Oil boom leads to significant foreign debt
During the oil boom of the 1970s, Nigeria accumulated a significant foreign debt to finance major infrastructural investments. With the fall of oil prices during the 1980s oil glut, Nigeria struggled to keep up with its loan payments and eventually defaulted on its principal debt repayments, limiting repayment to the interest portion of the loans. Arrears and penalty interest accumulated on the unpaid principal, which increased the size of the debt. After negotiations by the Nigerian authorities, in October 2005 Nigeria and its Paris Club creditors reached an agreement under which Nigeria repurchased its debt at a discount of approximately 60%. Nigeria used part of its oil profits to pay the residual 40%, freeing up at least $1.15 billion annually for poverty reduction programmes. Nigeria made history in April 2006 by becoming the first African country to completely pay off its debt (estimated $30 billion) owed to the Paris Club.
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