Debt Relief: Nigeria, Paris Club Close to Final Deal
IMF approves 2-year PSI
From Eziuche Ubani in Paris and Samuel Famakinwa in Lagos, 10.18.2005
Nigeria and the Paris Club of creditor nations were by last night on the verge of reaching a final agreement on the terms of the debt deal expected to knock off about 60 percent of the country's $31 billion external debt.
And in Washington DC, United States the Executive Board of the International Monetary Fund (IMF) has approved a two-year Policy Support Instrument (PSI) for Nigeria under the Fund's newly created PSI framework to support the nation's economic reform efforts.
At a full meeting of the Club which held at its secretariat in Paris, France yesterday, Finance Minister Ngozi Okonjo-Iweala reported the considerable improvements in the economy due to the government's reform programme.
"We told them of the vast improvements due to consistency in the implementation of the policies in our reform programme and our commitment to sticking to it. We also showed that leakages in the public sector have reduced tremendously," she said.
She said questions were raised about how the gains in revenue from the debt deal will be applied to poverty reduction and the achievement of the Millenium Development Goals. "We outlined measures we have taken to ensure that the resources that will be freed from the debt deal will be appllied to specific projects that benefit the poor through education, health, intensification of immunisation and provision of water resources among others," she said.
According to her, some delegations sought to know how Nigeria will ensure that the gains from the debt deal are not lost to corruption. She outlined measures so far implemented to reduce corruption and the gains made.
"We cited the improvement in public procurement through the due process,the spirited campaigns of the Economic and Financial Crimes Commission which have helped to uncover cases of fruad and money laundering. More importantly, we reported an agreement between the EFCC and Microsoft which will help to stop internet fraud", she said.
She said it was a helpful coincidence that this year's Corruption Perception Index of Transparency International showed positive improvements in Nigeria's standings."That is a positive indication that Nigeria was battling corruption"
Feelers from the meeting show an innovation in Nigeria's strategy. Unlike before when the team talked about the external debt to the exclusion of everything else, the presentation talked of a holistic view of the debts and Nigeria's difficulties.
The minister presented the profile of Nigeria's domestic debt which needed to be paid to energise the economy and the huge pension bill which the Nigerian government is grappling with. The presentation also drew attention to the fact that beyond the debt,huge investments were required to improve infrastructure.
After the presentation, Okonjo-Iweala made a specific request for the consideration of Nigeria's debt along the Naples terms. At that point, the chairman of the club asked her to leave the meeting so that the delegates can consider her presentation. The parties broke into seperate technical seesions for the continuation of the negotiations. As at the time of filing this report, negotiations were still on and may continue till this morning,
If the parties resolved the remaining outstanding issues tonight,an agreement may be signed today. The minister played down her expectations but said she was hopeful of a final deal.
Rising from a meeting Monday in Washington, D.C., United States, the Executive Board of the IMF noted that the approval of a PSI for Nigeria signifies the Fund endorsement of the policies outlined in the National Economic Empow-erment and Development Strategy (NEEDS). This PSI has now cleared the way for debt relief negotiations between the Nigerian government and the Paris Club. The negotiations started yesterday in Paris, France.
In a statement issued at the end of the meeting, the IMF said that "Nigeria's PSI is based on the National Economic Empowerment and Development Strategy (NEEDS), Nigeria's Poverty Reduction Strategy, and focuses on rapid and sustainable non-oil growth and poverty reduction".
According to the Fund, the PSI will assist Nigeria to develop a well-articulated and sound policy framework, including prudent macroeconomic policies, a strengthening of institutions, and to ensure a governance structure conducive to private sector activity.
The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies.
THISDAY had exclusively reported in July that the IMF would approve the PSI for Nigeria.
"PSIs are voluntary and demand driven. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP).
"This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. Members' performance under a PSI is normally reviewed semi-annually, irrespective of the status of the program", the IMF noted statement.
Commenting on the Executive Board decision, Ms. Anne Krueger, First Deputy Managing Director and Acting Chair, said, "Over the past 18 months, Nigeria has made commendable progress in implementing its economic reform program, aimed at accelerating economic growth, reducing poverty, and meeting the Millennium Development Goals. More recently, the authorities requested a Policy Support Instrument in support of a comprehensive reform program based on their National Economic Empowerment and Development Strategy.
"The program emphasizes pro-growth and export-oriented reforms that - along with prudent fiscal, exchange rate, and monetary management-will boost external competitiveness over the medium term. It is formulated with quantitative and structural assessment criteria that reflect policies meeting the IMF's standard of upper credit tranche conditionality-the same policy standard that would warrant IMF financial support beyond the first credit tranche.
"The continuing close relationship with the Fund envisaged under the PSI approved today should support Nigeria in developing a well-articulated and sound policy framework and implementing the next phase of reforms, and promote and facilitate private sector activity and debt relief.
"A key challenge going forward will be to maintain an appropriate stance and mix of fiscal and monetary policies, in view of the importance of reversing the upsurge in inflation that was associated with the expansionary monetary and fiscal policies in early 2005.
"While the government is committed to containing spending in 2005 below budget appropriations, the projected increase in spending is still large, and the resulting fiscal expansion will place more of the burden of controlling inflation on the central bank.
"Following the failure to sterilize the buildup of excess liquidity in the first half of the year, the Central Bank of Nigeria (CBN) has recently taken stronger measures to reduce money growth-including increased sales of foreign exchange, more aggressive open market operations, and a further increase in cash reserve requirements-which have put the year-end monetary targets within reach.
"In addition, the prospective adoption of a 2006 budget that reduces the primary non-oil deficit well below the projected outturn for 2005 will further improve the policy mix. At the same time, the government aims to strengthen expenditures on poverty-related programs, allocating an extra US$1 billion to well-defined programs related to the Millennium Development Goals.
"The authorities have initiated a broad and ambitious structural reform program aimed at improving public service delivery and the business environment. The program includes measures to strengthen budget procedures, advance civil service reforms, restructure the banking system, unify foreign exchange markets, rationalize the external tariff system, and improve governance and transparency. The authorities' recent decision to allow oil marketers to increase gasoline prices by about 25 percent will help reduce allocation distortions and implicit subsidies."
"Implementation of the agreement in principle that Nigeria has reached with Paris Club creditor countries should improve investor confidence and free up resources for poverty reduction. Negotiations on a comprehensive debt treatment are expected to take place in the near future.
"The authorities' homegrown program supported by the PSI provides an important opportunity for Nigeria to consolidate the gains achieved so far and address the significant remaining challenges stemming from past economic mismanagement and resistance to reform from vested interests.
"Achievement of the program objectives hinges on timely and rigorous implementation of the envisaged polices. The authorities fully recognize these challenges and are firmly committed to strict adherence to the program. The broad domestic ownership and support at all levels of government bode well for the success of the program.
"The continued provision of technical assistance will be essential for bolstering implementation capacity. More generally, the support of the international community for Nigeria's economic reform program is crucial at this juncture."
The representatives of the Paris Club creditor countries had met in Paris June 29, 2005 and expressed their readiness, consistent with their national laws and regulations, to enter into negotiations with the Nigerian authorities in the months to come on a comprehensive debt treatment but the agreement would be phased in relation with appropriate IMF review under a PSI.