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Nigeria: Debt Deal Views
AfricaFocus Bulletin
Oct 27, 2005 (051027)
(Reposted from sources cited below)
Editor's Note
Nigeria has reached a new agreement on debt with its bilateral
creditors, gaining $18 billion in debt cancellation at the price of
$12 billion in payments over the next year and a new program of
economic monitoring by the International Monetary Fund. Reactions
to the deal are mixed.
While Todd Moss of the Center for Global Development in Washington
praised the deal as a "win-win" situation and "a great boost for
Nigeria," debt cancellation campaigners were more cautious, citing
particularly the $12 billion that Nigeria is required to pay rich
country creditors under the agreement. They stressed that much of
the arrears was in fact due to higher interest rates,
that Nigeria had already paid back more than the original loans,
and that the money would be much better spent on urgent needs to
address poverty and health in Nigeria.
Other critics, such as Soren
Ambrose of the Solidarity Africa Network in Action, stressed the
danger to Nigeria of increased IMF control through the new "Policy
Support Instrument" mechanism (see http://www.50years.org/cms/ejn/story/275).
And Africa Action noted that under the deal Nigeria would pay more on debt service than on
healthcare over the next two years (http://www.africaaction.org/newsroom).
Nigeria's capacity to make the deal at this time is enhanced by
higher world oil prices. But the repayment ensures that it remains
a commercial write-off rather than acknowledgment of debt
cancellation campaigners' demands that the debt is illegitimate and
should be cancelled entirely.
This AfricaFocus Bulletin includes the official press release from
the Paris Club on the debt reduction agreement, press releases from
the Jubilee USA Network and the Global AIDS Alliance with
commentary on the agreement, and additional background material
from the Center for Global Development, a Washington think tank
that played a role in facilitating the agreement.
For earlier AfricaFocus Bulletins on the issue of Africa's debt,
visit http://www.africafocus.org/debtexp.php
For earlier background on this long-discussed issue not addressed
in earlier international debt negotiations, see
Nigeria: Debt, Loot and the Economy
http://www.africaaction.org/docs00/nig0006.htm
and
Nigeria: Call for New Debt Deal
http://www.africaaction.org/docs01/nig0111.htm
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
Paris Club Agrees on a Comprehensive Treatment of Nigeria's Debt
Paris Club
http://www.clubdeparis.org
October 20, 2005
The representatives of the Paris Club creditor countries met on 18,
19 and 20 October 2005 and agreed with the representatives of the
Federal Republic of Nigeria on a comprehensive treatment of its
debt. This agreement implements the debt treatment framework for
Nigeria announced by the Paris Club on 29 June 2005.
The representatives of the Paris Club creditor countries welcomed
the ambitious economic program implemented by the Nigerian
authorities since 2003 and their desire to secure an exit treatment
from the Paris Club.
This agreement takes place after the approval by the Executive
Board of the International Monetary Fund of the Policy Support
Instrument (PSI) on 17 October 2005 and includes a debt reduction
under Naples terms on eligible debts and a buy back at a
market-related discount on the remaining eligible debts after
reduction.
This agreement will be implemented in two phases in consonance with
the implementation of the PSI:
- in the first phase, Nigeria undertakes to pay arrears due on all
categories of debts and Paris Club creditors grant a 33%
cancellation of eligible debts;
- in the second phase, after the approval of the first review of
the PSI by the Executive Board of the IMF, planned for March 2006,
the Nigerian Government will pay amounts due under post-cut off
date debt, Paris Club creditors will grant a further tranche of
cancellation of 34% on eligible debts, and Nigeria will buy back
the remaining eligible debts.
In total, this agreement allows Nigeria to obtain a debt
cancellation estimated at US$ 18 billion (including moratorium
interest) representing an overall cancellation of about 60% of its
debt to the Paris Club of around US$ 30 billion. Paris Club
creditors will be paid an amount of US$ 12.4 billion, representing
regularization of arrears of US$ 6.3 billion, plus a balance of US$
6.1 billion to complete the exit strategy.
This exceptional treatment of Nigeria's debt offers a fair,
sustainable, and definitive solution to Nigeria and Paris Club
creditors. With the large debt relief included in this agreement,
Paris Club creditors extend their strong support to Nigeria's
economic development policy and its fight against poverty.
Background notes
- The Paris Club was formed in 1956. It is an informal group of
creditor governments from major industrialized countries. It meets
on a monthly basis in Paris with debtor countries in order to agree
with them on restructuring their debts.
- The members of the Paris Club which participated in the
reorganization of Nigeria's debt were representatives of the
governments of Austria, Belgium, Brazil, Denmark, Finland, France,
Germany, Italy, Japan, the Netherlands, the Russian Federation,
Spain, Switzerland, the United Kingdom and the United States of
America.
Observers at the meeting were representatives of the governments of
Australia, Canada and Norway as well as the International Monetary
Fund, the World Bank, the African Development Bank, the European
Commission, the Organization for Economic Cooperation and
Development and the Secretariat of the U.N.C.T.A.D.
The delegation of the Federal Republic of Nigeria was headed by Dr
(Mrs) Ngozi OKONJO-IWEALA, Minister of Finance. The meeting was
chaired by Mr. Xavier MUSCA, Director General of the Treasury and
Economic Policy Department of the Ministry of Economy, Finance and
Industry, Chairman of the Paris Club.
Technical notes
1. The Policy Support Instrument (PSI) concluded by
Nigeria with the International Monetary Fund was approved by the
Fund's Executive Board on 17 October 2005.
2. The total stock of Nigeria's public sector has been estimated as
at end 2005 at US$ 36.2 billion, out of which around US$ 30 billion
due to the Paris Club (source: IMF staff report and Paris Club
creditors).
Nigerian Threat to Repudiate Helps Force Paris Club to Deliver Debt
Cancellation
Civil Society Concerned by Creditors' Insistence on Immediate $12
billion Payment to Secure Cancellation, IMF Conditions
Jubilee USA Network
http://www.jubileeusa.org/press_room/release102005.html
October 20, 2005
Contact: Debayani Kar, 202-783-0215, 202-246-8143;
Neil Watkins, 202-783-0129, 202-421-1023
Washington
Nineteen rich country creditors grouped in the Paris Club
officially announced today an $18 billion write-off of Nigeria's
debt, whose total debt to these creditors is around $30 billion.
While Jubilee USA Network and other civil society groups welcome
the Paris Club's move to write off a substantial portion of
Nigeria's debt, groups expressed specific reservations on the deal,
including the terms of the debt buyback and the involvement of the
International Monetary Fund (IMF), which is not a Nigerian
creditor. Some observers pointed to the role of an early 2005
process in the Nigerian parliament calling on the government to
repudiate the impoverished country's debt as a key factor forcing
the Paris Club to act.
Jubilee USA is concerned however about specific terms of the
agreement reached today that would require the Nigerian government
to spend $12 billion on debt service payments over the next six
months as part of the buyback arrangement, while adhering to a
newly-created IMF economic program. The new IMF program, the Policy
Support Instrument, extends IMF power to those countries it is not
lending to. Past impoverished country experiences with similar IMF
programs have shown that such programs lead countries to privatize
essential services and cut social sector spending. Despite the
concerns, Jubilee USA Network shares the Nigerian government's
hopes that debt cancellation will allow the country to channel
resources away from debt servicing and towards health care,
education, and other critical social needs.
Debayani Kar, Communications and Advocacy Coordinator of Jubilee
USA Network said: "Nigeria's debt write-off at the Paris Club
demonstrates the partial success of the Nigerian parliament's
threat to cancel its own debt through repudiation, which helped to
force the hand of these creditors. While we are encouraged by the
Paris Club's agreement to cancel some of Nigeria's debt, we don't
think it makes sense to make an impoverished country like Nigeria
pay $12 billion when that money should be spent on AIDS, health,
and education."
Rev. David Ugolor, President of African Network for Environment and
Economic Justice (ANEEJ) in Benin City, Nigeria said: "The Paris
Club cannot expect Nigeria, freed from over 30 years of military
rule, to muster $12 billion to pay off interest and penalties
incurred by the military. Since the debt, by President Obasanjo's
own admission, is of dubious origin, the issues of the
responsibilities of the creditors must be put on the table at the
Paris Club. As desirable as an exit from debt peonage is, it is
scandalous for a poor debt distressed country, which cannot afford
to pay $2 billion in annual debt service payments, to part with $6
billion up front or $12 billion in three months or even one year."
Sony Kapoor, Senior Advisor at Christian Aid (UK) said: "The deal
will provide much overdue relief and free Nigeria from much of its
debilitating debt. However it took the threat of repudiation to get
this cancellation - as if the obvious need of the people and the
odious nature of much of the debt were not enough. What is worse is
that creditor countries are extracting a pound of flesh in the form
of $12 billion worth of payments from Nigeria and have put in place
a new IMF program despite Nigeria not owing anything to the Fund.
On a more positive note, the deal has set the scene for a more
assertive negotiating stance by other indebted developing
countries."
Nigeria's Creditors Should be Ashamed, says Global AIDS Alliance
Nigeria to Send $12.4 Billion to World's Richest Nations
Global AIDS Alliance
http://www.globalaidsalliance.org/press102005.cfm
Contact: Paul Zeitz, 1-202-365-6786
Washington, Oct 20 -- Today Nigeria reached an agreement with its
largest creditors, grouped in what is known as the Paris Club. The
agreement will lead to the cancellation of a large portion of
Nigeria's massive $35.9 billion debt, 85.8% of which is owed to the
Paris Club. The debt had built up over many years, following loans
given by France, Germany, Japan, the United Kingdom and others to
a string of Nigerian despots.
In today's agreement Nigeria has been granted cancellation of $18
billion of its eligible debt. But, to receive this deal, Nigeria
had to commit to paying the Paris Club nations $12.4 billion,
mainly to France, the UK, and Germany. This figure comprises $6.3
billion in arrears to be paid by the end of October, plus another
$6.1 billion for a debt buy-back operation next March.
"This agreement extracts $12.4 billion from Africa and transfers it
to a group of wealthy countries who do not really need the money,"
said Dr. Paul Zeitz, Director of the Global AIDS Alliance. "It is
an outrage that creditors simply plan to use this payment to fill
their treasuries. The annual budget of such creditors as Japan and
the United Kingdom is over 100 times that of Nigeria. Surely we can
do better than accepting taking billions from the world's poorest
continent. We expect more from the G8 nations, who promised Africa
so much in their Gleaneagles declaration in July."
"Nigeria's government has made the best of a terrible situation,"
he noted. "In the long run, Nigeria could save a billion dollars a
year in debt repayments and potentially double health spending.
That is an impressive achievement. Nigeria has the third highest
number of HIV positive people in the world, and with these
resources it could scale up AIDS treatment."
"However, the creditors should be ashamed of themselves if they
simply take this money," Zeitz stated. "These creditors often knew
that the money would be siphoned off by dictators and deposited in
western banks, and the resulting debt is morally illegitimate. They
bear a moral obligation to think more creatively about how to use
this money. Nigeria has already paid these creditors $11.6 billion
in debt service since 1985. We challenge the creditors to redirect
this additional $12.4 billion to Africa's development."
"A substantial portion of this sum should be given to the Global
Fund to Fight AIDS, Tb and Malaria and specified for high-quality
health projects in Africa," Zeitz said. "The Global Fund has stated
that it urgently needs greater contributions to proceed with
additional grant-making next year."
"The contribution of Nigeria's debt payments would revolutionize
the financial status of the Global Fund. Let's make sure African
resources go towards helping Africa, not wealthy nations."
...
Nigerian Debt Deal Reduces Risk of Instability in Major Oil
Producing Nation
Center for Global Development
http://www.cgdev.org
Media Contact: Tony Kopetchny, ph: 202.416.0705, email:
kopetchny@cgdev.org
Washington: A deal announced in Paris today to relieve Nigeria of
$18 billion in debt is a major boost for poverty reduction and
stability in a fragile nation that is Africa's most populous
country and the world's fifth largest oil supplier, according to a
leading debt expert.
"The Nigerian debt deal is a win-win solution," said Todd Moss, a
leading scholar on Nigeria's debt at the Center for Global
Development (CGD). "It is a huge boost for Nigeria, where the
current leadership is working to break the stranglehold of cronyism
and corruption. It is also good news for the U.S. and other rich
countries, since greater stability in Nigeria reduces the
risk of a major disruption in global oil supplies."
The Nigerian deal is the outcome of more than a year's worth of
negotiations that gained momentum in June with a World Bank
decision to reclassify Nigeria in a way that made it eligible for
debt relief. Nigeria accounts for about 10% of U.S. oil imports and
is one of the world's poorest and most populous countries, with 100
million people living on less than a dollar a day.
Moss said that Nigerian President Olusegun Obasanjo faces a hostile
parliament that has made debt relief a major test of his
administration. "The debt deal will strengthen Obsanjo's hand
in pushing for reforms, thereby reducing the threat of
instability," he said.
Under the deal, Nigeria's overall debt drops by about $30 billion.
Nigeria will use windfall oil profits to pay rich country creditors
roughly $6 billion to clear arrears, plus another $6 billion to buy
back $24 billion at about twenty-five cents on the dollar. The deal
saves Nigeria $18 billion it otherwise would have owed. When all is
done, only a manageable $6 billion in commercial debt will remain.
CGD is an independent Washington-based think tank that works to
improve the policies of the U.S. and other rich countries towards
development. Research at CGD on Nigeria's debt led by Moss helped
to shape the proposals that were announced today.
October 11, 2005
Todd Moss
CGD began working on Nigerian debt issues in early 2004 to
provide analytical support to Nigeria's ongoing efforts to
persuade its creditors to agree to an appropriate debt relief
package. In October 2005 Nigeria and the Paris Club announced a
final agreement that should lead to debt relief worth $18 billion
and an overall reduction of Nigeria's debt stock by $30 billion.
CGD Research Fellow Todd Moss, who leads Center's work on
Nigeria's debt, explained how the deal will work in a Q&A just
days before it was announced.
Q: What is the current status of Nigeria's debt? How much debt
is there, and what are the prospects for debt relief?
A: Nigeria has about $36 billion in external debt, most of which
is owed to the Paris Club creditors. More than half is owed to
just Britain, France, and Germany. The Paris Club agreed in June
to a 'framework' for reducing Nigeria's debt which involves two
steps. First, Nigeria has to clear about $6 billion in arrears.
Then Nigeria can negotiate a reduction with the Paris Club on
so-called Naples terms for the remainder, which is likely to also
include a discounted buyback. The signs are fairly good for a
deal soon, perhaps the first step concluding later this month.
The second step will depend on Nigeria keeping macroeconomic
conditions under control for another six months or so. If that
all happens, Nigeria's debt problem could effectively be over by
early next year.
Q: Nigeria exports oil, and oil prices are at near record highs.
Why should the rich countries be interested in providing Nigeria
with debt relief?
A: It is exactly the high oil prices that enable this deal at
this time. Nigeria will use a big chunk of its oil windfall to
clear its arrears and buyback its debt. So the creditors are not
giving anything away for free, nor is Nigeria avoiding its past
obligations. At the same time, agreeing to a discount is in the
interest of the creditors who not only want to collect this old
debt, but also have other interests in the region, especially
encouraging economic reform and helping to stabilize a fragile
democracy in a volatile country which supplies a lot of western
oil.
Q: What would the implications be of a Nigerian debt deal within
Nigeria itself?
A: A successful debt deal would be a huge boost to President
Obasanjo and his economic team which has been working to try to
break the stranglehold of cronyism and corruption that stifles
Nigeria. On a short-term cashflow basis, the impact isn't very
large. But the deal will free up the government to focus on other
pressing issues. One other bonus of a buyback is that it locks in
a rate of return for the savings from oil. In the past Nigeria's
oil savings have been stolen by crooked regimes. Using the extra
money to buy back the debt means that the money can never be
stolen, no matter who comes to power. And the debt will be gone
forever.
Q: CGD has played a key role in the debate over Nigerian debt
relief. What can you tell us about that?
A: If the deal goes ahead, the real credit goes to the finance
minister Ngozi Okonjo-Iweala and her colleagues who have put in
months of grueling work to get this done. The creditors also
deserve credit for thinking creatively about how to get all sides
out of this lose-lose situation.
CGD did help to move things along in two ways. First, Nigeria was
not considered for debt relief in the past because of a
technicality related to its classification within the World Bank.
We did some analysis last year which showed that Nigeria was in
the wrong category. In June 2005, partly as a result of our work,
the World Bank reclassified Nigeria as IDA-only, opening the door
to everything else. Second, in April this year we proposed a debt
buyback and gave some benchmarks for a possible deal. This
proposal was used to open the dialogue over the buyback and gave
both sides an opportunity to openly consider what might otherwise
have been a sensitive topic for either one to broach. As a
neutral player with no financial interest in the outcome, CGD
could make both of these proposals and be taken seriously by both
sides. I think the key role for think-tanks like CGD is to
undertake independent analysis and generate new ideas helping
policymakers to solve problems of common interest. This is a
great example of that in practice.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues,
with a particular focus on U.S. and international policies.
AfricaFocus Bulletin is edited by William Minter.
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