MIDWEEK ESSAY: Debt Relief or Debt Punishment ? - The Case of the "Scroogey" Paris Club
Mobolaji E. Aluko, PhD
Burtonsville, MD, USA
November 2, 2005
October 31, 2005 was a deadline date for Nigeria to make a down-payment of $6.3 billion as debt arrears, in order to begin to reduce our Paris Club debt first to $24.84 billon, whereupon a further debt reduction process would be put in motion which will have Nigeria eventually emit $12.4 billion total in order to get a full $18 billion debt relief eventually.
Although our National Assembly has not approved such a payment - according to accounts, it has not even been discussed ever on the floor of the assembly - I can bet my bottom dollar that the payment has been made in anticipation of legislative approval, because (as usual) it has been determined by the presidency that is appropriate to do so now and worry about legal niceties later on.
Such unconstitutional moves in spending our money has become almost routine in this administration.
Anyway, at one level of analysis, I have worried (as expressed in my three recent essays) more about why a poor country like Nigeria would want to emit so much money - $12.4 billion - within six months to any other entity, let alone the Paris Club, bearing in mind both what we could do with so much money NOW as well as the time value of money. At another level of analysis, I am also now miffed as to why any set of fifteen filthily-rich countries called the Paris Club would want to fleece our country of such a huge amount over such a short period, when the amount adds relatively little or nothing to their national coffers.
Why do I write so ?
Do take a look at Table 1, and you will get to ask why these fifteen Paris Club countries are acting like old "Scrooges." [Ebenezer Scrooge was the stodgy, miserly and bean-counting owner of a London counting-house (accountant's office) with a greedy, cold-hearted approach to life that was later reversed by three spirits of Christmas in Charles Dicken's book 'A Christmas Story."]
Reflected in Table 1 is the fact that at least at the end of 2003, according to Nigeria's Debt Management Office (DMO), Nigeria owed them all roughly $32.9 billion. [I am going to be quite liberal with debt figures here, but the conclusions will not be changed much by the actual more current and accurate figures.] Now, Nigeria's GDP in 2004 was $125.7 billion, while those Paris Club countries collectively had $28,453.3 billion - or $28.4 trillion - a 226:1 ratio ! If we emit $12.4 billion by March 2006, that would be 105.3% of our budget revenue for 2004 (which was $11.74 billion). The receiving countries had a collective budget revenue total of $8,637.6 billion in 2004 - or $8.6 trillion or 736:1 ratio relative to Nigeria. That is a mere 0.14% drop in their bucket, with the United Kingdom, which will get the highest amount from our budget payment, getting a mere 0.32% addition to their 2004 budget revenue.
So why should they insist on such a rapid emission ? Why not allow $2 billion to be paid annually for the next six years or $3 billion for the next four years - and still give Nigeria the Naples term 67% reduction - even if they insist that Nigeria draw down the same amount specifically targeted for health, education, energy, agriculture, etc. for the benefit of our citizens ?
Yes, why not ? In any case, Nigeria's public debt ratio relative to GDP (20%) is not particularly high when compared to Japan (164.3%) or Italy (105.6%) and is half of that of the United Kingdom (39.6%), so our problem must not be the debt size itself but how we have managed it.
That observation however, should not be taken as an excuse to go on a new debt binge.
So going back to this Paris Club members, we may yet get the Spirit of November or of December to get them to be more reasonable and reverse themselves - allowing a greater spread-out of payment of the remaining $6.1 billion, or forgiving it altogether.
Yes, hope, as the saying goes, springs eternal.
WEEK-END ESSAY: While We Prepare to Indeed Emit $12.4 Billion in Nigeria for Debt Relief......
Mobolaji E. Aluko [October 29, 2005]
On Debt Relief - Rejoinding the Rejoinders
Mobolaji E. Aluko [August 28, 2005]
MONDAY QUARTER-BACKING: Debt Relief and Nigeria - To Emit or not to Emit $12 billion
Mobolaji E. Aluko [August 22, 2005]
TABLE 1: Some Financial Information on Nigeria and Some Paris Club Countries
[% of GDP]
Debt Owed by
(end of 2003)
to be Received
% of 2004
Paid or Received
Paris Club* (PC):
(Pro-rated payment viz:)
(To be received: )
Subtotal Other PC
Source: CIA Book of Facts; DMO of Nigeria
*. Paris Club members participating in Nigeria's debt re-organization
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.DŠ.
21st October, 2005
WESTERN GOVERNMENTS BACK NIGERIA WITH MASSIVE DEBT RELIEF: MINISTER CALLS ON NIGERIANS TO PICK UP THE BATON
After months of careful preparation, and two days of exhaustive negotiations, the government of Nigeria struck a historic deal with western creditors in Paris on Wednesday 19th October, 2005. The outcome is the Paris Club's biggest-ever debt stock write-off for an African country (a recognition of the vision of the President, the successes recorded under Nigeria's ongoing reform agenda, the hard work of the Economic Team as well as the cooperation and support of the National Assembly).
Under the exceptional deal Nigeria will receive an estimated US$18bn debt cancellation, representing 60% of its debts to the Paris Club. While Nigeria has agreed to repay all outstanding stock of arrears and post cut-off debt, it has also offered to buyback any remaining stock of debt at a market discount that will bring total payments due to the Paris Club of Creditors to US$12.4bn. This deal is spread over 2 phases in 5 months and will mean that Nigeria will have moved from a total debt of around US$30bn owed to the Paris Club, to nil by April 2006.
Other highlights of the agreement include:
The deal is the second largest in the history of the Paris Club, second only to Iraq which however was staggered and phased over 3-years.
The deal is anchored on Nigeria's new Policy Support Instrument (PSI), endorsed by the IMF Board. Nigeria is the first beneficiary of this arrangement, which is a further endorsement of the strength of its home-grown NEEDS Program
The buy-back option, which provides a complete exit for Nigeria, is unprecedented and is the first in the history of the Paris Club.
It will allow the debt service of US$1bn to be put to poverty and MDG related expenditure.
Nigeria will be completely free of Paris Club debts leaving only US$5bn of total external debt, owed to international multilateral organisations and private sector.
The negotiations were led by Finance Minister, Dr. Ngozi Okonjo-Iweala, backed by the Director General of the Debt Management Office, Dr. Mansur Muhtar and his team of experts.
In a statement after the signing of the deal, Minister of Finance Dr. Okonjo-Iweala said:
"This exceptional deal represents a huge vote of confidence by OECD countries in the new Nigeria. Governments across the world have backed President Obasanjo and the country's economic reforms, and backed us with real money. Now it is time for each and every Nigerian to pick up the baton - and play their part in transforming Nigeria into the prosperous, peaceful, hard-working and dynamic society that all Nigerians deserve. This event sets us free to begin to realise our vast potential as a nation." The Minister also indicated that savings on future debt service will be used on MDG related projects.
Senator Udoma Udo Udoma, Senate Chief Whip, who lead a four man team from the National Assembly that also comprised Sen. Bob Effiong (Chairman, Senate Committee on Finance), Hon. Farouk Lawan (Chairman, House Committee on Appropriations) and Hon. Sanusi Sadiq (Chairman, House Committee on Loans, Aids & Debt Management), to the negotiations also had this to say:
" I feel lucky to have witnessed history in the making. There were times when I was quite worried that such a large discount could not be achieved by Nigeria. The signing of the debt relief agreement truly shows what can be achieved by careful planning, by a focused and committed team, relentlessly pursuing a national objective. The nation owes a debt of gratitude to the leader of the team, Dr. Ngozi Okonjo-Iweala supported by the Director-General of the Debt Management Office, Dr. Mansur Muhtar. It is now up to us in the National Assembly to give support to ensure that Nigeria fulfils in full the terms of the agreement and that the benefits of the relief accrues to all Nigerians"
Dr. Muhtar, whose department has for five years effectively managed and monitored Nigeria's debts, said:
"This deal is truly historic. It gives us a clean slate on which to rebuild our economy, expand education and health, and give our children a bright future. Let us now put the past behind us, and commit to guarding our great nation against economic mismanagement and the build-up of debts. That would be the finest legacy we could offer future generations of Nigerians."
Note to editors
1. Nigeria debt to the Paris Club was $30 billion as at June 30th 2005.
2. Under this deal Nigeria is making a total payment of 12.4 billion to the Paris Club, made up of arrears, interest payments and discounted payments on outstanding amounts, through a debt buy-back arrangement to secure a permanent exit from the Paris Club.
3. The deal struck in Paris will result in the cancellation of $18 billion of debt.
We will soon pay Paris Club $12.4bn - Okonjo-Iweala
Yomi Odunuga, Oluyinka Akintunde and Gbade Ogunwale, Abuja
The PUNCH, Tuesday, November 1, 2005
The Minister of Finance, Dr. Ngozi Okonjo-Iweala, on Monday said that the ministry, the Central Bank of Nigeria and the Debt Management Office are on track to repay the $12.4billion Paris Club debt soon.
In a telephone interview with our correspondent, she said the Federal Government was complying with all the agreements reached with the Paris Club on October 20, 2005.
She said, "Let's just say everything is on track. We are complying with all the agreements reached with the Paris Club. Everything is on track with the National Assembly and also with the Paris Club.
"Let it be known that the CBN, the DMO, the Finance Ministry and all stakeholders are complying with the agreement."
In a separate interview with our correspondent on the telephone, the Chairman of the Senate Committee on Foreign Affairs, Senator Jubril Aminu, said the agreement reached with the Paris Club required the payment of $6.4billion arrears.
Aminu said, "I won't be surprised if the payment has been made. It is one of the major requirements for the cancellation of the country's debt to the Club."
The Finance minister had, on Sunday in Abuja, indicated that the government would pay the first tranche of $6.4billion on Monday, to enjoy the 60 per cent debt cancellation offered by the 19-member countries of the Paris Club.
The money is being sourced from the nation's foreign reserves, which had risen to over $26billion as at August 2005. The foreign reserves are also made up of the excess crude oil proceeds, which had exceeded $10billion as at the end of September 2005.
Nigeria is expected to pay an amount of $12.4billion, representing a regularization of arrears of $6.3billion, plus a balance of $6.1 billion to complete the exit strategy.
The country owed the Paris Club of nations $30.847 billion as at December 31, 2004, which was made up of outstanding principal of $25.199 billion and arrears of $5.648 billion.
Nigeria and the Paris Club had, on October 20, signed an agreement to implement the debt treatment framework for Nigeria, first announced by the Club on June 29, 2005.
Under the agreement with the Paris Club, Nigeria is expected to pay arrears due on all categories of debts in the first phase and the Paris Club creditors are to grant a 33 per cent cancellation of eligible debts.