FOREIGN AID AND THE NIGERIAN DEBT SITUATION - POVERTY ALLEVIATION



According to Morrisey (2001) aid is found to have a positive impact on economic growth through social mechanisms as (i) aid increases investment (ii) aid increases the capacity to import capital goods or technology (iii) aid does not have an adverse impact on investment and saving (iv) aid measures the capital productivity and promotes endogenous technical change. But Reiffel (2005) noted that Nigeria is a particularly unique case in Sub-Saharan Africa for two reasons:
i.             While it has one of the largest debts in the region, it does not qualify as a heavily indebted poor country (HIPC) and consequently was excluded from the 1996 World Bank Initiative to broaden the number of poor countries involved in lessening the debt burden by granting relief.
ii.            Nigeria receives the least amount of aid per capita in the region.


The largest international aid contributor to Nigeria is the Paris Club, an informal grouping of creditor countries whose mission is to coordinated debt policies in an effort to find sustainable solutions for debtor nations with pragmatic difficulties (Hauser, E.M.) In 1986) Nigeria for the first time went to the Paris club for debt rescheduling which according to creditor member principles requires adherence to IMF reforms and reviews. Debt servicing in 1966 include rescheduling of more than $7 billion in medium and long term debt (Reiffel, 2005). Nigeria was forced to obtain further rescheduling in 1989 and 1991 of $6 billion and $3 billion respectively (Reffel, 2005). Thus, in 1993 when the possibilities of debt rescheduling in any form was zero, the unsustainable previous debts merely increased as debt arrears compounded by expanding interest. During the period from 1993 to 1998 (the Abacha regime) Nigeria started discriminating the debts it repaid and whom it repaid, neglecting the Paris club debts.

          Consequently, debt to these creditors increased from $7 billion in 1985 to $30.4 billion in 2004 (Reiffel, 1005). In total, Nigeria’s 2004 debt equalled $35.9 billion, $30.4 billion fo which was accountable to the Paris club.
          With the establishment democracy in 1999 and a home grown policy known as the National economic Empowerment and Development Strategy, the United Kingdom pushed the Paris club creditor members to back the plan for Nigeria’s debt relief because of its endorsement to aid Africa. Thus $ 18 billion (i.e 60 %) of its $ 30.4 billion debt was written off, leaving the country with $12.4 billion to pay. Taking a critical look at the aid received from the Paris club, we would realise that it did little or nothing to alleviate the poverty situation of the people and compounded the economy with suffocating pressure to service debt which has accumulated interest for greater than the original aid.
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