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Debt: Nigeria's debt subject of Paris Club negotiations

Nigeria goes to the Paris Club, and should stand firm...

October 2005

An editorial by Francesco Oddone, Debt Policy and Advocacy Officer, EURODAD

On Tuesday October 18th, Nigeria will go to the Paris Club in order to "negotiate" a major reduction of its foreign debt. This will come only one day after the Board of Directors at the International Monetary Fund will have discussed and approved the country's 2-year Policy Support Instrument (PSI), a brand new instrument designed to monitor and report on policy performance in low-income countries that do not need or want to use Fund resources. The PSI was approved only on October 5th. For more information, see the following article:

As is so often the case, there are both positive and negative aspects to this event. Starting with the pluses, it is undoubtedly good news that an extremely poor country such as Nigeria is finally acknowledged by major creditors as in need of relatively deep cancellation of its outstanding debt stock. Moreover, it is to be welcomed that Nigeria will receive treatment by the Paris Club of creditor countries on so-called Evian terms which allows for some flexiblility and that for the first time a country has been able to receive cancellation from the Club without a formal IMF-written and imposed programme in place. This could set a precedent for cancellation for a broader range of impoverished countries caught in a debt-poverty trap that do not qualify for existing initiatives such as HIPC (think of Kenya for instance).

On the minus side, it is a shame that the Nigerian debt deal will most likely fall far short of what is needed, due to the avid rapacity of rich creditor nations and - more understandably - to what many civil society organizations in Nigeria call the timid stance of President Obasanjo's government. It cannot be denied that much of Nigeria's debt is blatantly illegitimate, having been incurred by dictatorial regimes in most cases with full knowledge and therefore, in our view, co-responsibility of lenders. However it seems that in the end there won't be much to be really "negotiated" in the Bercy next week since creditors have already decided that the maximum level of cancellation which they can all agree on is only 60% in Net Present Value (discounted) terms. This is a laughable amount - if so many lives did not depend on it - when compared with the 80% cancellation that Iraq, a much richer country in overall terms, received last November. Moreover, in order to concede such treatment creditors are demanding that Nigeria repay all its arrears, a sum estimated at around US$ 6 billion, which are to be drawn from the national oil fund (fuelled from higher-than-expected market prices and prudently set aside). Hence Northern governments, obviously totally oblivious of their formal commitments towards achievement of the Millennium Development Goals, are basically funneling hard-earned resources away from the Nigerian people - who are living on average on US$ 1.2 per day - into their safes. We don't think that anyone can doubt the amount of extremely productive ends - schools, hospitals, roads, sewage systems, clean water, etc - this money could be used for: instead, creditors are demanding an up-front payment equivalent to 4 years of present debt service, a simply outrageous fact considering the dramatic needs of Africa’s most populous nation.

But what about the Nigerian government's responsibilities? Well, it certainly seems that the government’s stance on these issues is far less radical or aggressive than much of Abuja's Parliament has been calling for recently. Indeed, the strategic importance of Nigeria's natural resources, the odious nature of much of its debt, and the Iraqi precedent should all have advised President Obasanjo to be much more forceful in order to obtain conditions at least as favorable. Instead, and probably out of a misunderstood picture of the real political dynamics within the creditor community, Nigeria should have played hard ball, confronting the Paris Club on the basis of its needs and of their commitments, and eventually "threatening" to expose their deeply entrenched hypocrisies. They would have had to yield: this is confirmed by the fact that they were genuinely worried, in the last few months, that the Nigerian government would have a change of heart and ask for changes to this deal. We should also not forget that the Abuja Lower House also recently threatened repudiation of the country’s external debt.

Still, it's still not too late: at least formally negotiations have yet to begin, and no signature has yet been put on the Paris Club agreement. The bargaining position is not bad at all: no Northern government could bear the blame of having denied a young but deeply impoverished democracy what it so badly needs. Nigeria can still threaten to walk away without a deal, unless it is a just and fair one. It should do so: it's a win-win situation. Nigeria can't obtain less than what's been offered: it should try to get more by entering into the Club's plenary with the intention to negotiate. To be certain, Nigeria’s deeply impoverished citizens deserve that much. Justice and realism demand some courage, President Obasanjo.

Note: The majority of Nigeria's external debt is owed to ECAs.

For more information:

NGOs condemn dubious aid statistics linked to export credit debt deals September 14, 2005 - a joint statement by Eurodad and ECA Watch on the converstion of ECA debt to ODA.

The Debt Management Office of Nigeria: Original Loan Amounts as of Dec. 31, 2004 (at this writing October 2005) - details of Nigeria's external debt.