The Economic Cost of Debt Forgiveness on Nigeria

One of Nigeria’s woes is the soaring level of sovereign debt amidst persistent hardship and underdevelopment, raising questions about whether debt relief mechanisms can serve as a sustainable, effective solution.

In recent years, Africa’s development scene has witnessed a surge in discussions about sovereign debt sustainability and calls for debt relief. This is in light of recent defaults by countries such as Zambia and Ghana in 2020 and 2022, respectively, and historical levels of sovereign debt accumulation in Nigeria and other countries on the continent. To put this into perspective, the African Development Bank (AfDB) reports that Africa paid out $163 billion just to service debts in 2024, a sharp uptick from the $61 billion paid in 2010.  

All of these have occurred against the backdrop of a very interesting yet inclement global economic climate, harrowed by rising inflation and interest rate volatility, the aftermath of the COVID-19 pandemic and multiple political and economic upheavals, all of which have led to economic shocks from which no country has been spared. For lower and middle-income economies in Africa, surviving these (especially the pandemic) meant increasing external debt in order to support flailing social security systems, which in the first place were stunted partially due to high debt service payments. As a result, the World Bank identified excessive sovereign debt as a major impediment to development in Africa. This has led to some talk and action about debt relief and the overall reform of the global debt architecture. 

This sentiment was echoed in September 2024 by Nigeria’s vice president, Kashim Shettima, before the 79th session of the United Nations General Assembly, who remarked that any reform of the international financial system must include ‘comprehensive debt relief measures, to enable sustainable financing for development. Countries of the global South cannot make meaningful economic progress without special concessions and a review of their current debt burden.’ Those in tune with contemporary slang would conclude that Shettima cooked, at least to some extent. To understand why, it is essential to explore debt relief in relation to Africa’s sovereign debt crisis...