From a trivial debt stock of $1billion in 1971, Nigeria had towards the end of 2005 incurred close to $40 billion debt with over $30 billion of the amount owed the Paris Club alone. Although Nigeria’s debt was more than the total of those of the 18 other poor countries (14 of them African countries) classified as Heavily Indebted Poor Countries (HIPCs), it had been a herculean task convincing the creditors that debt cancellation was the most desirable option. Prior to Nigeria’s $18 billion debt cancellation deal, these 18 other poor countries i.e. Benin Republic, Bolivia, Burkina- Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia had secured a 100 percent debt cancellation totaling $40 billion (Semenitari, 2005).
The debt burden on less developed countries can be traced to the early 1980’s after the oil price increase of the 1970’s. It was the product of reactions by the international community to “oil price shocks”. One of the legacies of African countries from the crisis has been an increasing debt burden, which constituted a major constraint to growth and development.
External debt became a burden to African countries because contracted loans were not optimally deployed, therefore returns on investments were not adequate to meet maturing obligations and also hindering economic growth. African economies have not performed well, partly because of the increased outflow of resources to service debt obligations and partly because the necessary macro-economic adjustment has remained elusive for most of the countries in the continent.
The Nigerian President, Olusegun Obasanjo, had waged a six-year war on debt cancellation. He had to hire an ex-World Bank official, Nigerian-born Ngozi Okonjo-Iweala as Finance Minister to prosecute the war. In their bid, they joined several other anti-poverty campaigners to argue that the debt relief is imperative. By so doing, the Group of 8 (G8) countries will be stopping 30,000 children from dying each day of hunger, lack of clean water and diseases (Christian Science Monitor as cited by Tell, 2005). The argument is that the poor countries of the world pay over $100 million dollars everyday as interest alone on loan which kept pilling. Before the debt cancellation deal, Nigeria was to pay a whopping $2.3 billion every year on debt servicing. This amounted to $32 billion between 1985 and 2001 alone (Ahmed, 1998).
At the Gleneagles meeting, Britain’s campaign that something must be done about the debt burden worked. World leaders saw reason but tied debt forgiveness to good governance. President Bush, for instance, canvassed a partnership with Africa that is different from a relationship of “check-writer”. As Semenitari (2005) noted, Bush said, “We have got obligations and so do people we are trying to help”.
Undoubtedly, the recent relief of Nigerian debt would make available substantial amount of money for investment and developmental purpose in the country. This money would have been used to service the country’s debt if the debt had not been cancelled. However, the issue is whether this fund would find its way to the capital market and whether the market is well developed enough to channel the money in such a way that the growth of the economy would be enhanced. It is against this background that this study is based.
STATEMENT OF RESEARCH PROBLEM
It is no exaggeration to claim that Nigeria’s huge external debt burden was one of the hard knots of the Structural Adjustment Programme (S.A.P) introduced in 1986 by the Babangida administration. The high level of debt service payment prevented the country from embarking on larger volume of domestic investment, which would have enhanced growth and development. With the recent debt forgiveness granted to Nigeria, one would expect the economic process of the country to be increased....