By the late 1990s, late fees and penalties forced the country's debt to exceed $35.94 billion and it was growing. However, in 2006, Nigeria became the "first African nation to settle with its official lenders" when it arranged to have most of its debt erased by the Paris Club. With the erasure of 100% of the nation's Paris Club-debt, yearly debt service payments fell from $1.8 billion to $0.8 billion. The expectation was that the money saved would go towards national development. However, almost 4 years later, a majority of Nigerians continue to live below the poverty level and infrastructural challenges continue to plague the country. And now, it appears the country's debt portfolio is, once again, on the rise.
NIGERIA'S CURRENT DEBT
When the nation paid off what it owed to the Paris Club in 2006, remaining debt stood at $3.5 billion. It rose steadily to $3.6 billion in 2007, then to $3.72 billion in 2008. At the end of 2009, Nigeria's external debt reached $3.97 billion and it is crucial to note that foreign debt jumped by approximately $87 million in the last quarter of 2009 alone. This staggering increase in debt begs the question of where that money was/is supposed to go and when.
N1.85 billion of Nigeria's current debt total was accrued by state governments. States like Cross River, Lagos and Nasarawa are spending significant amounts of their government allocated funding towards debt repayment services - 10.4%, 7.78% and 7.04% respectively. The fact that states can take out international loans with little to no input from the federal government is capable of returning the country's total debt to high levels if left unchecked. Additionally, a history of ineffective loan utilization and corruption furthers concerns over the benefit of such loans at both the state and federal government level.
With the Nigerian government opting to borrow its way out of the economic downturn, it will take discipline to prevent a return to the debt burdens of the pre-2006 era. In addition, the apparent inability to limit states from accruing more debt places the federal government in a precarious position. Will the federal government have to step in to pay state loans or would it have to follow in the footsteps of Dubai which refused to pay Dubai World's debtors? Whatever the case may be, unrequited borrowing and leaving states to borrow from international sources without the federal government's input are potentially dangerous for a country that must strike a healthy economic balance to achieve development.
 - Adegbite, E., et. al., The impact of Nigeria's external debt on economic development, International Journal of Emerging Markets, 14.