in finding sustainable solutions to debt challenges. For Ghana, its $5.4 billion debt restructuring deal agreed to by more than 90 per cent of bondholders is expected to decrease total debt stock by $4.7 billion and reduce debt service payments to about 15.3 per cent of government revenue. Zambia, on the other hand, finalized agreements with bilateral creditors in June 2024 to restructure its Eurobonds. The World Bank also moved to offer all financing to Zambia as grants as opposed to loans, in order to help the country manage and navigate its debt challenges under the IMF-supported Extended Credit Facility programme.  

Nigeria might be able to achieve some success under the Framework with respect to some of its debt obligations. However, in the recorded major successes of Ghana and Zambia, debt reached distress levels (i.e. both defaulted on Eurobond payments) before these mechanisms were resorted to. In the past, Nigeria has often been denied comprehensive debt relief due to its oil revenues, which were believed to be an adequate cushion for debt obligations. Between 1985 and 1990, for instance, it was treated as a middle-income country by both the Paris and London Clubs in determining the terms for rescheduling its debts. Hence, in the absence of a major setback in debt payments, Nigeria may be unable to secure debt relief as easily or at least without its credit ratings being unscathed. In all instances outlined above, private creditors have also been sluggish in reaching debt relief agreements with countries. This indicates that doing the same with private non-bond holders might prove to be a challenge for the country, especially because its debt service payments to this class of creditors in recent times have dwarfed those in other categories. 

Creditor base diversification is also reflected in recent developments under the G20 CF. In 1996, Paris Club members held 39 per cent of low-income countries’ debts, but as of 2024, held only 11 per cent. The current debt landscape includes other actors primarily China, which according to the China loans to Africa database, between 2000 to 2023 entered 1,306 loan commitments with 49 African governments, amounting to $182.28 billion. China is not part of the Paris Club, and it opts for debt treatment on a case-by-case basis, in contrast with the Paris Club’s collective approach. This complicates the resolution of debt challenges even further.  

Another weakness of the Common Framework is that although countries are required to seek similar treatment from private creditors, who in turn are encouraged to participate. Participation of private creditors is voluntary and non-binding. As more than 43 per cent of Africa’s debt is owed to private creditors who have often been reluctant to offer total debt relief, this complicates things even more on a larger continental scale.  

Additionally, the debt relief process is notoriously arduous, long and expensive, characterized by onerous conditions or effects that Nigeria has in the past found difficult to completely contend with. A case in point is the IMF and G20’s Debt Service Suspension Initiative (DSSI), established in response to the COVID-19 pandemic. Although eligible, Nigeria declined to participate, concerned about the risk of sacrificing long-term debt sustainability for short-term flexibility. Furthermore, the federal government was concerned that seeking debt relief could harm the country’s creditworthiness, potentially limiting its ability to secure financing from private lenders and bondholders.  

These worries are not unfounded. A United Nations Economic Commission for Africa document that acknowledges that countries’ Moody’s ratings may be put on review and decisions to downgrade credit ratings will depend on whether private sector participation in the now-defunct DSSI would lead to investor loss. Nigeria, a major borrower of the World Bank Group, was also ineligible for the institution’s joint bank-fund debt sustainability framework for low-income countries.  

Many developing nations have, for similar reasons, also expressed reluctance to engage with debt relief mechanisms. For example, when the G20 introduced the DSSI, only two-thirds of the 73 eligible countries participated. Similarly, the CF, which was designed to guide comprehensive debt restructuring, attracted limited interest, despite many countries facing or nearing debt distress. Reasons for this range from uncertainties about the process, high administrative and negotiation costs, worries about debt relief being too little to matter, as well as the negative impacts of seeking debt relief on a country’s creditworthiness. This is telling from rating agency Fitch’s decision to downgrade Ethiopia’s long-term foreign-currency issuer default rating from a B- to CCC following its intention to seek CF treatment.  

All of these affect the timbre of conversations which we can genuinely have about debt relief today and how realistic a solution it is to Nigeria’s economic problems. Additionally, debt relief might not always be the tested and true remedy which it appears to be. A 2023 report by AFRODAD titled ‘Debt Restructuring Under The G20 Common Framework and Alternative Policy Solutions’, analysed economic growth data from the World Bank on heavily indebted poor countries/ multilateral debt relief initiative (HIPC/MDRI) countries between 1990 and 2003 showed that non-HIPC/MDRI grew at 5 per cent compared to 3 per cent for HIPC/MDRI countries over the period.  

Debt relief can grow into a sort of situation where countries which benefit from relief find themselves trapped in a cycle of more debt in a bid to escape debt. According to AFRODAD, the HIPC initiative, for example, offered $12 billion in debt relief but paid out $42 billion in new loans. DSSI, on the other hand, suspended less than $50 billion in interest payments in return for over $100 billion in new lending and emergency funding. As a result, one must question whether relief is being granted, at least in the long term.