University of Nigeria Research Publications

TULE, Moses Kpughur

Aut

hor

PG/M.Sc/99/24746

Title

The Efficacy of External Debt Management Strategies in Nigeria and Ghana: A Comparative

Analysis.

Facu

lty Social Sciences

Dep

artm

ent Economics

Dat

e February, 2006

Sign

atur

e

THE EFFICACY OF EXTERNAL DEBT MANAGEMENT STRATEGIES IN NIGERIA AND

GHANA: A COMPARATIVE ANALYSIS

TULE, MOSES KPUGHUR PGIM.Sc199124746

TO DEPARTMENT OF ECONOMICS

FACULTY OF SOCIAL SCIENCES UNIVERSITY OF NIGERIA, NSUKKA

NSUKKA-NIGERIA

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A

MASTER OF SCIENCE (M. Sc.) DEGREE IN ECONOMICS

FEBRUARY 2006

CERTlFlCATlON

We the undersigned do hereby certify that we have approved this Research

work carried out by Moses Kpughur Tule (PGlM.Sd99124746) as adequate in

scope and quality for the partial fulfillment of the requirements for the award of

a Master of Science (M.Sc.) Degree in Economics, Department of Economics,

University of Nigeria.

.................................... Mr. J. 0. Oieru (Project Supervisor)

.. 9.i.-.............................

Mr. 0. E. Onyukwu (Head of Department)

.................................... External Examiner

Date

ar- 0e.d ............................... Date

. . . I I I

DEDICATION

This work is dedicated to:

JESUS CHRIST, MY SAVIOUR

MY DARLING WIFE MWUESE

MY DAUGHTERS: ANADOO, MEUMBUR, NGUMIMI, ANAUMA AND TERYESE

AND MY TWIN SONS TERTSEGHA AND TERTSUWA

MY MOTHER, AZAMLIAM

MY TWO SISTERS MBAPAVEN & MBAWUESE

AND TO THE MEMORY OF MY FATHER PA TULE AMANDE AND MY BROTHERS: IKYAAN, CHlA AND TERYILA, AND TO MY MENTOR DR. A. M. 0. ANYAFO, AND MY DEARLY BELOVED MOTHER-IN-LAW MAMA ASHIAKAA NYIAKURA, WHO HAVE ALL GONE TO BE WITH THE LORD, AND TO ALL THE SAINTS WHO COUNTED THEIR LIVES UNWORTHY OF LIVING FOR THE SAKE OF SPREADING THE GOSPEL OF SALVATION THROUGH JESUS CHRIST TO THE UNREACHED PEOPLE OF THE WORLD. BLESSED IS THE MEMORY OF THE RIGHTEOUS.

ACKNOWLEDGEMENT

To God Be the Glory. great things He hast done. Today, I live to declare the

goodness of the lord. My very sincere thanks and appreciation to my

Academic Adviser and Project Supervisor, Mr. J. 0. Oleru, an academic par

excellence, from whose guidance I have drawn much inspiration. His

painstaking criticisms and useful comments were motivating, challenging

and instrumental to the completion of this work. Professor Austin Okore, of

the Department of Economics and My Mentor, The Saint Triumphant, Dr. A.

M. 0. Anyafo, of the Department of Banking and Finance, provided the

fatherly tonic and much inspiration for completing the programme.

My Christian friends with whom I have shared the most cherished moments

of my life were helpful in prayers and encouragement. My family members

and other friends who provided the social cycle and fellowship are greatly

appreciated.

AND UNTO THE LORD ETERNAL, IMMORTAL, INVISIBLE, THE ONLY

WISE GOD, BE GLORY AND HONOUR FOR EVER AND EVER, AMEN.

Tule, M. K.

March 2006

ABSTRACT

Sound Debt management, is the establishment and execution of a strategy for

managing a country's debt inorder to raise the required amount of funding to

achieve its risks and cost objectives, and to meet other ancillary debt related goals

such as the reduction in the overall quantum of debt, providing a breather for

development and maintenance of an efficient government securities market.

Nigeria and Ghana over the years, embarked on a series of debt management

initiatives so as to provide a debt sustainable environment to stimulate growth.

The study found that although the initiatives yielded some dividends in the case of

Ghana in that the overall quantum of debt reduced, nevertheless, the debt still

remained unsustainable. In the case of Nigeria, the debt stuck grew steadily. The

study suggested that debt management did not provide the necessary stimulus for

sustainable development. Rather, debt relief was based on the overall calibrations

of the creditor country and their perception of the debtor country's strategic position

in their interest calculus. The study suggested sound macroeconomic

management and outright debt cancellation to enable these debtor countries move

out of debt.

\.I

TABLE OF CONTENTS

Title Page

Certi fEca tion

Dedication Acknowledgment

Abstract

Table of Contents

CHAPTER ONE

INTRODUCTION Background to the Problem

Statement of the .Problem

Objectives of the Study

Rese%rch Questions

Statement of Hypotheses

Scope and Limitations of the Study

Significance of Study

Justification for the Study

Standard Concepts

CHAPTER TWO

LITERATURE REVIEW

Theoretical Literature

The Empirical Literature Review

Classes of External Debt

Paris Club Debts

Multilateral Debts

Non-Paris Club Bilateral Debt

London Club Debts (Par Bonds)

Pr,missury Notes

Profile of External Debt in Nigeria and Ghana

I . .

I f

iii

iv

v

vi

Page 9

Nigeria

Composition of Nigeria's External Debt

Multilateral Debt

Paris Ctub Debts

Non-Paris Club Bilateral Debt

Pr~missrjry Notes

London Club

Ghana's External Debt Profile

Debt Management Strategies In Nigeria and Ghana

Gu~delines for New External Borrowing

Nigeria

Paris Club Debt Restructurmg

Bilateral Debt Negotiations

London Club Debts

Debt Conversion Activities

Ghana

Global fnitiatives rn the Debt of Ueve@irq Countries

CHAPTER THREE

RESEARCH DESIGN AND ME THODOLOGY

3.7 Research Design

3.2 Sourcesof Data

3.3 Methods of Data Collection

3.4 Techniques of Data Analysis

3.5 Specification of the Modei

3.6 Statement of Hypotheses

CHAPTER FOUR

PATA PRESENTATION AND ANALYSIS

4. I Summary of Output

4.2 Unit Root Test of the Variables

4 .3 Results of Estimations

4.4 Test of Objectives of the Study

4.5 Test of Hypotheses

CHAPTER FIVE

SUMMARY, CONCLUSION AND POLICY RECOMMENDATIONS

Summary 70

lConclusion 7 1

Policy Remmmendations 7 1

Bibliography 74

Append~x I 78

Appmdix I/ 7 9

Table 10 80

I ci

CHAPTER 1

1.1 Background to the Problem Large financing gaps and persistent fiscal deficits, traced lo dwindling capital inflows,

and poor macroeconomic management were observed in Ngeria and Ghana at the

beginning of the 1980s. Financing options were limited, though not restrided to

debt, but fhe two muniries, hke most other developing economies, resulted to debt.

rather than equity or other forms of financing the resource gap. External debt Rlls

the financing gap-the difference beheen projected foreign exchange needs and the

level of capital flow the emnomy can efficiently absorb, and the debt it can service

without risking growth. Debt is therefore, a usdu l stop-gap in limes of pers~stsnt

current a c c w n l imbalance, and for financing higCler levels of investment,

consumption. and roll over of exisling debt pending improvements to the external

sector.

The major sources of external financing identified in the literature are resewe draw-

down, foreign direct investment and other private capital and official lending.

Foreign direct investrmmt which is equity creatrng is in acutc short supply in sub-

Saharan Africa, tayior (1996), Hernandez and Rudolph (1997) as well as Corbo

and HernarPdez (19991, have shown that private capital flows are more responsive to

a recipient country's investment and savings rate, GDP growth and the terms of

trade than other sources of financing the resource gap. These indicators are largely

adverse in Nigefia and Ghana. Following Ajayi (1986), private capital flows are

~nversely related to a high level of external indebtedness and macroeconomic

uncertainly pioxied by volatility of macroeconomic variables. Besidcs. the

willingness of investors 10 be exposed to any part~cular market and especially that of

a very hem~ly indebted country is limited, particularly so when they become

apprehensive, nervous or risk conscious and the markets become relatively

unstable.

There are three implications of excessive debt financing or) the economy, including

effects on growth, public finances and the financial sector. On growth, excessive

debt creates a debt overhang and erodes the confidence of thtr international

community on the domestic econwny. It also increase the level of interest rates

offered on all commercial lines of credit lo the country because of increased risk

premium. Ultimately. it leads lo a reduction in investment and growth. The effects

on public finances cwlcern increased debt service and an enlarged resource gap

which leads to increased laxation. In the financial sector, excessive short term debt

leads to vulnerabrlity to speculative attacks on the country's currency.

The World Bank (2003) indicated that Africa's external indebtedness in absolute

terms represented one-tenth of global developing emntry debt. However, there is a

significant divergence k t w e e n Africa's debf from the pattern uf debt found in Latin

America and Asia. The data revealed that at least four fifths of Africa's debt

consisted of public bilateral and multilateral debt rather than private debt obligations.

Most of the debt is structured on concessio~al terms, either through multilateral

arrangements such as !Re Tnternational Monetary Fund's (IhtF) Structural

Adjustment and Enhanced Slructural Adjustment Facilities or the World Bank's

program of struclural adjustment via the I nternalimal Devclspmenl Agency [IDA)

concessional window. and the multi!ateral Special program of Assistarze created for

debt-distressed courttr& in 1987. However, servicing these debts has created

difficulties on the indebted counffies, inflicted burdens that habe rivaled the

conditions found in some of the most heavily indebted middle inconie developing

countries including Argentina, Brazil and Mexico. Thus, while Nigeriit and Ghana's

debts may differ in cornposition and absolute magnitude in comparison to other

countries, the search for sustainable options has remained largely similar across the

indebted countries.

In the last two and a half decades, Nigeria and Ghana experienzed s~ynificant

declines in their incomes per capita. The magnitude of this decline averaged 15%

for the t~vo countries between 1980 and 2003; thereby undermining some of the

modest economic gains recorded earlier (World Bank 2002). The failure of

m a c r o e m m i c talicies to respond appropriately farced these countries to

implement far reaching Fund-Sipported structural adjustment programmes which

included a debt relief component on successfu\ completion. However, poor

synchronization and sequencing complicated the outcomes of ttse structurar

adjustment programmes, thereby undermining the possible debt relicf that could

have resulted from them, espe~ially for Nigeria.

With an estimated population of 130 and 20.3 million and per capita GNP of US5300

and US$390 in 2005, Nigeria's external debt stock at end-December 2003 was

US$32,917.0 million, while that of Ghana was USS4,784.3 million and US535,374.71

and 2,385.6 million, respectively in 2005. In absolute term$, the combined

indebtedness of Nigeria and Ghana represented 9 2, 13.8, 11.9, 135 and 17.9 per

cent in 1980, 1991, 6995, 2000,2003 and 21305, of Africa's total debt, respecfively.

However, it constitukd 43.6, 52.8, 49.2, 53.8, 53.9 and 57.6 per x n t of West

A'frica's totaT indebtedness in the respective periods. Following the emsolidation

carried out under the Paris Club for Nigeria and the HlPlC concessio~x for Ghana.

the debt stock of rncreased while that of Ghana redi~ced to US$29,987.98 and

5,7650: respectively (See TaMes 11 and 12).

Specifically, for these countries, the debt problem arose as a result of the milapse in

commodity prices (as in Ghana) in the 1980s following the cornmdity price ba rn of

the 4970s. The energy crises of the 1970s and its attendant increase In the price of

oil provided impetus for the genera! price b w m and its collapse. The collapse of the

General Agreement on Tariffs and Trade (GATT) negotiations and the attendant

subsidies on their weak sectors like agr~cultc~re adversely affecl~xl agricultural

exports, partjcularly From Africa. With the decline in exports of agricultural products

and the oil glut, private direcl foreign investment from abroad also declrned. The

decline in exports affected the willingness of creditors to supply new funding due to

low repayment capacities. Beside !Re country specific reasons. :Re causes of the

huge external debt stock of developing countries have variously been rlocurhiented in

the literature. These include amongst others, Imprudent borrowing and lending

policies of debtor and creditor countries (Dornbusch and Fisher: 1985) and

worsening terns of t i d e and protectionism The external factor: are global

macroeconomic instability (Cline, 1985), country spec~fic factors (Sachs: 1985), and

paor loan policy of commercial lenders (Guttentag and Herring: 1985). The internal

factors have been found to be expansionary fiscal balance, debt financing of fiscal

deficits, p m r coordination oT exchange rate and demand managenient policies

(Khan and Knight, 1983), high commercial interest rates; an loans, unproductive use

of external loans [Tanzi and 8lejer: A9841 and currency overvaluation (Ajayi: 1986).

Others are weak rnacmocomrnic managenlent, poor implementation of policy

refwms, narfow ~mduct ion and export base (which expose poor cour~tries to

externally induced shocks).

1.2 Statement of the Problem

In the spirit of the international development agenda, a number of debt relief

initiatives including the Highly Indebted Poor Countries (HIPC) Ini'iative were

implemented far highly indebted pmr ccn~ntries, to lessen the burc!sn of debt

servicing on those muntries that cmplieQ with certain criteria and therefore qualified

for debt relief. Country specific programs for which Nigeria and Ghana were

involved included debt-equity swap. debt for debt, debt buy-back scheme, debt

conversion, etc. In !Nigeria the debtlexpord ratio was 23.29, 169.31, 246 50, 302.A8,

155.97 and 277.31 per cent in 1980, 1985, j990, 1995. 2060 and 2005, respectively

(see Table 6). In Ghana on the other hand, the debtlexporl ratios were 715.49,

167.20, 275.47, 298.59, 173.88 and 72.70 per cent in 1980. 1985, 1490. 1995, 2000

and 2005, respectively [Tables 17 and -18) Dsspife llle efforts of the relevant

authorities at negotiating debt felier, the per captat debl, debVGDP ancJ other debt

sustainabil~ty indicators remained largely unsusta~nable. Consequently, the

countries' debts still; represent a standard case of debt overhang, wen after years of

implementing debt relief programmes

The subcrptirnal outcomes of the debt management initiatives have however, been

traced to the increasing burden of debt arising from interest capitalization and

penalty and default chafges, increased capital flight due to corruption, poor macro-

economic management and the need for increased social expendit~re which

increased the frustrations oF debtor counbies. The rescheduling of current debt

obligatbns over bry per ids plus a moratorium has succeeded in relieving current

political leadership of The burden 07 servicing external debts. The transfer of debt

obligations to future generations without debt cancellation, implies the pwpetuation

of debt servicing as interest capitalization is expecterl to Increase the quantum of

outstanding debt when currently rescheduled debts mature.

1.3 Objectives of the Study

The objectives of the study are to:

[i) ascertain if the external debt management strategies adopted by Nigeria and

Ghana have succeeded in reducing the quantum of debt to sustainable levels.

(ii) determine if the total debt stock had responded to the debt management

initiatives in the h o countries.

(iii) establish lthe role of debt rexhecluling in reducing the debt burden.

(iv) show if the creditors responded favourably to the debt management initiatives

in the affected countries; and

(v) make recommendations .based on the findings with a view to positively

influencing debt management policy in both countries.

1.4 Research Questions

The questions that would be addressed in this study are outlmed below.

(a) Has the external debt management strategies of Nigeria and Ghana

succeeded in reducing the quantum of debt to sustainable levels?

(b) Has the total debt st& responded Zo the debt management initiatives in the

two countries?

{c) Has debt rescheduling succeeded in rducing the debt to sustainable levels?

(d) Have the creditors favourably responded to the debt management initiatives

of the two countries?

A -5 Statement of Hypotheses

Hal: The external debt rnanayerment initiatives of Nigeria and Ghana have not

succeeded in seducing the quantum of debt to sustainable levels.

HO2: Debt rescheduling as a debt managemcrrl option has not succeeded in

reducing t h e debl burden, in the affected cowtrres to sustainable level:;.

Wo3: The creditors have not adquately compensated the debt management efforts

of the two countries

1.6 Scope and Limitations

This study Yocused on appraising the debt management initiatives of Nigeria and

Ghana. The mtional debt here includes debts accruing to the central, regionaVstate

governments a r d their agencies and parasfatal. It also include all private sector

debt which were contracted for private sector busmesses but later cnnmlidated into

the national debl due to definitional problems associated with identification and

association of debts with their specific debtors and creditors. Due to time and

financial constraints, the study was restricted to the consoTibated national debts

which had been accepted by the governments of the affeted countries as forming

their stock of external deb!, for which data is now available. These data gaps

notulithstanding, care was taken to verify all available data sources to ensure that

data used was i ' r m the k s t avaihble sources. To that exten1 therefore, the results

oF the s'tudy arc as rdiable as results emanating from any slrrdy on external debt,

barring methodological issues. The study covered the period 1980-2005, a period

the countries under went various debt managentent options.

7.7 Significance of the Study

The external debt of most developing countries raises a nxlral question as to the

justification for the continued servicing of debt contracted under questionable

circumstances, for which the irdebted countries had no maximum benefits. This

study addressed the issue of reducing Nigeria and Ghana's external debt to

sustainable levels to enable growth to occur. In the light of these, the findings of this

study are expected to amongst other things, lay the basis for sustainable debt

servicing, growth and poverty reduction in the two countries. It would a'so provide a

base for future research in debt management in developing countries.

I .8 Justification for the Study

This study was motivated by the compelling need for debt-free growth iri Nigeria and

Ghana. In Nigeria, the April 2002 Supreme Court Ruling which declared as

unconstitutional, the treatment of external debt service as a first charge on the

Federation Account complicated further debt servicing. The constitutional issues

raised by that ruling and implications on Nigeria's debt servicing may soon emerge.

Focus is now on reducing the debt service burden, stimulating adequate resource

inflow to improve basic services and to ensure long run growth sustairiability. This

study is apt and timely especially that debt issues are now a central issue in the war

against poverty. Global attention is focused on wealth redistribution as an integral

part of poverty alleviation especially in developing mnt(res.

1.9 Standard Concepts

Long Term Debt: A debt which has an original or extended maturity of more than

12 years

Short Term Debt: Debt that has an original maturity of ofle year or less

Medium-Term-Debt: Debt with an original or extended maturity 2f between 1

and 12 years.

Public and Publicly Guaranteed Debt:This is a crass of long term debt which

consist of obligations of the national government and aufonoms putrlie bodies as

well as obligations of private debtors that are guaranteed by the governnent.

Private Non-Guaranteed Debt: These are long-term obligaticms of PI-ivate debtors

that are not guaranteed by the government or any p~btic entity.

Official Creditors: These are loans and credits from international organizations

(multilateral donors and loans from governments (bilateral donors). and iheir

agencies.

Total Debt: This is the sum of long-term debt (pubfic and publicly guarmteed debt

and private ncmguaranteed debt), medium-term debt Sincluding IMF credits), and

short term debts.

Market Risk: Refers to the risks associated w~th changes in market pilces, such

as interest rates, exchange rates, commodity prices, on the cost of the

government's debt servicing. For bath domestic and foreign curre@? debt,

changes in interest rates affect debt-sewicing msts on new issues when fixed-

rate debt is refinanced and on floating -rate debt at the rate reset dates. Hence,

short-duration debt (short-term or floating rate] is usually considered to be more

risky than long-term, fixed (ate debt. (Excessive concentration in very Is'g- term,

fixed rate debt also canl be risky as future financing requirements are u~~cedain).

Debt denominated In or indexed to foreign currencies also adds to volatifity to

debt servicing casts as measured in domestic currency owing l o exchange rate

movernenfs. Bonds with embedded put options can exacerbate market and

rollover risks.

Rollover Risk: The risk that debt wit! have to be rolled over at an unusually high

cost or, in extreme cases, cannot be rolled over at all. To the extent that ronover

risk is limited to the risk that debt might have to be rolled over at higher interest

rates, including changes in credit spreads, it may be considered a type of market

risk. However, becaus the inability to roll over debt and I' or excqtionafly large

increases in government funding costs can lead to, or exacerbate, a debt crisis

thereby cause real economic losses, in addition to the purely financial effects or

higher rates, it is often treated separately. Managing this risk is parlicularly

important for emerging market countries.

Liquidity Risk: There are two types of liquidity risk. One refers to the cost or

penalty investors in trying to exit a psi t ion when h e number or transactors has

mahedly decreased or because of the lack of depth of a particular market. This

risk Is parlicularly relevant in cases where debt management inr:ludes the

management of liquid assets or the use of derivatives contacts. The other form

of liquidity risk, for a borrower, refers to a situation where the volume of I~quid

assets can diminish quickJ.y in the face of unanlictpated msk flow obligations

and/ or a possible difficulty in raising cash through borrowing in a short period of

time.

Credit Risk: The risk 07 mn-performance by borrowers on loans w other

financial assets or by a counterparty on financial contracts. This risk is

particularly relevant in cases where debt management includes the management

of liquid assets. It may also be relevant in the acceptance or bids in auctions of

securities issued by the government as well as in relation to contirigen! liabilities,

and in derivative contracts e~ltered into by the debt manager.

Settlement Risk: Refers to the potential lost that the government as a counter-

party, could suffer as a result of failure to settle, for whatever reason ather than

default, by another counterparty.

Operational Risk: This includes a range of differeflt types of risks, including

transaction errors in the various stages of executing and recording transactions;

inadequacies or failures in the internal controls, or natural disasters that affect

business activity. The growth in the debt slwk began at a time of ~ignificantly

low interest rates-when the London Inter-bank Offered Rate (LIBOR) asciliated

around 3-4 per cent in the 1980s. Beside the indiscriminate acquisition of term

bans and Vade arrears in the second half of the 1980s, LIBOR rose steepfy to

13.0 per cent in 1939. thereby quadrupling and engineering a debl crisis that

would consummate the 49911s a d provide the mast single challenge to global

macroeconomic management. In addition to tRe sudden increase in the term

interest rates, the accumulatidn of trade and debl arrears due to worsening

economic fortunes. compounded by pmr macroeconomic management,

lnecessitating default in meeting maturing obligations and increased the debt

burden. The continued posting of arrears inspite of rescheduling arrangements

in 1986. 1989. and 1991 have further aggravated the debt problem.

CHAPTER TWO

LITERATURE REVIEW

2.1 Theoretical Literature

Poor macroemnornic management could necessitate huge debt financing in one of

three ways: when investment is greater than savings, demand for money is greater

than the supply of money a d when exports may lag behind impMs. These

conditions could create deficit budgets and necessitate monetary Mancing of the

budget deficit. A deficit in the budget couki be financed by one of several ways

including borrowing from abroad, sale or government bonds ta the pubtie and the

monetary authorities, and the monetization of the wunt r js external reserves.

Where government debt instruments are bought by the central bank, it amounts fa

the monetary authorities underwritirlg the debt instruments, and this action could

increase money supply, which if not propetty managed, could be inflationary

because it Is high powered money. The effect of this course of action on the

external sector of the economy if continued is the l ike?iM of a balance of

payments crisis if the situation persists.

The monetary authorities usually respond to the financing. gap by emptclying a

combination of the estimated values of Money suppv (M2'j, Net Foreign Assets

(NFA) and Other' Assets Net @AN). This relationship is shown as:

............................................................................... NDC=(M2-OAN-NFA). (7 1

This monetary identity indicates that aggregate credit td the economy must be

consistent with the credit absorptive capacity (of chaoge in aggregate credit to the

domestic economy) of the economy which alsa should agree with the tafgeted

growth in real GDP, inflation and external Balance. The change in nggrwate credit

to the economy is shown as:

A N ~ C - MT(OAN-NFA) ........................................................................... (2)

Adding equatim 2 ta the aggregate credit to the domestic ecmwny, results in the

change in the components of aggregate credit shown in equation (3).

ANDC=DCG+OCP. ................................................................................ (3)

Oisaggregating the Domestic Credit to the Prwate sector (DCG) component of equation (3) gives a residual determination of the maximum amount of credit to the

private sector from the banking system as shown in equation (4).

NCP = (NDC-DCGJ. ............................................................................... "(4)

Fiscal deficits from gouemrnent operations create a basis Tor government borrowing

to fiflance the resource shortfall and this gives rise to the borrowing requirements of

government. The latter should Be consistent with the targets set fm inflation, GDP

growth and external sector balance 20 ensure macroeconomic stability, We can

therefore, demonstrate that the emerging governrneot debt is either sustainable

(rnacm-stability) or unsustainable (macro-instability) if the debt/GDP ratio does not

increase/decrease by extending the maximum permissible public debt

accumulatidsustainabilitpl identity of equation (4).

Given that the debt outstanding at time '?"is Dtl , with being outstanding debt in

the last perid, FQ being defined as the fiscal deficit created by gownmen! fiscal

operations at time t, then, we dan show that

Dt = DL., -I- FDt .......................................................................................... ( 5 )

However, FD, is defined as:

FDt = Pt + R * PI-r * ((l+r)(t +s) -1)Dt-, ...................................,.................. ( 6 )

Where Pt = primaiy deficit (non-interest component of the fiscal deficit), r is the real

interest rate on the debt, s = the rate of inflation, and [(l+r)(l+s)-1)!3&1 are inferest

payments. Adding equation (5) to equation (6) yields equation (71, where

............................................................................ Dt = (I +r)(l +s)Dt., + PI.. (7)

Dividing equation (7) by the nominal GDP i.e. y, yields equation (8')

DINt = ((I +r)(l +g)Dbliypr) + P,). ...................,............................................... .(8)

Where g = growth rate of real GDP, and Yt - (I +g)(l +r)Yt_,

Taking the finite d i f k ~ n c e of equation (a), we obtain equatim (9) where:

.................................................................... DtNt = Dt-l/(Yt-l ( A -g)) + PJY, (9)

Thus, when PI = 0, Dff, >+O as g<r ........................................................... (w

Equation (10) shows that the debtlGDP ratio will ccmtinue to grow indefinitely if the

growth rate of interest is greater thal the growth rate of the economy, i-e. rpg. This

condition is referred to as the debt kap. However, this cdfdi t im can be offset with

the availability of primary surplus, and the debt becomes sustainable if the debVGDP

ratio does not increase i.e. when gx .

Equation (10) is consistent 4 t h Ajayi 1(2000), who showed that the i-esource gap can

be sustained indefinitely if a constant debb'export ratio is maintained. Using a simple

but dynamic growth mde l , he found that increasing interest rate has a large impact

on the interesdexport ratio and resource transfer. Dornsbusch and Hefmers (1988)

have equally shown that if there is a sudden drop in world seal interest rates, ~tnd

growth in world trade is maintained, with no trade protection, external debt could be

sustained.

A government that persistently runs large fiscal deficits, financed through the

creation of high powered money would generate inflationary terrdencies and put

pressure on the interest and exchange rate, thereby causing a misalignment of both

which coufd result in an internal acd exfernal disequifibriurn. Financing government

deficits through the banking systm therefore, crowds out the private sector from

sourcing funds in the banking syskern in- favmr of the former. It is the continued

disequilibrium in the macroeconomy that lends credence to resort to external

borrowing to support the financing gap. External borrowing therefore, is a useful

mechanism for bridging shot-t and medium term resource gap as well as financing

long-term capital formation in the economy. However, if well harnessed, it coufd

stimulate growlh and sustainable development; othenvise, it could result in

unsustainable levels of debt servicing obhgatrons.

The public debt psrtfolio is the largest finartcia1 prffolio in any country, and it

contains complex and risky financial structures that are capable of generating

substantial risk to the government's balance sReeZ and the country's financial

stability. In line with this, the Financial Stability Forum (2000) on Capital Flows

cautioned that there was the need for governments 20 limit their buildup of liquidity

exposures and other risks that make their economies especially vulnerable to

external shocks, In most devekping countries however, acute resource shortfalls

make such exposure inevitable. However to ameliorate the effects of these

exposures and avoid contagim effects 07 vulnerability of the private secfw- to

liquidity crises, sourld risk management by the public sector is essential for risk

management by other st?ctars of the economy. Coherent debt management

structures therefore, help governments reduce their expasure to most of these

perceived risks.

However, excessjue reliance rm exfernal debt as a fwrn of financing could lead to

exchange rate andlor monetary pressures if investors become reluctant to finance

the government's foreign currency debf. By reducing the instability nsk of

government's portfolio management on the private sector, prudent public debt

management, coupled with sound policies for managing debt can make countries

less susceptible to the risks associated with external debt. However, debt crises

often arise from poorly structured debt in terrns of maturity, currency, or interest rate

composition and large unfunded debt liabilities. For instance, the volatility of real

interest rates in the 1980s and accompanying shocks arising from the global

recession created adverse terms 07 trade and compounded the debt problems in

most countries. Beside these specific instances, debt problems could worsen

irrespecfive of the exchange rate regime and the structure of the debt, especially,

when the government focus on excessive cost savings associaled with large

vohmes of short term floating rate debt, thereby exposing the government budget to

changing financial market conditions, h c l d i n g changes in the country's

creditworthiness, whenl the debt has to be rolled over due to payment difficultim.

2.2 Empirical Literature Review

Nigeria and Ghana, like most developing muntries, have experienced large

financing gaps and persistent fiscal deficits, due ta dwindling capitaf inflow, a& poor

macroeconomic performance, since the 1980s. Pofitical and economic antecedents

constrained their choice of financing options, and restricted them to ?he more readily

available debt sources. These financing sources have not h e n t m effective due to

poor utilization of loans. Although the borrwirtg capacity should have been

governed by the level of foreign capital the eoomies could efliciently absorb,

borrowing was done more for balance c.f payments support, to finance current

consumption, than for augmenting the domestic savings-investment resource gap.

This mated a mismatch beween savings and investment, resulting in substantial

debt servicing problems.

Consequently, the twc> countdes ran substafitial frade arrears in the 1980s due 20

their iflsolvent positions. Insolvency as shown by Ngassam (1992) is a condition

where the value 05 a country's liabilities exceeds the ability to pay. it may also mean

that the real Interest rate on the marginal k8an had exceeded the increase in national

income made pssiWe by this ban (Aliber; 1980). A country is insolvent when it is

incapable of servicing its debts in the long run (Eaton and Taylor: 1986). The tw6

countries were mfronted with a solvency problem when persistently rising debt

obligations were not matched with expod growth. The Debt SfbcklExprts of Goods

and Services, and Debt StockflGDP measures of solvency m Nigeria and Ghana are

pe~petually high indicafing an overwhefming burden of debt over exporfs and output.

Debt management strategies in Nigeria and Ghana are anchored on the need 20

sustain democracy, reduce poverty and stimulate economic development, through

drastic reduction in the external debt stock. The major thrust of the policy involves

the regularization of relations wifh the international financial community to pave way

for constructive engagement in negotiations with mternational creditors represented

by the Paris Club- The strategy was to afford s favorable riegotiation of terms of

debt rescheduting and restructuring under traditionat debt relief rnechanisrns in the

short run, and in the long run, secure a mare substantive and comprehensive debt

feduction. The initial successes in implementing im;lc~lecsn~lrnic and structural

reforms supported by an IMF Stand-by arrangement, paved the way for further

discussions with the Paris Club m sovereign debl restructuring, and for the World

Bank Assisted HIPC Programme far Ghana.

The success of debt management strategies therefoe* is underscored by the

compelling need for a sound and efficient capital market, to fake care of debt market

crises, Although the debt management strategies may not be sokfy responsible far

the debt market crises, the maturity structure of the deW, currency composition sf

the portfolio, interest rate structure as well as other obligations of government in

respect of contingent liabilities may precipitate a crisis. Besides, even where sound

macroemnornic pollcies exist, risky debt management practices may increase the

vulnerability or the economy to economic and external financial shocks. The

common risks are Mgthening the maturities of browings and paying the

associated higher debt servicing costs, adjustments in the amount, maturity and

composition of foreign exchange reserves, and by reviewing the criteria and

governance arrangements of contingent liabilities.

Risky debt structures have been traced to inappropriate economic policies-fiscal,

monetary, and exchange rate. Sound and effective debt management strategies are

not a panacea for sound macroeconomic pdicies. It only reduces suscept~bihty to

the contagion and financial risk through its catalytic role for broader financial market

devefoprnent and financial deepening which a debt market crisis induces. Thus,

good macroeco~ornic environment does dot prevent a debt crisis. Greenspan

(1999) has shown that developed domestic debt markets could be a substitute for

bank bans when this source dries up, thereby helping the economy to weather the

shocks. Sound Debt management therefore, is the establishment and execution of a

sfrategy for managing a country's debt inorder to raise the required amount of

funding to achieve its risks and cost objectives, and to meet other anciflary debt

related goals such as the reduction in the overall quantum of debt, providing a

breather for development ta occur artd maintenance of an efficient government

securities market. The broad policy goal for debt management however, is the

attainment of debt sustainability, through stimulating growth and povefly rduct im.

The overall objecfiue of debf reduction is not to create lower debt levels, but to

reduce debt servicing t4 levels which heavily indebted poor countries can afford, and

to provide them with a means ta address immediate social and developmental

needs, such as primary health and education.

The yardstick fw successful deb? management is the progress made an reducing the

quantum of debt to free resources for domestic investment and inlrastructural

development. The key requirement for maintaining debf sustainability is the ability of

the debtor country to funy m e t current and future debt service obligations without

recourse to debt rescheduling, or accumulation of arrears. The cmrnonly identified

indicators of external vulnerability include high: Oebt StmklExports of G o d s and

Services, Oebt StmWF~eign Exchange Cash Flow, Debt StocktGDP, Debt

Ss~ce/Exports OF Gouds and SeMces, Debt ServicdForeign Exchange Cash Flow,

and Debt Service/GDP ratio.

A number of debt management initiatives including the HlPC Initiative, Paris Club

Debt Rescheduling, Buy-Back Operations of the par bnd, etc,, have been adopted

by Nigeria and Ghana to stern the threat to growth posed by rising proportion of debt

due for servicing, and the spate of rescheduling of contingent debt payments. The

debt management initiatives target the achievement of three key objectives

including: a reduction in the size of existing stock of debt and the redefinition, of the

terms of its repayment; (ii) the country's fiscal and external repayment capacity 0.e.

growth in income, exports and fiscal revenues); and {iii) the growth, composition and

terms of new external financing. The Net Present Value (NPV).of Debt can be used

to calibrate differences in borrowing terms. However, if trade access is not improved

and capital flows remain at their present low level, little can be achieved in reducing

the quantum of debt and achieving growth in highly indebted developing countries.

The resort to debt rescheduling by creditor countries to provide a breather to debtor

countries in the present for future payments is defeatist, amounting 10 postponing

current servicing difficulties to future generations. Debt rescheduling as a debt

management strategy, Involving the extension of original repayment schedule on a

particular debt, imposes restrictims an the volume of future borrowings over a

specified number of years. For highly indebted countries, this phenomenon has

indeed become a fact as non-compliance with conditions of rescheduling.

agreements erodes the credit worthiness of the country in breach. In 8 way, the

thinking by Boyce and Ndikumana I(X7DO) that debtor countries in the aggregate are

net creditors to Industrial countries, havirig paid in excess of what they fmrowed,

appear to be fast gaining ground.

The IMFNVofld Bank in analyzing debt sustainability in highly indebted poor

countries ignore the human aspect or debt servicing, not minding the deprivation of

access 10 public health services which debt servicing entails on the meager

resources ol' these countries. This is beca~lse Both the Fund and World Bank's

approaches have been shown to be protective of the interests of €Re rich creditor

nations to the detriment of the poor and highly indebted countries. For instance,

under the 'Korean Bailout Operation", acting through creditor nations, an IMF

brokered deal f m d the Korea government to guarantee the payment o l bad debts

owed by private Korean banks 10 private US, European, ami Japanese banks. In

effect, Korean citizens were paying billions of dollars in taxes so that their

government cou!d satisfy !he 1MF deal. This arrangement and several others like it,

have portrayed the IMFMlortd Bank as agencies in the hands of rich ceditor

countries designed to shield tax payers in ?Rose countries about fhe poverty

ravaging poor debtor countries.

Sawada (7994 modeled debt sustainabnity amongst heavily indebted countries,

which were undergoing Fund-supparted programs of debt management, using their

current account balances. He showed that if the series exhibited a unit root, then,

the solvency condition was met whether the series were co-integrated or not. The

countries used in the study were heavily indebted poor countries of Latin America

whose export sectors had become frozen due to high capital flight arising from their

high risk perception. The disinvestment in these economies weakened the external

sectors which became ummpetitive, and therefore, incapable of generating the

trade that was needed to guarantee the income to counterbalance the heavy

withdrawals from debt servicing. Sawada's results indicated that these countries

were insolvent. Hamilton and Flavin (1986), and Greiner and Semmler (1999) used

discounted debt to test for sustainability. Employing tests of stationarity o v e r the

discounted debt factor using the Dickey-Fuller kests far unit roots as wdl as

restricfed and generalized Flood-Garber tests for statiomrity (with US data Tor 1960-

79811, he fwnd that the US fiscal operations for the period had a long-run

sustainable path, despite systematic budget deficits. The results indicated that

countries with significftilt trade and export sectors may no7 have a debt sustainability

problem even with prolonged fiscat deficits.

Ponta (1996) tested m-integration between net external debt and trade balance for

Brazil using quarterly data, while Rocha arid Bender (2000) used annual exports and

imports including net interest rates for Brazil, both employing cs-integration

techniques found bng-mn fiscal unsustainabls path for BrazJ. Brazil at the time was

undergoing Fund sponsored structural adjustment programme and World Bank

assisted debt management programme. Tule (2002), employing an ad-mixture of

the Sawada (1994), Hamilton and Flavin [1986), and Wilcox (19891 models derived

the basic accounting idenfity for Nigeria. The results indicated that even though the

country was at various stages of debt restructuring with the active suppat of the

IMF, the country's external debt was unsustainable. Jayme (2001) using data for

Brazil inter-married the stationarity test and ccrintegrating regression's apprcrach,

varying the external sector performance indicator dependent variables. He obtained

results indicating unsusfaimbility of Brazil's external debt.

Frankel and Rose (1999) have demonstfated that a 1 per cent increase in the ratio

of trade to GDP raises income levels to between '/2 and 2 per cent. Thus, by

stimulating trade growth, a positive impact on debt sustainability could be created

because empirical evidence suggests that a one-to-one relationship exist between

higher incomes and growth (World Bank: 213021. However, debt financing canstrains

the scope of available choices and limits n:source flow to social sectors as well as

the capacity and ability to expand the frontiers of trade and exploit technological

appxtuniiies available in other countries.

The HIPC initiative is the first most mrr,prehensive approach to external debt

reduction for the mast heavily BndeWed pocr countries was proposed by the Wortd

Bank and the IMF, and acceded to by governments in 1996 as an overall framework

for poverty reduction. Though it yielded initial dividends in its earlier years, in more

recent times, the stake holders have been engaged in a volley of dissenting views

on the efficacy of \the initiative to reduce poverty. A major review in 'I999 was

expected to prduce a deeper, broader, and Faster HIPC but it failed to make

meaningful impact on the stock of debt. The first stage of the HIPC is that a country

establishes a t h e e year track record of gmd performance and develops together

with civil society, a Poverty Reduction Strategy Paper. In the Second Stage, the

country needs a second track record by implementing the policies determined at the

decision point. At present no cauntry in the subregion has reached a completion

point.

Debt management through the HIPC Initiative is constrained by two major factors:

first, the vicissitudes of international cmmodib market mean that HIPC's chief

performance critwion-the expotddebt ratios cannot be a reliable indicator for

ascertaining debt sustainability. Secondly, !he pograms reliance on a narrow

conception of debt sustainability is vat coherent with the broader poverty reduction

objectives as defined by "re Wodd Rank (2001) )'a country can be said to achieve

external debt sustahability if it can meet its cwrent arxl future external debt service

obligations in fufl, without recourse to debt rescheduling or the accumulation of

arrears and without cornprnmising growthw.

The poorest countries which are only eligible for highly concessional assistance fmm

the IDA and from the IMF Poverty Reduction and Growth Facility (fo~medy the

Enhanced Structural Adjustment Facility) and the only ones which qualify for the

facility. It also intruded countries that face an unsustainabte debt situation even

after the full application of traditional debt relief mechanisms. In the original HIPC,

debt reduction was calculated on projections of debt stock at the completion point.

Under the enhanced HIPC, countries who cannot achieve debt sustainability at the

decision point were estopped from benefiting under HIPC starting at the decision

point. Relief under the new framework was based m actual data at the decision

point. The modification was expected to add certainty to the calculations and

increase the amount of relief actually provided since rnost countries will reduce their

debvexport and debthevenue ratios between the decision and completion points.

Creditors shared the cost of HIPC assistance based on broad and equitable burden

sharing, and provided relief that was proportional to their share of the debt after full

application of the Iraditional forms of debt relief, which provided a 67.0 per cent

reduction on efigible debt.

2.3 CLASSES OF EXTERNAL DEBT

2.3.1 Paris Club

Paris Club debts are government-togovernment credits or market based term

loans, which were guaranteed by various Export medit Agencies of the ceditor

countries. The Paris club is a cartel of creditor countries that provtdes an informal

forum where countries experiencing difficulties in paying their official debt meet

wlth the creditwe to reschedule the debts. It is an informal group with no

bpermanent members, which works under the principle of consensus, Paris dub

member countries, to which Nigeria and Ghana are indebted to include: Austria,

USA, Switzerland, Germany, Denmark, Italy, the Netherlands, Japan, the U.K,

Spain, Israel, France, Belgium, Russia and Finland. The total amount owed to

members of the Paris Club as at December 31, 2003 amounted tw US$22.092

billion [see Table 10).

A failure to honor contingent debt obligations to the Club undermines the ~ ~ n t r y ' s

efforts at obtaining debt relief over the medium term. Also, such failure results in

denial from obtaining credit facilities by exporc credit agencies, as they do not

provide cover and risk guarantees to countries in default of debt service payments.

This leads to increased cost of business as all transactions have to be backed by

cash cover. The Paris Club members to which Nigeria is indebted to include:

Austria, Belgium, Denmark, Frtiand, France. Germany, Israel, Italy, Japan,

Netherlands, Russia, Spain, Switzerland, UK a d USA.

2.3.2 Multilateral Debts

Multilateral Debts constitute the second category of debts owed to international

group of creditors. These are project bans owed to multilateral financial institutions

@.g. the Wodd Bank Group, IFAD, and ECOWAS Fund) by federal and

regionallstate governments, and their agencies. The total amount owed to

multilateral Institutions as at December 31, 2003 was U5$2,797.87 million. Debt

sewice payment to t h m in 2003 amounted to US$491.48 (see Table 10).

Non-Paris Club Bilateral Debt

Another category of debts is the [on-Paris Club Bilaferal Debts. These are debts

owed to countries, which are not members of the Paris Club of Creditors resident

in Paris Club countries but whose debts are not Insured by the Export credit

Agencies. The amount owed to this category or cred~tors was US$121.21 million

as at December 31, 2001. Debt service payment in 2007 to them was US$33.81

million (see Table 10).

London Club Debts (Par Bonds)

The final category of debts is the commercial debts, properly so called. They

have been packaged into two groups. The first group is lowed to the London

Club. The London Club is a group of commercial banks that join together to

negotiate the restructuring sf their claims against debtor countries. London Club

debts are arrears of commercial bank term loans. They also include some

arrears of letters of credit, bilk for collection, open accounts, dividends, airline

remittances etc. Tbe debts were consolidated in 7997 and amounted to

U5$5.4376 billion. Out of the stock, the term loans contracted by the central

government and the arrears d the non-term loan c m p n e n f s were bought-back

iri Jmuay, 1992. The podion bought back accounted for 62 per cent of the

stock, which was bought at 40 cents to the dollar. The remaining U5$2,043.8

million (made-up of regional/state government's term loans) were collateralized

with US treasury zero-coupon bonds maturing on November 15, 2020. The

holders are being paid interest at 6.25 per cent per amurn that is, about

US$128million up to December 2002 when about 30% sf the stock was bought

back in a buyback market intervention.

Promissory Notes

The second group 06 commercial debts is what is now called the Central Banks'

Promissory Notes. These were trade arrears contracted by ordinary citizens,

between 1981 and 1986 but who deposited the local currency equivalents or the

cost of their imports, through their local banks with the central banks, which in

turn had no foreign currencies with which to make the remittances. This is why

the promissory Notes were now regarded as central governrnents"dbt. The

arrears were finally covered with. Promissory Notes (PN's) in Januav 5 , 2010.

The outstanding balance aP the promissory Notes as at 'December 31, 20011

wasUS$T,291.78 minion. Annual debt service on the pmrnissory Notes is about

WS$200 million.

2.4 Profile of External Debt in Nigeria and Ghana

2.4,7 Nigeria

Nigeria's current debt profile consists of a significant portion of arrears of principal,

interest, and late inreresf, which had been consolidated to form the principal

balance. The consolidation exercise with the Paris Club Agreed Minute of Gcbber

13, 2002 increased the debt stock to 1)5$28,274.0 million, including principal arrears

of US$f 0,XJO.O million, interest arrears of US$4,400 millim and rate interest arrears

(being interest charged on defaulted debt service payments) of USS5,tOO.O million.

Nigeria's debts are either official or private, with official debts comprising multilateral

debts, Paris and Non-Paris Club debts. Private debts are traced to uninsured short-

term trade arrears by medium; of 'bills for collection, open accounts, and Obmmercial

bank debts by loans and letters of credit (London Club Debts).

The provisions of the post independence External Loans Act, 1962, authorized the

Federal Minister of Finance to raise external loans for purposes of financing

development programmes and for on-lending to states in amounts not exceeding

N600 million in aggregate. This Act was amended in 1965 to include authorizatim in

any manner by the President. The External Loans (Amendment) Decree No. 30,

7978 raised the upper h i t to N1, W0.8 rnilliorl. Thus, Nigeria, from independence

to 1977 had a three digit outstanding debt stock. In spite of political and civil unrest

which culminated in a thirty m n t h civil war, external bans commitment was modest.

The post war reconstruction efforts were blessed with the massive influx of petro-

ddlar in form of the oit boom. Thus, there Nas no significant cause to increase

external loans.

By 1980, outstanding debt stack was US$6,469.4 million, and these debts were

contracted at significantly low Interest rates when the London Inter-Bank ordered

Rate (LIBOR) oscillated between 3 4 per cent. This rose to US$22,907.4million

in 1985, and rose further to US$3€ir435.0rnillim in T990. In 1995 government

had increased borrowing plus arrears OF rescheduled payments thus increasing

the outstanding debt to US$34,417.8million. This was traced to indiscriminate

acquisition of term loans and trade arrears, not considering the eflcient servicing

of the ensuing debt and its management. After several reschdulings, the debt

stock reduced to US$29,988.0 in 2000. However, arrears on rescheduling and

interest capitalization increased the debt stock to US$35,374.74 bebre a Paris

Club deal was to give a debt fwgiveness of 'US$1B.Obillion in exchange for

immediate settlemen! of US$l2.0billion.

Between 1970 and 2003, Nigeria's external debt grew €11 an average of 22.8%

per annum. The phenomenal increase beheen 19713 and 1980 of 961.9%

signified Nigeria's entrance into the commercial club of creditors for borrowing.

Thereafter, external debt for the half decade period grew at a declining rate but

peaked in 1985 with a growth of 107.4 between 1980 and 1985. Between 21301

and 2003, an absolute decline of 23.4% growth was recorded, but increased

again from 2004 before the dea'l with the Paris Club in 2005.

Composition of hligeria's External Debt

2.4.1.1 Multilateral Debt

This category of debt is owed to The World Bank Group comprising International

Bank for Reconstruction and Development (IBRD), the International Development

Association (IDA) and the International Fund for Agricuhral Development (IFAD).

Others include the African Development Bank (AfDB), the African Development

Fund (ADF), the ECOWAS Fund, the European International Bank {El€!) and the

European Development Fund (EDF). In 2001 and 2003, Nigeria owed the World

Bank Group comprising ISRD, IDA and IFAD, US$11,490.7,621.0 and 30.15 in 2001,

and US$1200.9, 786.97 end 25.17, in 2803, respectivefy. Whereas the stock of debt

had decreased for IBRD, it actually increased for the others. Except for the

ECOWAS Fuwi whose stock of debt had rfeclined, Nigeria's debt liabil~ties to the

AfDB, ADF, El0 and EDF increased Worn U5$459.78, 61.0, 24.48 and 107.71 in

2001 to US$715.15, 158.17, 15.44 and 138.68, in 2003, respectively (Table 10)-

The implicatioo Is tha4 even the stack of .Nigeria's most concessionary debt

increased in volume.

2.4.1.2 Paris Club Debt

Nigeria's Paris Club Debts are classified into Resohedu'ted Agreement 111 and

Agreement IV reprofiled debt, balance of arrears, deferred post mt-off and 5.5 per

cent deferred moratorium interest debts. The Agreement llrl debts constitute

rescheduled commercial and Official Development Assistance (ODA) debts of

U.S$1,256.47 and 17.20 in 2001, and US$1,253.08 and 24.66 in 2003, all composed

of commercial and ODE debt. The commercial reprofiled debt was US$2,172.12

and 1986.88 in 2007 and 2003, respectively. The OOA debt which was nil in 2001

rose to US$17.68 in 2003. The balance on commercial arrears mse from

US$? 6,711.93 in 2001 to US$Z1,909.9 million in 2003, while the ODA which was nil

in 2001, rose ts US$172.13 million in 2003. Under the deferred post-cut OR date the

commercial and ODA had nil deM in 2001, but these rose to USS460.25 and 66.13

million in 2003, respectively (Appendix 1). Deferred commercial moratorium interest

at 5.5 per cent was US$1,062.74 in 2001, but this rose to USS1128.79 ir! 2003, while

the ODA which was nil in 2001 rose to US$4.64 million in 2003. Thus, Agreement 1V

rescheduling resulted in a balance of U5$21,220.39 and ISS$2?;024.I4 Total Paris

Club debts in 2001 and 2003, respectively. Wherl care is taken of the non-

rescheduled pre-cut off date, non-rescheduled cut-off date, Nigeria's total Paris Club

indebtedness mse to U5$22,092.93 and US$27,469.92 million in 2001 and 2063,

respectively. This constitutes 83.5 per cent d Nigeria's total external indebtedness

(Table 10).

2.4.1.3 Non-Paris Club Bilateral Debt

The Non-Paris Club bilateral debt comprise 2nd commercial and ODk debts. This

amounted to US$66.18millian and US$ll0.58milliorr in 20Q1 and 2002, respectively.

This however declined sharply to US$51.63 in 2003 (see Table 10).

2.4.1.4 Promissory Notes

Promissory Notes at US$1,291.78 million in 2001 rose to US$?,441.79 million in

2002 but declined to US891 1.39 in 2003 (see Table 10).

2.4.1.5 London Club

The London Club debts declined from V5$2,043.21 in 2001 to US$55.55 million in

2002. There was a sharp rise to US$1.441.79 in 2003. This constituted 4.38 per

cent of Nigeria's debt stock in 2003 (Table 10).

Nigeria's efforts to secure debt reduction for instance, necessitated the

establishment of a Stand-By Agreement (SBA) with the International Monetary Fund

(IMF) which ended m June 2001 following the country's inability to produce urgent

improvements in the living slandards, due to government's inability to meet

economic reform benchmarks as required by the SBA. The inability to fully

implement the economic reform agenda agreed with the Fund under the SBA led to

stymied discussions on debt reduction. The suspension of the SEA led to a &sure

of credit cover and other facilities for Nigerian investors by foreign creditors b be

lifted only under Fund guarantees. At the moment, Nigerian importers are required

to provide 100 per cent cash cover for all imports.

2.4.2 Ghana's External Debt Profile

Following several years ~f poor macroeconomic performance traced to wnomic

mismanagement, and complications introduced by the burdens of debt servicing,

Ghana urged by the IMF pursued arl Economic Recovery Programme (ERP) whose

main features were the adoption of structural adjustment policies between 1983-

1990, The intent was to reverse the declining trend in growfh which had been on in

the three decades following political independence in 1957. W~th the growth in

population at 2.5 per cent, and output growth at 2.2 per cent, Ghana moved from a

middle income to a low income country, helped by the country's failed import

substitution industrialization strategy which accumulated substantial external debt,

following the fall in comnx>bity prices. Thus plants and machinery were supplied

through short term foreign supplier credits. The reliance on these short term cred~ts

and the speed with which they were accumulated immediately created a debt

problem in post independence Ghana. Thus, from nil debts at independence,

external debts had amassed in form of supplies credits (80.0 per cent of the total

debt) to the tune of USfi600.0 million, whtch were due for payment at end-December

1965. Subsequent poor arcoa prices confronted the country with a phenomenal

debt crises , resulting in series of debt rescheduling between 1965-1 970.

With an economy that was largely dominated by agriculture, continued neglect of the

sector in preference to industrialization precipitated the phenomenal economic

declines of 1870-7982. Thus, the ERP was introduced in 1983 to restructure the

economy and initiate growth through stabilizing prices and maintaining a favourable

balance of payments position. Following complementary policies introduced under

the ERP, there was substantial inflow of external capital to back the programme.

While the structure of the economy to earn foreign exchange remained unchanged

despite the ERM, the increased inflow of foreign exchange was from concessional

lending, which invariably, increased the level of the country's indebtedness.

Since 1983, the structure of Ghana's debt has changed substantially From shod term

to long-term debt. Under the ERP. medium term debt became significant during ZRe

stabilization period, as its share in total debt increased and the share of long-term

debt decreased. Thus, the share ol: long-term debt fell from 45.0 per cent in 1982 to

33.0 per cent in j985, while that of medium-term debt increased from 18.0 per cent

to 40.0 per cent largely because of the increased use Ghana made of IMF credits

during the stabilization phase of the ERP, Consequently, private debt declined from

15.0 per cent in the total debt portfolio to 7.0 per cent in 1983-EM3. This

development significantly altered the structure of Gharla's debt profile in comparison

to Nigeria where commercial debt predominates. With the decrease in private debt in

the total debt portfolio, multilateral debt especially from the World Bank increased by

more than 60.0 per cent from I W ~ , and constituted more than 40.0 per cent of

official inflows. This was accounted for by impmvments in the terms of debt arising

from the successful anchoring of the ERP. Thus, f r m an average maturity of 29

years and a 6.9 year grace period, a 4.0 per cent annual interest, the terms of deb?

improved to 31 years maturity, 8 year grace p e W and a 2.8 per cent mterest rate

from 1990.

From 1990, Ghana has received substantial leveraging In her debt from creditors,

and the total debt had oscillatd between US$4,188.0 million in 1990 to US$6,883.0

million in 1998 when it peaked. Following the country% HIPC slatus, substantial

debt relief is expected with the country reaching decision point. The changing

portfolio of external debt is an indication or a shift in gavernment's external

borrowing style from short and medium term to b g term finarcing (see Table 17).

The severity of Ghana's external debt problem could be seen in :he size of the:

current debt service and the recurring debt service payments, The rapid expansiw

in the size of the debt relative to income growth portends problems for external

finance inflow for the country's growth. Hgh debt service means a sgnificant portion

of the country's exports from cccoa and precious metals is consumed by debt.

thereby limiting the country's abiltty lo import g o d s and services. The ratio of public

sector debt to GDP at 163 per cent in 2003 and interest payment on externa! debt

accounting for 26.0 percent of government revenue, Ghana's external debt still

constitute a significant prtim ~f the budget, thus limiting domestic investment

The size of the current debt and debt service payments is compmnded by pavefly

and serbus structural weaknesses of the economy. The weaknesses are shown in

the absence of diversified expod base, which make it difficult for the economy to

adjust to changing global economic conditions. At 2.5 per cent annual growth, the

rising population makes it difficult to achieve high per capita income growth with

debt. Ghana's public and publicly guaranteed debt is estimated to have reached

US$6,000.00 million at end-December, 2000, including arrears of US$81.0 million.

This amount consist of bilateral arrears still outstanding at the time the country's

Debt sustainability analysis was done by Ghanaian authorities and staffs of the IMF

and the World Bank in 2001. Of the outstanding arrears, 68.0 per cent were owed to

the Paris Club, 4.0 per cent to Non-Paris Club official bilateral creditors, and the

remaining 28.0 per cetlt to comnercial creditors.

The net present value (NPV) of the debt amounts to US$3,900.0 million, being

equivalent of 571.0 per cent of central government's total revenues, 157.0 per cent

of total exports of goods and non-factor services, and 78.0 per cent of GDP. The

NPV of debkxpwts was measured usmg the backward-looking three year average

of exports of goods and services. The NPV of debt-revenue ratio in the base year is

based on a conversion of 2000 government Evenue at end-December 200a

exchange rate.

Multilateral creditors account for 50.3 percent of the ~veral l NPV of debt before the

full use of traditional debt relief mechanisms with IDA, the AFDB!ADF and the IMF

accounting for some 35,7 per cent, 6.0 and 5.1 per cent of the total debt stock,

respectively. Whiie the Paris Club creditors represent 37.9 per cent of Ghana's total

outstanding debt, the non-Paris Club creditors represent 1.5 per cent. Commercial

debt accounts for 10.2 per cent of the public and publicly guaranteed debt. Of the

commercial debt, Korean creditors account for 36.0 per cent of the NPV Before

traditional relief, with UK commercial creditors accounting for 25.0 per cent, and

those in the Netherlands and South Africa accounting for 70.0 per cent.

Ghana's debt management lmder its HlPC status conferred on her certain privileges

of substantial debt forgiveness i f the country achieved decision point. Ghana went

through a tortuous route to receive debt cancellation under the HlPC initiative. The

reform programe in the country created social tension in the countty with some

western countries especially calling wr the country to truncate the prcgrame. f he

program was abandoned at the risk of an IMF embarga as the country could not get

donor countries to extend further lines of credit. The programme was restarted with

the aid of the IMF.

2.5 DEBT MANAGEMENT STRATEGIES IN NlGERlA AND GHANA

2.5.1 Guidelines for New Exfernal Borrowing

The broad objectives of external borrowing in Nigeria and Ghana have remained

largely the same since the mset of the debt crises in the 1980s which necessitated

a definition of external debt policy in both countries, These have been identified to

include outlining strategies for increasing fweign exchange earnings and thereby

reducing the need b r external boirowing; setting out the criteria for borrowing from

external sources and determining the type of pr~jects for which external loan may be

obtained: outlining the mechanics for servicing external debts of tho public and

private sectors; and articubting the roles and responsibilities of the various organs of

the central and regional gcavernmerlts as well as the private sector in the

management of external debts.

Nigeria

The more specific borrowing requirements which came into effect in 2001 during the

period of the stand by Arrangement, and which have been fine-tuned from time to

time depending on contingences in each country could be summarized to indude:

Limiting borrowing to highly concessional sources only:

Bmrowlng costs for cmcessional funds should not exceed 1 % per annun?,

while the moratorium period for the principal repayment should not be less

than 10 years;

Conessionaf borrowing under terms and conditions above should be the

financing of poverty reduction programmes and infrastructural projects

on fy;

A ceiling of US$500 million should be maintained on externah borrowing

during the period of the SBA, taking into account t h e financing gap

identified in the document;

any b0~0Whg for economic activity should Be left lo the private sector to

undertake. Where feasible, governments and their agencies could source

for funds from internal domestic markets to finance such projects, to the

extent that this muld be effected without crowding out private sector

investments. cx increasing the cost of tarrowing from the domestic capital

markets; and

Eligible projects would Be assessed 00 the ba$is of mst-benefit analysis.

Park Club Debt Restructuring

Nigeria first approached the Paris Club Tar debt negotiation in 1986, meeting again in

1989, 1991 and 2000 to renegotiate the debt rescheduling agreements. In the 4'h

Agreement, Nigeria secured between 78-20 debt rescheduling, depending on the

category of the debt. Paris club negotiation under the Lyon Terms could offer debt

reduction of up to 80% in Net Present Value terms. Talks with the Paris Club,

resulting in afi agreement For rescheduling Nigeria's debt under the Houston Terms

were held between August and October, 2000.

The agreed Minute provided for rescheduling Nigeria's Paris Club Debts valued at

U.S$ZO,SOO million in 2000 over an 18-20year period. Official Development

Assistance Credits were to be scheduled over a 20 year period at cmcessional

interest rates and a ten year grace period, while commercial credits were

reschedufed over 18 years at market based interest rates, including a three year

moratwim. The agreement further provided for a capitalization of a moratorium

interest of US$S;,063.0 million. Consequently, it was agreed that debt service to the

club for year 2001 should be restricted to US$1,000.0 million so as to provide a

breather for the country. Following a series of bilateral reconciliatory meetings with

the fourteen members of the Paris Club, Nigeria's indebtedness to the club was

adjusted downward by US$537.1 million. The applicable interest rate for

rescheduling was negotiated to a maximum of 5.5% compared with the conventional

1 1-1 2.0%.

The Huston Terms on which the Paris Club rescheduling was consummated does

not lead to debt reduction but a postponement of servicing contingent liabilitres to

future dates. Thwgh the agreements contained a goodwill clause for possible

deeper negotiations with a possibility of debt reduction, it was contingent upon a

good tract record of implementhg the Stand-by-Arrangement, negotiation of a

follow-up medium term programme supported by the Fund, and satisfactory

implementation of the 2000 Paris Club Agreed Minute, including timely debt

servicing. Poor macroeconomic; peflormance forced governmert to suspend

servicing the agreed Minute and Stand-by-Agreement with the Fund in March 2002.

This diminished the prospects for Further dialogue with the Paris Club on debt

reduction within the agreed rules and framework.

2.5.1 -3 Bilateral Debt Negotiations

Following the Paris Club Minute, Nigeria has been engaged with negotiations with at

least 15 creditor countries on the specific details of each agreement on bilateral

basis. The negotiations essentially, focused on the final reconciliation of eligible

debt as web as bilateral negotiations on the specific terms of rescheduling the

eligible debts, including the applicable interest rates. Negotiations with these

countries have yielded good results with the signing of rescheduling agreements

with France (January 2003), Israel (January 2002), Switzerland (January 2002),

Germany (September 2002), Austria (December 2002): UK (March 20031, Spain

(April 2003), Belgium (August (2003), Denmark (September (2003), Japan

(September 2003), Netherlands (October 2003) and USA (September (2003).

Nigeria's debt negotiations focused on reducing the loan currencies making up the

debt portfolio from the current 15 currencies in the debt portfolio., adoption of fixed

interest rate for the entire loan period to reduce the adverse effects of interest rate

fluctuations on the debt stock, removal of interest on ODA facilities, extended grace

period of ?to 2 months on due dates before any penalty calculation may be made,

application of payments to offset principal scheduled interest before late

interestipenalties; provision for debt conversion to permit a reduction of the debt

stock while promoting investments. The agreed minute involved the restructuring of

Paris Club debts amounting to US$21,400 million over an 18-20 year period, with

moratorium of 3-1 0 years.

2.5.1.4 London Club Debts

Nigeria's London Club debt is composed of Promissory Notes consolidated in

January 1984, and Brady Par Bonds, which were issued during the January 1992

London Club Agreement. The private debt outstanding in 1953 was USS9,900

million. Government refinanced uninsured short-term trade arrears amounting to

US$4800.0 million and covered them with promissory notes between 1994-1998,

with a repayment period of 22 years and an effective interest rate of 5.0 per cent per

annum. The London Club debts include arrears of commercial bank debits incurred

through letters of credit after December 31, l98i'. In 1992, Nigeria restructured her

London Club debts by buying back 62.0 per cent of the debt at 40 cents per dollar or

60 per cent discount, and collaterizing Par Bonds for theremaining 38.0 per cent,

thus reducing the total debt stock by US$5,000.0 million. Defaulting on London Club

debts carries stiff consequences. Under the current terms, if promissory notes

payment is not received as and when due, credito,rs could attack the assets of the

Central bank of Nigeria and NNPC anywhere in the world, as Nigeria has agreed to

waive its sovereignty immunity under the terms of the agreement. In 1999, based on

current market conditions, Nigeria was adviced by a ' firm of international financial

consultants to swap Nigeria's Par Bonds and Promissory Notes with new global

bonds. The new bonds carrying higher yields, were more liquid and could have their

terms varied in future depending on market conditions. In deference to the IMF on

the likely effects of the commercial restructuring on Nigeria's negotiations with the

Paris Club, the transaction was suspended with intention to resume negotiations at a

latter date.

2.5.1 -5 Debt Conversion Activities

A debt conversion programme was introduced in 1988 to reduce the debt stock as a

basis for alleviating the debt service burden, stimulate foreign investment flows,

serve as an additional vehicle for the reparation of flight capital; and encourage the

creation and development of export base for the country. During 2000-2003, debt

worth S$150.94 million was redeemed under the programme. The aggregate direct

capital flows accruing to the programme amounted to US$21.86 million at end-

December 2003. The discount of debt at end-December 2003 was US$37.40

million.

2.5.2 Ghana

External debt management is the responsibility of the country's Ministry of Finance's

Aid and Debt Management Unit (ADMU), which also maintain a data base on all loan

agreements, disbursements and debt service payments relating to central

government or government-guaranteed debt. However, ADMU does not maintain

data on loans made to public enterprises where there is no explicit government

guarantee. The Bank of Ghana and the Ministy of Finance are jointly responsible

for the technical work relating to the granting 3f state guarantees. Government is

obliged by law to produce an annual report on the country's external borrowing

policies and the stock of debt.

The borrowing p i i cy is that new loarfs must [be sfrictly concessionat with a grant

element of not less than 35.0 per cent. This policy is applicable ts government and

parastatals bans with a government guarantee. In line with this policy, steps have

been taken to improve strict monitoring af the country's external debt in the light of

the contracting of mn-con-cessional loans under previous governments. ADMW is

therefore, the wlly entity authoilzed to contract or guarantee a r y form of

government-backed exfernal borrowing.

Ghana's baseline debt sustainability analysis stimulates the full application at end-

December 2000 of fraditional debt relief mechanisms, including a stock of debt

operation from Paris Club creditors on the Naples terms. This provided a NPV

reduction of 67.0 per cent on pre-cut off date on non-ODA debt, with comparable

treatment from all other oflcial bilatera! and cmmerciaf creditors. Ghana has never

benefited from a concessional rescheduling with the Paris Club. and has repaid all its

obligations on precut off date Paris Club bans. The cut-o?f date is January A , 1983.

Since 1983, the county has only had m e con-concessimal rescheduling, in 1996.

The agreement provided Tm a deferment of long-term ~utstanding arrears and pre-

1983 debts to Brazil, Italy and Norway. On other classes of offifjcia! bilateral debt,

only 11.0 per cent of the debt is considered to be eligible Tor rescheduling under the

existing framework. Consequently, traditional deb! relief mechanisms offer limited

relief An Ghana's case, reducing the country's NPV by m1y 0.9 per cent.

Ghana is one of few countries in which performing commercial creClits are eligible for

relief under the enhanced HIPC lnit~ative. The counfry has a dean record of largely

servicing her external debt, except for some difficulties encountered in 20001200 1 ,

Besides, some of the country's external bans are secured with substantial collateral.

Substantial efforts are currently on by the IMFIWoiFd Bank in discussions with some

commercial creditors on the possibility of enlivening the burden sharing approach

enunciated under the enhanced HlPC Initiative with a view to finding acceptable

means for their provision of assistance under the HlPC Initiative for Ghana.

Possible solutions are by way of direct relief by the creditors concerned or by

governments, or thrmgh prlvafization of the projects or cornpaflies in question prior

to completion p i n t .

Ghana's exfernal debt actually became unsustainable only in the 1990s. This was

traced to fiscal laxity and substantial quasi fiscal operations of goverflrnenflagents.

The burden of external debt was heightened by the mntinuous and large

depreciations in the value of the cedi against the dollar. Consequently, the share of

revenue devoted to interest payments peaked at 34.2 per cent in 2001. As Ghana's

external debt Is mostly long term coflcessional debt, most of current interest falls due

on domestic debt because it is short term debt. In 2002 for instance, interest

payment on external debt was 7.6 per cent of total revenue, whereas those on

domestic debt amounted to 21.4 per cent.

Ghana elected in 2000 ta apply for debt celief under the HlPC mitiative, overcoming

initial reluctance due to the country's hitherto good debt-servicing record. Ghana

reached the MlPC deckion point in February 2002 and reached the completion point

late 2004, when actual debt rMef was expected to be provided. As a result of HIPC,

the stock of Ghana's external debt was expected to drop by 60.0 per cent of GDP in

the medium term, fmm the $36 per cent at end-December 2000 level. The Paris

Club, following rescheduling agreements in December 2001 and May 2002, already

provides Ghana with interim debt relieP.

The continuous weakness of the export sectw in Nigeria and Ghana is a major

threat to externat sector balance, as the sustainabitity of a country's debt is closely

linked to growth of Ihe export sector. Cmsequentfy, debt management that does not

include export development programmes as an integral part of debt management is

likely to achieve little. Simonsen {1985), using the stabaity condition to examine the

relationship between debt sustainability and expart growth argued that if the rate of

growth of exports exceeded the interest rate on debt, a permanently positive

resource gap could be reconciled with a limited debt to export ratio- Trade growth

could improve growth prospects and deb! servicing capacity.

Nigeria and Ghana like most other African countries have gone through

numerous rescheduling arrangements involving a series of annual negotiations

and renegotiations that has virtually led to experiences with endless cycle of debt

rescheduling and have failed to alleviate the heavy debt service burden.

Traditional debt rescheduling has failed and the indebted countries still remain in

the debt trap. Indebtedness ratios continued to remain very high for Sub-Saharan

African countries as a whole. Debt stwk to export ratio and Debt stock to GNP

ratio remained wen above 200 per cent and 70 per cent respectively up to 1996.

This resulted in the launching of the HIPC initiative by the World Bank and the

IMF, which sought b place debt relief within an overall framework of poverty

reduction.

Ghana's debt sustainability will depend on her export performance. Ghana's

economy depends an the export of cocoa and gold, which account for about 50 per

cent of the country's export. Although a world recovery in the prices of cocoa and

gold by at feast 7 and 6 per cent, respectively across the projected period was

predicted by the IMF' for Ghana, while other exports were expected to rise by 8 per

cent, bringing projected improvement in the terms of trade by 25 percwt in 2005,

these predictions were seemingly unrealistic, particularly the 25 per cent

improvement in the terms of trade. The growth and exprt performance of HIPCs

has been heavily influenced by developents in commodity prices in world markets,

- L

I IMF Ckdsim h i n t DWU~T-VM~ fR'Ghana. Brelkm Woods Projecl Updates, Jan-Agril 2002 and MarchlApril2003.

and the average price index (in US$) for 24 HIPCS' actually declined in 2001. For

instance, the w&d price of coffee fell by at least 60 per cent during 2000 and 2001

alone.

Total governmenf revenue was predicted to increase from 21.2 per cent of GDP in

2001 to 22.4 per cent of GDP in 2003, but it never materialized. Real GDP was

expected to grow by 5 per cent, inflation to drop by 5 per cent and import volume to

grow by 5.7 per cent while government taxes were expected to grow by 78 per cent

in 2003-2005. These expectations remained best possible scmarios as they never

materia tized.

Global Initiatives on the Debt of Developing Countries

For many decades, creditor countries have relied on a "traditional approach"

towards addressing SubSaharan Africa's debt crisis. This has taken the form of

debt rescheduling and refinancing, complemented, in varying degrees, by minor

canceflations, especially for ODA debts; debt buy-back; debt conversion and

other restructuring mechanisms. In general, debt rescheduling was initially

negotiated with debtor countries on a case-by-case basis. This was however

replaced by a more systematic Framework that applied standard terms to debtor

countries and provided little concessbnality. African countries have been taken

through several arrangements, which have evofved lover time, For the resolution

of official debts, These are briefly reviewed Below.

The Venice Terms were introduced in 1987 for the poorest countries that were

undertaking adjustment. Several African countries benefited from this

rescheduling arrangement, which provided for lower interest rates, and longer

payment and grace periods.

'The Enhanced HlPC Initiative and the Achievement of Long Term External debt Sustainability-IDA, march 2002.

The Toronto Terms succeeded the Venice Terms in June, 9988 and were

made available for the low income, heaviIy indebted IDAmIy countries. Some

African countries including Ghana, benefited from tths arrangerneat, which

provided lower interest rates, further lengthening of maturities and partial debt

service write-offs that together could provide about 33 per cent debt service

relief.

The Houston Terms were proposed in July, 1990 for the middle-income

countries and allowed far deferrals of payments, rather than debt reduction.

Nigeria's debts have been rescheduled four times undw this arrangement.

The Enhanced Toranto Terns was formulated in 1991 to provide 50 per cent

debt service reduction as well as other enhancements that could ensure mare

even spread of debt service payments.

The Naples Terms: This plan was adopted in December 7994 for the w r e s t

and most-indebted countries. They provided up to 67 per cent r e k f on the net

present value of the debt, which could apply to both stock and flows, depending

on each country's balance of payments situation. Ghana is a beneficiary under

this plan.

The Brady Plan: This plan, supported by official finance such as the IDA Debt

Reduction Facility (including debt buyback at a discount) involves debt and debt

service reduction. Both Nigeda and Ghana have benefited from this plan which has

been in existence for some time. Its benefits may include significant moratoria.

Debt Conversion Programme

This involve% the conversion of foreign debt into Iocal currency instruments for debt-

equity swaps and debt for development swaps such as debt-for-nature, debt-for-

health, and debt-for-education swaps. The conversion deals are associated with the

Paris Club, and the Brady Initiative. Both Nigeria and Ghana, arnongsl othzr African

countries, have implemented this programme.

The London Club of Creditors

This is a forum of all commercial creditors, which offers a me stop negotiation I

possibility. Under the auspices of the Pondon Club, some debt swaps may be i consummated as well as moratoria of up to 10-50 years negotiated, including a 1 ceiling on future rising interest rates.

Bilateral Debt Forgiveness

This is debt forgiveness based on special bilateral relationship between the debtor

and creditor. In 1994, following the devaluation of the cfa franc vis-a-vis the French

franc, France used this medium to forgive all arrears on ODA and half of future

maturities on debt of the cfa countries.

Commonwealth Initiative

"The Debt 2000: the Mauritius Mandate" was a debt initiatiue of the Commonwealth.

The UHCTAD Proposal

The UNCTAD debt proposal involves a comprehensive assessment of the

sustaina bility of poor countries debts with emphasis on human development indices

rather than financial ratios. The debt assessment which the initiative reccmmends

wnuld have to be carried out by a team of mutually agreeable but independen7

specialists in finance and development. The recomrnendalions of the group should

then be accepted by the creditors to ensure a true reduction in the burden of debt.

The European Union and the ACP Group

An ACP proposal to the European Union centered on the inclusion of domest~c debt

in the calculation of a country's total indebtedness in computing debt sustainability

under the HlPC Initiative.

The traditional debt relief efforts highlighted above have centered around a

nurnkr of key elements, including:

f i ) the requirement for admtion of macroemnwnic stabiliratioo and s!ructural

reform programmes endorsed by the Sretton-Woods institutions: and

{ii] the requirement for establishing a Crack record of econmic reform

performance before qualifying for debt relief.

The MIPC Initiative

The highly indebted p o r countries (MIPC) initiative was designed to reduce the

debt burden of the pores!, m s t heavily indebted countries to susfainabte levels

in exchange for better policies. HIPC-eligible countries that have received relief

under Naples terms were initially provided with 80% present value reduction

under the Lyons terms (or what is usually referred to as HIPC).

In order to qualify for debt relief under the HIPC initiative, countries were required

to meet certain criteria, including redassification by the World Bank as ail IDA-

only country; and the establishment of a strong track record in impfementing

economic and structural reforms- supported by the IMF and the World Bank. The

reforms necessarily include policies that aim at facilitating macroeconomic

stability and the resumption of real growth.

Under HIPC I, a country needed to implement rerorms for a b u t six years during

which a debt sustainability exercise is conducted. If the country's debt stock is

aver 200 fo 250% of total export or its debt service ratio is in excess of 25% after

the application ~f traditional debt relief mechanisms. then a decision would be

made by the Bretton-Woods institutions that the muntry should be entitled to

under the initiative. Actual delivery of debt relief would not come until after

additional three years 61 reform. However, while a few countries got to the

decision polnt under MIPC I, none secured actual debt relief under the

programme. The criticism of the length of time required to secure relief and the

unrealistic nature of the thresholds for considering the debt to be unsustainabfe

necessitated the replacement of HlPC I with the 'Enhanced HlPC programme or

HtPC II.

The Enhanced HlPC programme was adopted in Cologne in June 1999 to

provide "broader, deeper and fasterw debt relief. This also sought a tigllter link

between debt relief and poverty reduction through the requirement for the

formulation of a comprehensive Poverty Reduction Strategy Paper (PRSP).

Under the Enhanced HlPC initiative, the sustainability thresholds have also been

reduced from 200-250% to 150% for net present value of debt to expofls and the

debt service ratio to between 15-20%. In terms of the level of relief, this was

increased to 90 per cent reduction of non-concessional debts to facilitate

reaching new debt sustainability thresholds. The Cologne terms also a'lowed for

the write-off of ODA debts as well as retrospective relieP. About 55 African

countries, as k ted below, are eligible for debt relief under the Enhanced HtPC

Initiative. While Nigeria is classified as a HIPC, Ghana is so classified,

Considerable progress has been made by some of these countries ~n meeting

the criteria fw debt relief laid out under the Enhanced HlPC initiafive, including

the preparation for PRSPS (both interim and substantive). As af July 2002, 22 of

these Sub-Saharan African countries had reached their Decision Point, based on

progress made so far, which entitles them to receive interim relief. Out oP these, 5

countries have reached Completion Point, when debt relief is committed

irrevmably. The World Bank estimates that over time, the debt relief for all the

affected counfies would amount to US$33 billion or nearly USS-iS billion in

present value terms of the debt stock, bringing down levels of csverall debt

service requirement and pmviding opportunities spending in social seztor.

Despite the process recorded, there are still grounds for concerl about the

adequacy of the Enhanced HlPC initiative in addressing Africa's cushing debt

burden. There is the continuing concern that it excludes many African countries

(about 14. including Nigeria- Africa's largest debtor). The case of Ngeria is very

illustrative of the inadequacies characterizing the current eligibitity criteria for debt

relief. The eligibility criteria under the Enhanced HlPG Initiative focus onl

macroeconomic aggregates in assessing a country's debt burden. Arbitrary

thresholds are set for these parameters. Furthermore, little regard is given to

human and socio-economic development indices as proposed under the

UNCTAD Plan. Based on these economic criteria. Nigeria has Been adjudged

ineligible for relief under the HlPC Initiative. However, in sharp m t r a s t with the

illusory-image of an "oil-rich" country, Nigeria is a heavily indebted poor country.

A HlPC review, which embraces the so-called "medium-income" debtors, will

create the critical mass and momentum of economic activities across the African

continent. This will surely accelerate the recovery and growth proc-ess to the

mutual advantage of all parties concerned (Arikawe: 2003).

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Research Design

This study was designed to investigate the success of external debt rrranagement

programmes in Nigeria and Ghana. To do this. we considered that the hallmark of

debt management initiative was the reduction in the country's debt stocAq the debt

relief it brought and the long run sus:ainability of the debt Against this background

therefore, we estimated models that showed whether the debt in Nigeria and Ghana

had become sustainable after years of creditor-country sponsored debt management

initiatives. Details of our investigation procedures are outlined below:

3.2 Sources of Data

Data used in this study were obtained from country Debt Management Offices,

country Central Banks and the World Bank's African Development Indicators. These

were augmented by supplementary data from country Bureau of Statistics, the

International Monetary Fund's International Financial Statistics. Time Series Data

for the period 1970 to 2003 was used for the study. lack of data on some key

explanatory variables, proxies were employed for the purpose of the study. The

data were converted to quarterly series to ensure adequate observation of long term

effect of behavioral variables on the dependent variable. All data used were

secondary and represents the best available sources on the subject matter. This

however does not rule out the possibility of "same errorn in data arising from new

concessions and realignment, which is an on-going exercise between creditor and

debtor nations on external debt. These short comings served as a drawback ta the

study but did twt carnpmrnise the authenticity of the findings.

3.3 Method of Data Collection

Relevant data were extracted from publications of the Institutions indicated above.

No primary survey was conducted for the purpose of generating any data. Data

were also generated from existing variables using statistical and econometric

techniques.

3.4 Techniques of Data Analysis The data was subjected to structural check using the Chow Breakpoint Test, to

determine whether there was any structural break in the series or not. It was

clbsewed that a structural break in the debt stack occurred in 1985 for both

countries. Given the observed structural change as indicated by the Chow

Breakpoint test, we constructed an index with 1985 as the base year.

An Error Correction Methodology (ECM) was used to analyse the data. Tbe relevant

variables were subjected 20 co-integration tests to determine stationarity in the error

term. The Dickey Fuller (DF) and Augmented Dickey Fuller (ADF) tests for residual

stationarity were estimated with a view to capturing the tong run effects and short

run dynamics in the rnadefs. This was against the strength of the Null Hypothesis

that the error term is non-stationary l(1) in difference ta the alternative hypothesis

that it is stationary l(U]. Conversely, the tests were carded out to ascertain the Null

Hypothesis of the absence of cpintegration against the alternative hypothesis of ce

integration of the explanatory variables. The Auto-regressive Error Correction

Estimation Technique was applied to improve the results of the models. The dummy

variable regressions approach to test the structural stability of the model over time,

was used in preference to the Chow test. This was consequently used to verify a

variety of hypotheses. The ability of the dummy variable regressions approach to

explicitly identify the differences in the coefficient, intercept, and the slope makes it a

preferred test to the Chow test. The debt models were then estimated to ascertain

the impact of the explanatory variables on the dependent variable. The exnometric

package employed in the estimation was EViews 4.1.

3.5 Specification ~f the Model In testing for debt sustainability by countries at various stages of debt management,

McCombie and Thirwall (1994) used the Balance of Payments constraints to

economic growth approach while Greiner and Semmler (1999) tested fo- unit root or

stationarity of discounted debt. Luporini (2000) replicated these methodologies for

Brazil and found results which indicated unsustainable debt in the lone run, Ponta

(4996), Carneiro (2997), as well as Rocha and Bender (2000) who used data for

domestic debt and similar methodology and obtained equally challenging results that

Brazil's debt was unsustainable. However, Jayme (2001) intermarried the

stationarity test and co integrating regression's approach, varying the external sector

performance indicator dependent variables in the process and obfained; results

which indicated that Brazil's external debt was unsustainable.

Rocha and Bender (2000) used the Required Trade Surplus criterion to measure the

current account as a pmporlion of GDP, exchange rate dynamics, the contagion

effect, or the excess of short run capital flows, and thus, indicated the path of bng-

term external debt sustainabifity. Consequently, employing this approach, we can

evaluate the effects of current account imbalance using the required trade surplus

indicator of the form:

DM = (7 +rt)Dt - TBt ...................................................................... ('w Where: Dl = The External Debt

rt = Interest rate

TBt = Trade Batance

Dividing equation (I) by Y , i.e nominal GDP, we have equation (12)

I + = ( 1 r - tB ................................................................. ( 7 2)

with small letters representing a pmporticn of GOP given as g. Transforming equation 12, we have:

(-I+@ dt+l = (l+r,t)d, - tbt ........................................................... .(13)

However, as shown by Rocha and Bender (2000), if the OebVGDP ratio is stable,

then di+, = dt, implying that tblR = (rt - g) dt, which is the Required Trade Balance.

The required trade balance is the trade surplus compatible with a stable OebtGDP

ratio over time. The difference between the required trade surpfus and the observed

trade balance is the balance of resource gap.

Following from equation (13, we estimate equation 14 where 'b' is a vector of

parameters to be estimated, 'a' is the intercept term, while 'U' is the stochastic error

term. While we define MM = Imports of Goods and Services plus Net Interest

Payments, the elements of the vector MM are defined as:

X = Exports of Goods and Sewices

TR = Net Transfer Payments, while

RE = Net External Reserves

The testable equation is of the form:

Ext = a + bMMt + Ut ...................................... ........ ............................ (14)

But MM = MI + rDt-l ....................... .. ............................................................... (1 5 )

Where:

M, = Imports of Goods and Services

r = lnterest rate

Dt = Debt Stock

Exl = Current account sustainability

Given the elements of the vedor MM, equation 11 5 can Be expressed as:

Ex, = a + b,Xt + b2TRt + b3REt-, + e.. ................... .. ..... .. ........................ The basic assumption is that both the stock of debt "Ex; and the sustainability

indicator "MMP follow a random walk with drift. Alternahely, both series are non-

stationary processes and Rave an intercept. If therefore Ex, and MM are non-

stationary processes, then our null hypothesis is that MM and fq are cointegrated

and that b = 1. Rocha and Bender (2000) have shown that when b = I, then, the

requirement for sustainability is achieved if both series are cointegrateci. This is also

the solvency condition. When b< l . the debt is unsustainable.

Thus, we estimated Equation 14 as:

Exl=a+u,D,+aZDpf a i (MMt) + U, ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Two Dummy variables (D, and Dp) were used in equation (18). For the dummy

variable (D,) with value of "7" for HlPC and "0" for Non-HIPC coc~ntry was

introduced to take care of the effect of HlPC concessicms on the debt stock of

Ghana. The dummy variable (D,) was used to indicate whether the period referred

to was pre-1985 "0" or post-1985 "-I".

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

Serial corretal~m was identikc1 as rndicated by the n\fl;r' ~ t a t l ~ t l ~ In ';ja:lr:

cstimatlorss. Conseqilently, we rl?-specified equr-il~on 1 R for \mth COI,III[[I?S W!!I-I flip

ARMA ( I term to correct this pruhkm fi d ~ s q g r I~~..~IICIII d ~ l w \row z111 !%!; :::m:.:n:~

appeared tc have yielded no sqisrfrcai~! f txp larmm nf the behz~'10111 i l l V!III.:II;I 5

debt stock as the debt structure did no! alter siqnii~cant\y after 1990 Howwer. I~- I !+F:

case of Ghana. there was indication that the struct~~re of debt arltered d m In its I-IIPC

status. Consequently. the dummy varrabk (0,) dicl 1m1 behave sqnrf~c;>ntly In t h ~

madel in the case of Nigeria but was srgnlfrcant the _-c;~se ts f c?h;:r~a

The Durbrn Watson statistic for the stalrc and dynarmc cs',rinatiorls showed ev!do~il::p

of serial cnrrehtion at I .68 anC G 5.1 Cr~r Nigeria a n d Ghana I iowwer ! l i~s L~cI:~I~IF?T-I~

was corrected in the dynamic estrma tlon wit I1 the IIIC~LISIOII 0: AFMA I I ) RI>YOOCJ !I]!?>

point, we 170 Io~~ger reckon w ~ l h the size of the DW statistic. C30nsequsntly. s)e

achieved a DVV statist~c of 1.81 a i d I .89 for Nqet-la and Ghana, respectwely. after

the correc!ion In Che error coi recl~on nod el. DW v s s 1 46 a~\sE 2 5 5 fur Nrqi..:~ IFI ;il-~cl

Ghana. respec'lively. At this p.311-11 1 1 W;IS 110 I~s!'I(~~FII r ~ t ~ t + ~ s c l r y tu ; I ! 1I i1-1 SI,-:',I l a r , I!

the DLV stat~strc srnce its defklency had Iwsn corrected w~lh the AKhllk (1 ) Hr~v,evw !or

the avnlaance of doubts. we proc~eded lo appl:, the P;reimh - G~dfrey tes! far :;erral

correfatim in the residuals. Consequently, using the Breusch-Godfrey Lagrage

multiplier test for general, high-order, ARMA errors test, we found that the Residual

hrelogram-Q-Statistic was not significant at six of the 12 lags tested, indicating the

absence of serial correlation amongst the variables over a six year period.

Similarly, we applied the alternative to the Q-sta'istics test, the serial correlation LM

Test. It is an asymptotic Lagrange multiple (LM) test for serial correlation. It is a

highly recornmerrBM test for higher order ARMA errors i.e testing the possibility of

errors exhibiting autocorrelation, and is applicable whether or not there are lagged

dependent variables. The null hypothesis is that there is no serial correlation up to

lag order p, where p is a pre-specified integer. The test may have power against a

variety of autocorrelation structures Godfrey (3988). If the test indi~ated serial

correlation in the residuals, the LS standard errors were invalid and should not be

used for inference. Against this background, we accepted the rlull hypothesis of no

serial correlation up to order twa Thus, the Q-Statistic and LM Test both indicate

the absence of serial correlation in the residuals, lmplying that we can use our model

for forecasting and hypothesis a d inference testing.

4.2 UNIT ROOT TEST OF THE VARIABLES3

The Dickey-Fuller Unit Root Test was carfied out on all the variables to determine

the level uf their stationarity Ns unit root lest was carried out on tPe dummy

variables. The AOF Test for N~geria was conducted w~th a constant. The test wtth a

constant plus trend did not yield good result when used in estimating the model.

The results of the tests for both Nigeria and Ghana are shown in the Tables 2 and 3

below:

' See Appendix 2

Table 2

Nigeria: UNIT ROOT TEST OF THE VARIABLES WlTH CONSTANT r- . -. -- - - - - . -

As shown by Rocha and Benda (2000), i f the series are cointegrated, then, the

requirement for sustainability is achieved. As seen in Table 2, the series are not

cointegrated at the levels. Whereas LNEX~ is integrated of order 1, i.e an I (1)

variable, LNMIVT! is integrated sf 0, i.e, an I(0) variable.

Table 3

Ghana: UNIT ROOT TEST OF THE VARIABLES WlTH CONSTANT I -- ---- - -. 1

1 Variable ' Critical Values for ADF Test ADF - Test Statistic 1 Order of lntegra' . - - . - - - -- -

1ZiF~i~ -- --

-4.4 185 4.74461 I

I t I I (rl

The ADF Test for the Ghanaian data was also conducted with a constant. When

another test was conducted with a constant plus trend, it however, did not yield

good results when used in estimating the model. Consequerdy, the test

including a constant plus trend was abandoned, while the test used for model

estimation was the test used with a constant only. The dependent variable was

stationary at second differencing i.e. it is an 1 (2) variable, whlle the independent

variable was stationary at the level i.e. it is an I (0) variable. This s h ~ w s that both

series are nolt cointegrated. Consequently, the debt is unsostainabte. As shown

by Rocha and Benda (2000), if the series are cointegrated, then, thc requirement

for sustainability is achieved. As seen in Table 2 above, the series are not

variable, LNMM! is integrated of 0, i.e. an I(O) variable.

4.3 RESULTS OF ESTIMATIONS

We estimated the static models fo- both Nigeria and Ghana and

cointegrated at the levels. Whereas LNEK~ is integrated of order I, i.e an I {I)

the results are

presented in Tables 4 and 5 below.

Table 4

Nigeria: STATlC REGRESSION OF THE VARIABLES WITH CONSTANT --- ---- A I Dependent Variable: LNTDS Method: Least Squares Date: 03120I06 Time: 11 :25 Sample {Adjusted): 1987 -2005 Included Observations: 25 after Adjustments I -7-

1 D.195574 1 2.824412 I Mead Dependent Var.

Variable - C LNlM NDP - - R-Squared Adjusted R-Squared S.E. of Regression Sum of Squared Resid Lag Cikelihoml

S.D. Dependent Var Akaike Info. Crilerio Schwartr Criterion F-Statistic

Coefficient 21.16013 -1.256603 0.552381 0.71 9423 0.693916 0.459179 4.638601 -14.41768

Durbln-Watson Stat. ( 1.675524 -- I Prnb (F-Statistic) ( 0.OOOOOl

The static regression of the independent variables including the debt status and

period dummies for Nigeria did not produce good results. However, eliminating the

debt status dummy produced quite good results. In view of this, we used the debt

sustainability indicator and period indicator. However, as indicated by the DW

Statistic, serial correlation was identified in the series.

Table 5

Ghana: STATIC REGRESSION OF THE VARIABLES WITH CONSTANT ---- -- -_--- -.-I_- I Dependent Variable: LGTDS 1

Variable

0.1 14001 0 0000 1 GOP 0.353502 0.1 67963 0 0406 1

I ~ e t h o d : Least Squares Date: 03/20/06 Time: 1192 I Sample (Adjusted); 1981 -2005 Induded Observations: 25 after Adjustments --

0.263238 1 0.759386 1 1.651577 P.-Squared 0.922574 1 Mean Dependent Var.

I

S.D. Dependent Var. Akaike Info. Criterion Schwarlz Criterion F-Statisric

c -- - Prob. (F-Slatistic) The static regression of the independent variables for Ghana revealed that the

I

country debt status dummy was insignificant while all other variables performed well.

Given the results of the static regressions for Nigeria and Ghana, we employed the

Koyck transformation methodology to include the lags of the dependent variable as

explanatory variables. Consequently, for both Nigeria and Ghana, we included five

lags of the dependent variable and five of the independent variable to enable us

estimate the model.

We estimated equatiocl 18 for both Nigeria and Ghana separately using the White

Heteroscedasticity-Consistent Standard Errors and Covariance specification in

combination with Cross Secti~n Weights from each of t h e variables. Several runs

involving adding end dropping the lagged dependent and independent variables.

period and debt status dummy variables yielded varying results in the dynamic

specification for both Nigeria and Ghana. The final results are presented in Tabfes 6

and 7 below.

From Table 6, i! can be seen tha? both the perhd and debt status variable for Nigeria

were insignificant in the model and were therelore elimirlated. The poor

performance d these variables in the dynamic specification indicate that there was

no major structural change i r l Nigeria's debt structure between 1980 and 2005,

neither was being a nm-HlPC member affect the country's debt stock.

Table 6

NIGERIA: RESULTS OF THE DYNAMIC SPECIFICATION

The lagged dependent variable was s~gnif~cant at the fourth and f~fth fags The

presence of serial correlation indicated In the static model was corrected wlth the

ARMA (1) specifcation. The results indicated an adjusted R-Square of 55 39. and

F-statist~c of 5.22. Given the several runs with varying var~ables, the Akarke and

Schwartz Criteria provided the information to enable cis d~scr~minate between results

of competing est~rnates.

In Table 7, we present the results of the est~mate of the dynamic model for Ghana.

The model indicates that the dependent variable was sigmficant only at the fourth

lag However, the independent variable was slgnficant at the level and fourth as

well as frfth lags. It is indrcative to note that b t h the country debt status (I e

whether a country was HlPC or not) and the period durnrnles showed h~gh levels of

significance for Ghana. The implication is that the structilre of Ghana's external debt

changed significantly during the period as a result of her HlPC status. The results of

the Chow breakp in t test for Ghana indicated that there was a structural

transformation of the debt from 1990. We again employed the ARMA (1) to correct

for the presence of serlal carrelatton observed in the static est~mation of the model.

The results mdicatd an adjusted R-Square of 96.92. and F-statistic of 77 40 161ven

the several runs with varying variables, the Akaike and Schwartz Criteria provided

the information to enable us discriminate between results of competing estimates.

Table 7

GHANA: RESULTS OF THE DYNAMIC SPECIFICATION

In fable 8, we show the results of the error correction madel for Nigeria. The results

show that apart from the fourth lagged dependent: variable, all the other variables

Variable

C

LGE$I4v

were statistically significant at 1%. As shown earlier, the basic assumption is that

both the stock of debt "Ex; and the sustainability indicator 'MMtW follow a random

t-statistic --

11.8759

-2.0150

walk with drift. Alternatively, both series are non-stationary processes and have an

Probability - -

O.COO0

0 0715

Coefficient

5 6141

-0 2556

intercept. If therefore ExL and MM are non-stationary processes, then our null

hypothesis is that MM and Ex, are cointegrated and that b = I. Rocha and Bender

(2000) have shown that when b =. 1, then, the requirement for sustainability is

achieved if both series are cdntegrated. This is also the solvency condition. When

bc l , the debt is unsustainable.

0.CODD

0 0204

0.0018

0.0004

0 0315

0.@666

LMMq

L M L ( 5 )

LMMi (-4)

1 GDc

G DP

A R Q 1

Standard Error

0.4728

0.1268

From Table 8 for Nigeria, we can infer that as per Rocha and Bender (2000), h + I. In Table 6, b is shown by LNMM, (-1) and LNMM, (-2) whose coefficients are given

as -0.2096 and -0.1261. Given that bc l , Nigeria's external debt can be said to be

unsustainable.

Weighted Statistics: R-Squared 98.1$, Ad] R-Sguimd 96 92, SE 01 Reg. 0 0480 F-sta:rsrlc 77.3963, OW

1.89, Prob (F-Stat) Rob. 0.0009. Akaike Inform. Criteria -2.9324. Schwartz Criterion -2.5367.

0.5562

0 .3H6

4.6168

0.3295

0 2164

0.0941

0.0546 1 10.1907

0.1325

0.14%

C,.D637

C 08613

C.5461

2,751 1

-4 2095

5.1750

2.4993

0.1724

Table 8

NIGERIA; RESULTS OF THE ERROR CORRECTION SPECIFICATION

I J I I I Weighted SMfs t iu : R-.Squared 94.90. Adj R-Squar?11 9t.85, SE af R s q . 0.0208 F-smbsl~c 31.D388, CRV

7.46, h o b (F-Stat) ProS. D.M)OO. Akaike Inform. Criteria -4.6176, Schwark Crilericm 4.2745.

Variable

C

LHEkI 1-51 LNEx, (-5)

LNMW, (-1)

LNMM,(-2) .

Resld (01)

In Table 9, we demonstrate that despite its HIPC status, Ghana's external debt is

Coefficient

13.3928

-0.0464

-0.0582

-[I 2W6

-0.1261

' 0.8531

Probability

-1.0672

0.U198 -2,9426 0.0147

0.11303 -6.9099 0 OD00

still unsustainable. A demonstrated by Rocha and Bender (2000), if bc l , the debt is

I ~ ~ ( 1 1 o m4

--- O.t1?65

0: 264

o :?99

unsustainable. From Table 9, L G ~ , =0.5590, LGMM, (4) = 0.3213 and LGMM, (-5) = - 0.6336 are 1. The implication of fhese results are that despite its HlPC status,

-4.TW5 1 O.Ono0

6.7503 0.0~31 d

Ghana's external debt is still unsus2airtable.

2.0234

Table 9

o.o?oo

GHANA: RESULTS OF 1 HE ERROR CORRECTION SPEClFlCATlON

The error correction models exhibited substantial conformity with a priori

expectations. While the adjusted R-square of 97.85 and 99.98% for Nigeria and

I

Ghana, respectively, indicated substantial explanation of the influence of the

weigfnlgd Statistlrr: R-Squared 99.99. AdjlR-Sqea~ed 99.90. SE of Reg. b.0020 F-slalilic 1571 0. OW 2.15.

Pro5 (F-Slat) ?rob. 0.0MO. Akaike Inform. Criteria -8.6'52. Schwam Ct:.lerion -8.1741.

explanatory variables on the dependent variable, the coefficients of the constants in

t-statidic

X2.2274

-28.4852

i 231.3794

Standadd Error

13.0!14

0.01191

O.O1X!J

0.01Jfi2

0.01&3

O.GI135

Variable Coefficient Probability

0.0000

0.0000

0.0603

C

LGEx, (4)

LGMM!

LGMM? (-5) -

5.6150

-0.2599

0.5590

4.6336

i= DP 0.3779

-102.3492 1 O.COO9

asi id (021

A w )

%.5!26

64.6045

60.7967

m.o;12fi 0.7280

LGMML(4) 0.3213 -

-0.3216 0.4; 17

O.~O?O

0.0003 1

0.DD017

o . a m 0.4R73

G Oc 0.2292

bath estimations indicated that some explanatory variabfes were still missing in the

model. Given the substantial explanation of changes in the dependent variable, the

possibility of missing vadables was discountenanced. All other explanatory variables

(except the country dummies and the 4'h period lagged dependent variable in the

case of Nigeria) were statistically significant as irrdicrtted by the tstatistic in bath

modek

4.4 TEST OF OBJECTIVES OF THE STUDY

4.4.1 Objective 'l Ascertain if the External Debt Management Strategies adopted by Nigeria and

Ghana have succeeded in reducing the Quantum of Debt to Sustainable Levels

The study found that the debt management initiative of the country mattered in

reducing the quantum of external indebtedness. However, the choice of strategy

was not left to the debtor country to determine. Consequently, whereas considering

the macroeconomic indicators used t3 measure debt sustainability, Nigeria did not

qualify as HIPC, when the human development indicators are used, the country

qualified ahead of most WlPC countries. Given Ghana's HlPC status, her debt levels

reduced considerably, but not to sustainable levels. Nigeria, being a non-HIPC,

could not reduce her quantum of overall indebtedness as Ghana did despite various

initiatives at debt management.

4.4.2 Objective 2 Determine if the Total Debt Stock had responded to the Debt Management

Initiatives in the two countries

The responsiveness of total debt stock to debt management initiatives was mt the

prerogative of debtor countries. The cxditor countries still had to determine wvether

you met their criteria or not. This point is largely esoteric and indeterminable, being

dependent on political rather than p3tformance measures. Whereas there was

cognizable response in favour of Ghana by creditor countries, the same was not the

case for Nigeria.

4.4.3 Objective 3 Establish the Role of Debt Rescheduling in Reducing the Debt Burden

This study could not ascertain from available data the role of debt rescheduling in

reducing the debt burden. However, as indicated earlier, debt rescheduling eases

the burden of current debt while putting it on future generations. Besides, debt

rescheduling renegotiates current debt obligations at a penalty fee while the

interests falling due are paid. Thus, the overall burden is still largely small and

insignificant to warrant an initiation of the growth process,

4.4.4 Objective 4

Show if the Creditors Responded favourably tn the Debt Management

Initiatives in the affected countries

The observed response rate was generally poor. The requirements for debt

reduction necessitated harsh economic reforms in countries like Ghana, leading to

drastic reduction in the standard of living, high inflation and a highly depreciated

exchange rate.

4.5 TEST OF HYPOTHESES 4.5.1 The external debt management initiatives of Nigeria and Ghana have not

succeeded in reducing the quantum of debt to sustainable levels.

This hypothesis was tested by the inelasticity of the lagged sustainability indicator

variables LNlM (-1) AND LNlM (-2) in the error correction model. At 20.96 and 112.05

percent, the variable was inelastic, indicating that changes in the lad period and

preceding period external debt stock did not affect the unsustainability level of the

debt. The: sgn of the two variables (-0.2096 and -0.1261) met a priori expectations

because an increase in external debt stock would reduce the s~rstalnability of the

debt.

In the case of Ghana, the sustainability indicator. LGMM. LGMM(-4) and LGMM (-5)

showed various responses In the estrmation of the models Whereas LGPIIIM(-4) was

correctly signed and met a priori expectatinns. LGMM and LGMM (-5) were wrongly

signed bang 55.8 a d 37.79 per cent, and therefore failed to meet a priori

expectations. The implication is that Ghana's current external debt stock was elastic

as shown by the coefficient of the sustainability ind~calor (G3.35%). Thus, the

current debt stock was unsustainable four periods ago. In the same way, the

wrongly signed lagged sustainability indicators appear to show the effects of the

HlPC concessions for Ghana as also shown by the level of the GDc dummy variable

which discriminate between Nigerla and Ghana whether it was a HlPC or non-HIPC

country. Thus, in the case of Ghana, its external debt management initiatives have

affected its level of external debt stock

Consequently, while we accept 1-10 In preference to the alternate hypolhes~s for

Nigeria that "the external debt management initiatives of Nigeria have not

succeeded in reducing the quantim of debt to sustainable levels", we are

unable to do so for Ghana. Based on available evidence, we accept the alternate

hypothesis for Ghana that "the external debt management initiatives of Nigeria

have succeeded in reducing the quantum of debt to sustainable levels"

4.5.2 Debt rescheduling as a debt management Approach has not succeeded

in reducing the debt burden in the affected countries to sustainable levels.

Debt rescheduling involves pushing the payment of contingent principal debt

obligations forward to future generations, thus providing a moratorium to the affected

country whose debt is being rescheduled. While the principal debt is being ../

rescheduled, the interest element falling due is paid plus a penalty rate. To measure

this hypothesis, we again look at the sustainability indicator. The thesis is that

success in reducing the debt burden to sustainable ,levels means the resulting debt

falling due must be sustainable in the long run. In the case of Nigeria, the

sustainability indicators LNMM (-1) and LNMM (-2) shows that the resulting debt

levels were unsustainable as per Rocha and Benda (2000). The case of Ghana

shows similar results. As shown earlier, although Ghana's HlPC status meant a

substantial reduction in its debt stock, the resulting debt was not sustainable as

shown by the coefkients of the sustainability indicator. In view of the above

therefore, we accepted H, that "Debt rescheduling as a debt management

Approach has not succeeded in reducing the debt burden in the affected

countries to sustainable levels" and rejected the alternate hypothesis for both

Nigeria and Ghana.

4.5.3 The creditors have not adequately compensated the debt management

efforts of the two countries

This hypothesis was tested against the coefficient of the sustainability indicator. In

our thesis, compensation by creditor countries to the debt management efforts of the

debtor countries implies comprehensive and substantial debt reduction to levels they

can effortlessly service given their resource levels. In the case of Nigeria, there

have been no such concessions as shown by the level of debt stock LNTDS and the

sustainability indicators. In the case of Ghana, we observed that the debt stuch had

actually reduced. Despite the reduction in the quantum of debt, Ghana's debt was

unsustainable given her resource outlay. The less than 1 level of the coefficients of

the sustainability indicators indicate that the debts of both countries were still largely

unsustainable despite several efforts at debt management. In consequence

therefore, we accepted the H, hypothesis for both countries that "The creditors - /

have not adequately compensated the debt management efforts of the two

countries" and rejected the alternate.

SECTION V

SUMMARY, CONCLUSlON AND POLICY RECOMMENDATIONS

5.1 SUMMARY

The study found that N~ger~a and Ghana's external debt were unsusta~nable

irnpfymg That the two countries cannot contmue at current levels of earnings

and disbursements to service the~r external comm~tments wrthout

comprornis~ng economic growth The need for debt write-aff, sound

macroeconomic policies that emphasize growth arid poverty reduct~wr,

coupled with the drsciplir~e E J ~ tnrplementation was advocafed. F~scal

pol~cies (such as tax reforms), and growth in exports and diversrf~cat~on of

the export base were advocated The macroeconomic mdicators show

increased marginalization instead of ~ntegration into the mainstream global

economy with overall growth, be~ng largely negat~ve and populatron growmg

fast Whlle some have attr~buted the developments to debt and the

mapproplateness of the ptrcy reforms, others Rave h l t d the pol~c~es of

globalrzation which seek ta make developing countrtes melevant through

trade dornmatron Whichever. there has been an observed failure of

reforms tO stlrnulate growth In an era of accelerated global~sation mduced

growth In other regions

5.2 CONCLUSION I r r + ~ 3 L P 5 ,

This study modeled Nigeria and Ghana's external debt to ascertain if the debt

management efforts of the two countries had succeeded in reducing the averall

quantum of debt to sustainable levels. It was hypothesized that "The external debt

management inlt~atives of Ntger~a and Ghana have not succeeded in reducing the

quantum of debt to svstailnable levels", "Debt reschedi~l~ng as a debt management

option has not succeeded in reducing the debt burden In the .affected countries to

sustainable levels" and "The cfed~tors have not adequately compensated the debt

management efforts of the two countries". A!l the null hypotheses were accepted I[]

preference to the alternate hypotheses. Thus, it was found that despite the efforts of

the two countries at debt management, the outstanding debt was still largely

unsustair'table. It was therefore suggested the need to ensure growth in exports as a

cardinal focus of economic management to achieve external sector sustainability.

5.3 POLICY RECOMMENDATIONS

To achieve desired results, the policy framework should invoke: (i) proactive

macroeconomic policies which will provide a stable environment for economic

activity; (ii) the provisim of growth oriented structural policies (including trade, tax

and sector policies land regulatory environment) which impact positively on

incentives for private investment and production; (iii) goodl governance and market

institutions, the rule of law and debt cancellation.

Fiscal policies are crucial because fiscal imbalattces do induce external imbalances.

Thus, fiscal consideration including tax reforms to strengthen fiscal payments

capacity, public expenditure rmrientation from unproductive to growth inducing

activities in the medium term as well as prudent budgeting can help achieve fiscal

sustainability. Countries with sound macroeconomic policies, market-friendb

economic structures, politicaT stability and human and physical capitar development

do have considerably high growth rates because of improved trade and capacity

development. Functional and accountable p6licy making institutions are

fundamental to the emergence and enforcemeni d sound economic policies.

Private transTers and foreign direct investments in Nigeria and Ghana are !'typically

small. The viability and efficiency af the private sector is a pointer to growth and

sustainability. This persistent resource gap calls for a cbse watch on the debt

related indicators such as the growth rate of debt in relation to export growth and

GDP as well as comparing the size of the resource gap to debt Income. As an

integral element of debt relief, growth in debt and interest payments shoukl not

exceed the growth of exportsIGOP ratio. Often. debtor countries are not in a

position to determine the level or interest payments due rts pre-signed agreements

detailing the terns of debt rescRedu!ing and accompanying debt: relief ,contingent on

good performance. Stimulating private sector led growfh and granting debt write-off

combined with a reduction in cof~pt ion, accountability, transparency and the

efficiency of public expenditure in West Africa would enhanced resource utilization,

thereby improving the quality of humn and material capital, md enhancing

prospects for trade development an8 growth.

Export growth is especially needed to strengthen external payments capacity as well

as help create income and associated resources fw growth. However, both Nigwia

and Ghana have vulnerable export sectors due 10 over reliance on a few primary

products. Price and demand volatility often create uncertainties, and expose the

region to externally hduced shocks. Though the terms of trade are 'largely negative,

West Africa unlike others is more pruned to sufFer the effects or price and demand

volatility bemuse of the associated mnstraints imposed' by b w income levels and

import dependency. The need to open up export access thmugh diversification of

the export base to developed county markets 3s well as maximize the growth

potential of regional integration is a sinepua-non to external sector sustainability.

To begin with, the urgent need for increased intra-ECOWAS trade cannot be

overemphasized. Consequently, the recent ECOWAS tariff harmonization scheme

should be encouraged to succeed.

The issues of global cooperation fall within the perimeter of the International

Development Targets. However, the imperatives of the ensuing global action plan

require fundamental restructuring because of the dimension of resource shortfall in

Nigeria and Ghana. Current effods at effective systems of government, respect ror

human rights, promotion of security, safety, justice and the rule of law, ppceventim of

violent conflicts, and the enthmnernent of enduring democracies, are welcome but a

more dynamic approach to poverly reduction in West Africa is needed. It is t h e debt

burden and populatim pressures, which limit access to availabfe resources and

engender violent conflicts and capital flight. Thus, global debt canceflatiorr and

p q u l a t i ~ n control policies as a component of comprehensive development

assistance are h g overdue. This may invalve meeting certain performawe criteria

to benefit from debt cancellation and development assistance. Etigible countries

may be required to meet basefine resource allocation to the social sectors and

implementation monitored. Compliance with population control would also be

imperative for development assistance and debt canceliatim.

Eaton, J.' and Lance Taylor (1986) 'Developing Country Finance and DeM" Jaurnal of Development Ecomics .

Eisner, Robert, and Paul .I. Pieper. 7984. A new view of the Federal Debt and Budget Deficits. American Economic Review, 74(1): 11 - 29. Greiner, Alfred md Will6 Smrnlef (1999) An Inquiry info the sustainability of Geman Fiscal Policy: Some Time Series Tests. Public Finance Review, 27121, pp.3220-36.

Hamilton, J. D. and M. A. Flavin (1986) On the Limitations of government borrowing: A Framework f ~ r empirical testing. American Ecommic Review. 76(2)pp.353-73

lshann, J and D. Kaufrnann (20000 The Forgotten Rationale for Policy Reforms"TThe Productivity of In vestment Project" QwarterFy Journa! of Economics 1 14.

Jayme Jr., Frederico G. (21301) Exrernal Debt Sustainability Empirica! Evidence in Brazil. CEDEPLAWFACEIUFMG. 339.5(81)

Krueger, S. O (1987) "Origins of the Developing Countries Debt Crises" Jal;rnal of Devdopment Economics, Vol. 27. Mufler, Ankle (1999) "The Augumented Solow Model and the African Growth Debaten Genre for the Study of African Economics, Oxford University.

Ishann, J and D. Kaufmann (20000 "The Forgotten Rationale for Policy Reforms" The Pmductivity of Investment Project" Quarterly Joumaf sf Economics 1 14.

Jayme Jr., Frederica G. (2007 3 External Debt Sustainability Empirical .Evidence in Brazil. CEDEPLAWFACWUFMG. 339.5(81)

Kmeger, S. 0 (11987) 'Origins of the Developing Gounlries Debt Cfises' Jou~nal of Deve!oprnent Economics. Val. 27.

Sachs, J., (19851, "Theoretical Issues in Internationa! Borrowing,' Princeton Studies in International Finance No. 54 (Princeton, New Jersey: Princeton University Press),

Sawada, Y . (1994) Are the Heavily lndeMed Cwnfires Solvent? Bests of Jntertemporal Borrowing Constraints. Journal of Devebprnent Ecmrnics. 4512) 325-37.

Books Ajayi, S. Ibi (20W) Macrc-ec~omic Approach to External Debt: The Case of Nigeria in External Debt and Capital Flight in Sub-Saharan Africa eds S. Ibi Ajayi and Mohsin S. Khan, IMF, Washington, D,C.

HufFer, Ankle (1999) *The Augomenked Solow Model and the African Growth Debaten Genre for the Study oTAfrican Economics, Oxford University.

Shantayanan Devarajan, William Easterly and Howard Pack (1999) 'Is Investment in Africa too High w too Low?" The World Bank.

World Bank (1993.). Worfd Debt Tables, Washington. D. C.

World Bank ( t 996) 'Prospects for Long-term Debt Sustainability in the Heavily Indebted Poor Countries (W IPCs).

World Bank & IMF (1 996) The HlPC Debt Initiative - Elaboration or key Features and Possible Procedural Steps, Aogust, 26.

World Bank (I 997). Global Development Finance, Washington, D. C.

World Bank (2000) Poverty in an Age of Gtobalisation

World Bank (2001 j The Challenge of Maintaining Long-term Debt Sustainability, IMFNVorld Bank paper, April.

World Bank (2002) The world Bank Perspectives on Development

Zubair lqbal and Ravi Kanbur (1997) External Finance Tor how Income Countries, lMF

Journals Abrha, N.H. and J.S,Van Zyl (2083) "Globalisstion and Poverly Reduction in Africa, Economics Working Paper, University of Free State

Ajayi, S. lbi, (1986) "Issues of Overvaluation and Exchange Rate Adjustment in Nigeria" Washington: Economic Development Institute, World Bank. Cline, W.R., 1985, "Interna2ional Debt: Analysis, Experience and Prospects," Journal of Development Phnning, V d . 16.

Dornbusch, R., and S, Fischer, 7985, "The World Debt Problem: w i n and Prospects," Journal of Development Pkwwing, VoI. 16.

Dornsbuscht R, and F. L. C. H. Helrners, eds; (7988) The Open economy: Tools for Policymakers in Developing Countries (New York: Oxford University press).

Thirlwal\, A. (1979) Balance of Payments Constraints as an Explanation of International Growth Rate Differences, Banca Nazionale del Lavoro Quarterly Review. 128(4): 45-53.

Tule, M. K. (2003) "External Debt Sustainability: Evidence from Nigeria" Processed. Forthcoming in CBN, EFR.

Tule, M. K. (2003) "Globalisation and External Debt Sustainability in West Africa: Siyfised Growth Implicationsn. Processed. Forlhc~ming in the Journal of the West African Monetary Institute, Accra, Ghana

Wilcox, David W. (1989) The Sustainabiiity of Government Deficits: lmplications of the Present-Value Borrowing Constraints. Journal of Money, Credit and Banking. 21 (3): 291 -306.

Wolf, Martin (2002) "GloBafisation, Poverty and Growth", Commonwealth Institute, November.

Confewnce Proceedings Dornbusch, R (1986a) "InternaYlonaI DeM and Economic Instability" in Debt, Financial Stability and Public Policy: A Symposium Sponsored by the Federal Reserve Bank af Kansas City, Jackson Hole, Wyoming, August 27-29 (Kansas City, Missouri: Federal Reserve bank of Kansas City).

EURODAD (2001) Presentation by Rob MiHs at the Italian Government's GNG initiative in Florence, April.

Financial Stability Forum (2000) Report of the Working Group on Capital Flows, April 5,

Greenspan, Alan (7999) Chairman of the Fed. Remarks before the World Bank Group and the International Monetray Fund, Program Seminars, Washington, D. C. September.

Guttentag, Jack M., and Richard Herring, 1985, "Commercial Bank Lending to Structural Reform," in lnternational Debt and fhe Dewdoping Countries: A World Bank Symposium, ed. By Gordon W. Smith and John T. Cuddingtort (Washington: World Bank).

Onwioduokit, E. A. and IM. K. Tule (2083) Ogtims for Sustainable Funding of Education in Nigeria. Paper presented at the Annual National Conference of We Nigerian Economic Society, Lagos.

Ricupero, Rubens (1999) Address by UNCTAD's Secretary General at a meeting of African Ministers of Finance and Planning in Addis Ababa, May.

Simonsen, Mario Henrique 91985) Developing Country Debt Problem" in lnternational Debt and the Developing Countries: A World Bank Symposium, ed. By Gordon W. smith and J. 1. Cuddington (Washington: World Bank).

Occasional Papers UNAIDS (2000) Report on the Glabal HNiAlDS Epidemic. Geneva: Joint UN Programme on HIVIAIDS.

UNCTADIUNDP (2000) Globalisation and Sustainable Human Development: Progress and Challenges for Malawi. Occassional Paper.

WorkinglDiscussionlStafi Papers Aliber Rober Z (1980) "A conceptual Approach ta the Analysis of External Debt of the Developing Countries" World Bank Staff Wdrking Paper NO, 421 (Washington: World Bank),

Khan, Moshin S., and Malmrn 113.. Knight, 1983, "Determinants of Current Account Balances of Non-Oil Developing Countries in the 1970s: An Empirical Analysis,'* Staff Papers, lnternational Monetary Fund, Vof. 32, No. 4.

Khan, Moshin S., and Malcom D, Knight, 1983, "Determinants of Current Account Balances of Nsn-Oil Developing Countries in the 1970s: An Empirical Analysis," StaHPapers, lnternational Monetary Fund, Vol. 32, No. 4.

Nsrtfiover, Henry (2001 3 The Human Development Approach to Debt Sustainability Analysis for the World's Poor. CAFOD.

Government Publications Benn, Hilary (2001) Trade and Poverty Reduction. DFlD

UK Government, by Command of Her Majesty (2000) Eliminating Wofld Poverty: Making Globalisation Work for the Poor. White Paper on International Development on w.q lo t )a I isa tion.qov.uk.

APPENDIX 1

Test for Cointeqration

The cointegration test was carried out based on the rules specified by Engle and

Granger (1991) that the compnents of the vedor x, are said to be cointegrated of

order d, b, denoted Xt-Cl(d,b), If:

( i ) all components of & are I(d)

(ii) there exists a vectw a@) so that Z1 = a'x? l(d-b). Then, the vector a is called

the cointegrating vector.

Hannan (1970) has shown that if each component d Xt, is ( 1 ) so that the change in

each component is a zero mean purely nondeterministic stationay stochastic

process, then it folbws that there will always exist a multivariate wold representation

of the f o m (1-B)xt = C[13)el, indicating both sides of the equation will Rave the same

special matrix. Atso, C(0) wit! be specially defined given the conditions that the

relationship G(Z1, Z = e ', have all zeros on or outside the unit circle, and that C(0) =

IN, NxN matrix.

From the above representations, the e, are zero mean white noise vectors with

E(et es) = 0, I = s = G, t 2 s

Thus, only conternpwaneous correTations can occur. The moving average

polynomial @(B) can be shown as:

C(B) = C(1) + (1-B)C*(B). Consequently. if c(6) is finite, then C*(B) will be finite by

rearranging the terms. If C'(1) = 0, then. we can similarly refine (I-b)?.

Following Granger and Newbold {1974), the ADF Unit Root Test on the residual

shows that there is cointegrating relationship amongst the variables as such, they

are correctly associated in the fow~ run.

APPENDIX II

Unit Root Test far Stationarity

Both the dependent and all explanatory variables attained stationarity at the first

difference, hence they are said to be integrated of order 1. Stationality frees us from

the problem of spurious regression and forecast error. Thus, our premise is informed

by Granger and Newbold (1974) w h s e work relied an Box and Jenkins {1970),

concerning differencing data ta remove unit roots. Grangw and Newbofd repficated

Yule (1926), but also noted the low values of the Durbin-Watson statistic associated

with spurious regressions. They held that the )ow Ourbin-Watson statistic associated

with spurious regression uses biased conventional test towards rejecting the null

hypothesis and is of nol relation even when it is true. Phillips (1985b) showed that the

distributions of non-stationary series were different from stationary series.

Specifically, the coefficients of the degression don't converge in probability with

increasing sample size, the constant diverges and both the regression coefficients

and the R' have non-degenerate distributions, the - test diverge so that there are no

asymptotically correct critical values for these conventional significance tests, and

that the DW test mverges to zero so that Granger-Newbold findings have a

theoretjcal basis.

20112 2960.59

2003 3,042.08

Par19 Club

Rescheduled Debts

Agrwment I11

Cammwclal

2OD1 1131.!8

2W2 e52.29

2003 687.50

O DA

20Dl 16.95

2002 3s 01

2DD3 1692

Agreemnt IV

(i) Reprnnlrd &M C o m m f a l

M01 2172.72

20W 2013.8

21M3 1,920.39

ODA

200 1 n a

2002 23.41

2003 15.22

( i i ) Balance of Arrears

Commerc[al

ZDDl 16711.93

2002 18215.62

2M3 20.084.69

ODA

200 1 n.a

2M2 238.31

2003 168 26

(Il l) Dofvmed Post Cut-Off

Commercial

2001 n.a

2002 ti a

9003 236.85

O OA

2001 n.a

2002 n.a

2003 33.97

[IV) Uefnrred Moratorium Interest (Assumes an interest of 5.596)

Comrn@reial

2OOT 1062.74 0.00 0.00

2rJ.32 896.52 226.60 61 -93

2003 631 -70 401.51 75.80

OD A

2001 n.a

2002 9.90

2003 2.85

Total

2001 21095.62

2002 22635.87

2003 23,799.34

Nan-Rescheduled h e Cutaff

Commercial

2QD1 0.00

2 o w 0.00

2003 0.00

OD A

200 1 63.82

2002 67.22

2003 73.06

total

2001 63.82

ZUU2 67.22

M03 73.06

Non4?escheduled Post CuSW

lCammrclal (includes USW5.33 provisional deferred debt)

ZDDl 744.14

2DD2 44.43

2DD3 20.07

0 DA

2001 20.15

2002 218.24

2DD3 216.79

fa ta l

2I10 1 764.29

ZU02

2003 236.86

Total Cammerclal

2001

2002

2003 23,581.19

Total ODA

2DOl

2002

2003 528.07

TOTAL PARIS CLUB

2001 21 923.73

2002 22965.31

2UU3 24,? 09.25

NQN-PARIS BILATERAL

Cnmmmial

0 DA

2001 13.40

2002 2.77

2003 2.62

TOTAL NOH-PARIS BILATERAL

2M1 66.18

20x102 S . 6

2003 51.63

LONDON CLUB

2Ml 2043.21

2002 55.55

2003 1.441.79

PRWISSORY NOTES

260 1 1291.78

M M 1441.79

2033 91 1.39

GRAND TOTAL

2001 281 53.82

2002 28576.17

2003 29,556.15

Sourcs; Nigeria's Debt Management Office

I Stack I

GHANA:

Table 11

SOME V6TAL EXTERNAL DEBT INDICATORS

Real

GDP (S'Mdl~on) --

4.231.0 4,321 .O 4.367.0 4.392.0 4,432.0 4,572.0 4,620.0 4,833.0 5,110.0 5,329.0 5,550.0 5,513.0 6,060.0 6,034.0 6,209.0 6.457.0 6,755.0 7,038.0 7,359.0 7,694.0 6,977.6 6,3092 6.159.6 7.624.2 a.fi20.0 9,375.0

I'

Source. World Bank Afiican Development Indicators (Various Issues) World Bank, World Economic Review [2006) National Stat~stcal Eureau Annual Abstract of Statistits (Va?ious Issues) Bank of Ghana Annual Reporb [Varlous Issues)

NIGERIA: SOME VITAL EXTERNAL DEBT INDICATORS

Year (USS'Milllon)

19801 6-49.4

Interest

Payments GDP (USf'M~llton]

-.-

E3,195.2 76,845.3 TE.gl4.7 83.1 58.7 n31).952.6 35.158.5 27.100.0 32,015.2 39.41 2.5 32.426.4 32,696.9 31.783.8 31.612.5 41,8C14.6 90.365.1

123.027.1 1 W.X9.O 129,634.8 25.449.8 26.056.1 32,382.7 30,758.4 29.451.9 30.361.8 31,215.0 5t,Ct80.6

Source: Debt Managerned Ofice World Bank A l r ~ n n Development Indicators (Various Issues) World Hank: World Economlc Rev iw (2006) Federal Bureau of Stabstlcs Annual Abslrad of SClistics (Various Issues) Central Bank of Nigeria Annual Reports (Various Issues)

r.b* I 3

NlGERtA AHO GHANA: DEBT INDICATORS I

,I Y ' I 7

IT,, ., i )* . '1 7 :n

w.7 u r 1

Y .s lY I

111' 11'1

rr 1, L?, "7

Tab19 14

NffiER)AAND GHANA: STRUCTURE OF E:ZERNPA D W T

BllallvaI M l t l h r i m l I Cowzeasmn,l Non-Cond*64unal C a i r s ~ s ~ a r u l ~Vnm-Conc.~sIv~I Rtv.~tc, Short Term IMF

(J.:lo) i Gh-n.7 P:~OPI i IJT,C'~.,~TNII p:lrLq Lls.;'cflPn

1 1 :rn . . :I ( I 142z 5 7 4 0

i ~ o 670 G?':' l?.~ 1 257. 4 4 3 1 1 15.~5 73: 1 1 ~ 5 5:. re5 5%7 rr-; 5!4: 74 a 3d

y?':"!? 555 1 lqa:.;, 3 3 61?1 7115 p 7 ~ ~7 n 375 1 2t??5 1C41 169 12f lY 1 61)O 717 E ! W 1 :, 0 y ~ e

I -

Table 15 NIGERIA AND GHANA: STRUCTURE OF EXTERNAL DEBT SERWCE PAYMENTS

Table 17

NIGERIA: EXTERNAL DEBT RATIOS

Int Payments-Exports blernal Debt- Ratio GDP Ralio

iteresl Payment- GDP Ratio

(W 0.53 0.73 1.04 1.25 1.45 3.47 1.44 ?.a 4,56 4.R6 6.59 6.55 5.92 2.1 6 1.24 0.71 0.81 0.41 2.07 I .83 0.86 5.48 6.05 5.45 5.87 2.77