Nigeria's debt servicing problems began around 1985, when the Nigerian government's total external debt to all creditors amounted to $19 billion. Since then, the government has paid creditors more than $35 billion while borrowing less than $15 billion. Nevertheless, its outstanding external debt at the end of 2004 grew to almost $36 billion.
How is this possible? The short answer is compound interest; the long answer is that Nigeria's Paris Club creditors opted— for political reasons—not to restructure their claims on Nigeria in 1992 when Nigeria's commercial creditors agreed to do so. The ballooning of Nigeria's debt relates directly and exclusively to this policy choice by creditors.
During the past twenty years, Nigeria has met debt service obligations to its multilateral creditors (the World Bank and the African Development Bank) without any restructuring; to its commercial creditors after negotiating an exchange of bank debt at a 60 percent discount; and to its non- Paris Club bilateral creditors in return for varying degrees of debt relief. (Table 1 details Nigeria's external debt amounts; note that Nigeria's debt to commercial creditors and to Paris Club creditors was the same in 1985: $7.8 billion each.)