# **Annex 1: Nigeria’s External Debt Restructuring Agreements**

## **Commercial debt restructurings**

In 1983, in response to accumulation of short-term credit arrears, the government offered promissory notes for eligible uninsured short-term credits, issued by the Central Bank of Nigeria and guaranteed by the federal government. US$4.9 billion of these promissory notes have been restructured again in 1988.<sup>12</sup> Trade credit arrears to London Club commercial banks amounting to US$5.8 billion were restructured in 1984, 1987 and 1989. In 1992, Nigeria concluded a Brady debt reduction operation, which reduced London Club bank debt substantially, from US$5.8 billion to US$2.0 billion, including payments of Nigeria of US$2.2 billion. This operation had the following menu of options: a buy-back of US$3.4 billion debt at a 60 percent discount, a US$2 billion debt converted at par to collateralized “Brady Bonds” maturing in 2020, and a prepayment of US$0.4 billion of debt arrears and US$0.2 of principal collateral.

## **Paris Club debt restructurings**

Insured short-term trade credits were assumed by the federal government as debt to Paris Club creditors. Between 1984 and 1992, Nigeria concluded three non-concessional rescheduling agreements with the Paris Club (1986, 1989, 1991), restructuring in total US$16.6 billion of arrears and debt service payments on publicly and publicly guaranteed debt, of which nearly US$12.5 billion (44 percent of total external debt) consisted of amounts overdue and late interest. Almost all of the debt in question consisted of commercial credits guaranteed or insured by governments or agencies of the creditor countries. The agreements took place in the context of Standby arrangements with the IMF. Continued rescheduling agreements, implied that after the third Paris Club agreement in 1991, arrears dropped to US$0.96 billion. In 1993, the government limited actual debt service payments to Paris club to no more than 30 percent of net oil revenues, in anticipation of a debt operation, comparable to the Brady debt restructuring operation of 1992, which led to a further increase in external debt to US$33 billion during the same year. As a result of this policy, arrears increased sharply in years when oil revenues were low, such as 1994-1995 and the share of Paris Club debt in total external debt increased from roughly 60 percent in 1992 to 77 percent in 2000.

In 2000, following the democratic elections in 1999, Nigeria concluded a Standby Arrangement with the IMF and reached a fourth non-concessional rescheduling agreement with the Paris Club in December of the same year. The agreement restructured US$21.3 billion of payment arrears and US$0.3 billion in maturities falling due between August 2000 and July 2001. It also capitalized moratorium interest of US$1.8 billion and deferred arrears of US$0.6 billion on post-cut off date debt.<sup>13</sup> The restructured amount exceeded 90 percent of the total debt owed to Paris Club.

## **Paris Club debt reduction agreement, October 20, 2005**

The PC debt reduction agreement has been implemented in two phases: (i) Nigeria repays its arrears due on all categories of debts and PC creditors grant 33% cancellation of eligible debts; and (ii) a second tranche of debt cancellation by PC creditors of 34 percent on eligible debt, while Nigeria will buy-back remaining eligible debt. This agreement allows Nigeria to obtain a debt cancellation estimated at $18 billion (including moratorium interest). This represents a face value debt reduction of about 60 percent of its PC debt (around $30 billion). PC creditors are paid an amount of $12.4 billion, representing regularization of arrears of $6.3 billion, plus a balance of $6.1 billion to complete the exit strategy. As a result of this two-stage debt deal, public external debt has been reduced from $35.9 billion in 2004 to $20.5 billion in 2005 and further to estimated $4.8 billion in 2006. At the same time, Nigeria used up $8 billion from its forex reserves in 2005 and an estimated additional $4.5 billion in 2006 for the cash pre-payment to the PC creditors.

## **Source: IMF, Selected Issues and Statistical Appendix, 2002 IMF (2006)..**

> 12 These promissory notes were restructured over a period of 22 years including 2 years grace period at a fixed interest rate of 5%.

> 13 Post-cut off debt consisted mainly of commercial project financing contracted in the late 1980s and early 1990s and is largely due to the federal government.

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