No one would have believed in 1998, when Nigeria emerged from military rule, that less than a decade later it would extinguish most of its multi-billion debt and become one of the fastest growing economies in the developing world.
Nigeria should have been a strong candidate for debt relief but years of poor economic and financial management, a policy of non-payment and growing oil revenues meant that it didn't qualify for relief through established mechanisms. The government was isolated from the international community and 100 million people were living on less than a dollar a day.
At rock bottom the Nigerian government took decisive action to kick-start a reform programme, supported by the UK government, that would demonstrate to the international community that it was taking its debt obligations seriously.
Re-engaging with the international community required a combination of technical assistance, institutional reform and capacity building. The World Bank on behalf of the International Monetary Fund assigned Crown Agents to examine the records of the external debt portfolio.
Investigations revealed that between the Federal Ministry of Finance and the Central Bank of Nigeria there were 16 disjointed departments, each responsible for different aspects of the debt portfolio and none was able to quote accurate figures.
There was pressure to work quickly as defaulting caused the debt to mount. The management system had fallen into disuse and employees were reduced to relying on paper-based records of loan agreements and transactions.
To achieve long-term sustainability, President Olusegun Obasanjo endorsed Crown Agents' proposal to unify all debt management activities into one department, creating one central accurate inventory of external obligations and building a team of professional debt managers through recruitment and training.
The President appointed Dr Ngozi Okonjo-Iweala, a vice president of the World Bank and eminent economist, to galvanise people into action. The Debt Management Office launched in 2000 and we helped draft legislation to allow it to operate as a semi-autonomous office with its own mandate and resources for reform.
Selected employees, transferred from the Ministry of Finance and Central Bank, underwent technical and managerial training and all 1,000 external loans and transactions were recorded into the management system so that the portfolio could be analysed and managed. Within a year, we had made sufficient progress for Nigeria to go to the Paris Club, which represented the majority of bilateral creditors, and negotiate a deal that resulted in the extension of maturities.
Further modernisation of the DMO included defining front, middle and back offices to handle resource mobilisation, debt and risk analysis. We also encouraged the 36 state governments to create their own debt management institutions with formal links to the DMO.
Gradually, the DMO won credibility across the government and outside the country so that Nigeria was empowered to begin negotiations and eventually convince even the most reluctant countries to provide debt relief.
In 2006, the Paris Club creditors agreed to cancel a massive $18 billion of debt, enabling Nigeria to use accrued savings to train 145,000 teachers; put over 3.5 million children into school; build 166 new health centres and provide 79,000 doses of anti-retroviral drugs for HIV/AIDS patients.
President Obasanjo congratulated the DMO for "having established itself as an exemplary government agency that is worthy of emulation by other public agencies". Former UK Secretary of State for International Development, Hilary Benn, said the deal was "the largest in Africa's history and will free up at least $1 billion a year, adding: "The UK should be proud of the part played by Crown Agents in helping Nigeria to prepare for this agreement."
Nigeria is now seen as a credit-worthy country, borrowing is based on need and the financial community is willing to invest at competitive interest rates. The financial crisis has shown that macroeconomic stability cannot be guaranteed, but the strength of the DMO together with a debt-to-GDP ratio of just two per cent makes it more prepared to deal with future challenges.
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