Dedicated to Nigeria's socio-political issues
October 3, 2007 - December 2, 2007
Debt Relief, Debt Punishment or Greed?
- The Case Of The "Scroogey" Paris Club
Mobolaji E. Aluko,
November 2, 2005
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.
Moving on .
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.
TABLE 1: Some Financial Information on Nigeria and Some Paris Club Countries
Source: CIA Book of Facts; DMO of Nigeria
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 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
© 1999 - 2006 Segun Toyin Dawodu. All rights reserved. All unauthorized copying or adaptation of any content of this site will be liable to legal recourse.
Segun Toyin Dawodu, P. O. BOX 710080, HERNDON, VA 20171-0080, USA.
This page was last updated on 10/27/07.