Paris Club Grants Nigeria $18bn Debt Relief

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http://www.thisdayonline.com/nview.php?id=21479

The Paris Club yesterday agreed to cancel 60 percent of a total of $30.515 billion owed to it by Nigeria, translating to a significant reduction by $18.309 billion of the debt burden.

However, the Federal Government has announced a plan to pay back some of the remaining debt stock owned to Paris Club with proceeds from the excess crude proceeds subject to approval by the Council of State.

The country owed 85 percent of its total external debt of $35.9 billion to the Paris Club, which has as its members, 15 creditor countries.

The remaining 40 per cent of the Paris Club debt will be settled through a debt buy-back operation after the country must have paid arrears of about $6 billion on the about $30 billion debt.

A communiqué issued by the Paris Club titled “Paris Club Creditors Agree in Principle on a Comprehensive Debt Treatment for Nigeria,” read thus: “The representative of the Paris Club creditor countries met in Paris on 29 June 2005 and expressed their readiness, consistent with their national laws and regulations, to enter into negotiations with Nigerian authorities in the months to come on a comprehensive debt treatment.

“They took note of the economic reform programme implemented by the Nigerian authorities since 2003 and of their willingness to take advantage of exceptional revenues in order to finance an exit treatment from the Paris Club.

“This announcement takes place after Nigeria has recently been declared eligible to IDA-only borrowing status and at a time when Nigeria has decided to renew closer relations with international financial institutions.

“Creditors welcomed Nigeria’s willingness to conclude a policy support instrument (PSI) as soon as this new instrument is approved by the board of the IMF, to pay all its arrears towards Paris Club creditors and to treat them equitably. On this basis, this debt treatment would include reduction up to 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 phased in relation with appropriate IMF review under PSI.

“This exceptional treatment of Nigeria’s debt would offer a fair, sustainable and definitive solution to Paris Club creditors and Nigeria. The significant debt relief would ensure long term debt sustainability and would represent an important contribution by Nigeria’s Paris Club creditors to its economic development. It would also help Nigeria in its fight against poverty.

“Paris Club creditors are ready to invite Nigeria to negotiate in Paris as soon as it has concluded a policy support instruments with the IMF.”

Commenting on the development yesterday in Abuja, a visibly elated Finance Minister, Dr. Ngozi Okonjo-Iweala said, “to state the obvious, this is a wonderful news for the country! It gives us a chance to start on clean slate without the heavy baggage of debt undermining our plans.”

The Finance Minister said “the whole package is such that we can expect debt relief of about 60 per cent on our current Paris Club debt. We expect to pay off the balance of about 40 per cent through a debt buy back operation.”

She, however, pointed out that the country would have to clear about $6 billion being arrears on the Paris Club debt following which the reduction will be done on “Naples Terms,” and subsequent buy back of the remainder.

She said discussions will commence in September on details of the debt with the 15 countries, and the talks are expected to last till the end of the month. She said after the details have been fine-tuned with the countries and the $6 billion paid, the nation will be relieved of 60 per cent of the debt by November and that the final exit from the club is expected by the end of the year.

Naples Terms, according to her, is a “more generous relief package reserved only for lower income countries that show good performance on reforms.”

The Paris Club had after an intensive meeting Wednesday issued a communiqué yesterday, which contained an approval of the country’s debt cancellation.

THISDAY gathered that officials of the Ministry of Finance led by Okonjo-Iweala had kept vigil Wednesday night getting in touch with Paris and seeking clarifications on the content of the communiqué and the details of the agreement.

Okonjo-Iweala said the 60 per cent write-off (about $18 billion) “compares favourably with the $40 billion write-off for 18 low-income heavily indebted countries out of which 14 are Africans.”

She added that the Paris Club has agreed to recognize the country’s implementation of its homegrown reform programme under the International Monetary Fund (IMF) monitoring, as a legitimate instrument that fulfilled the requirements for debt relief.

This, according to her, “is unprecedented and a major achievement for the country and the approach will now be encapsulated in a new instrument modeled on Nigeria and known as Policy Support Instrument (PSI).”

She also said the country with the support of the World Bank was able to convince the Paris Club that the use of debt service funds will be invested in vital sectors like education, health, agriculture, water and power, which are all related to the Millennium Development Goals (MDGs).

Okonjo-Iweala who said those sectors are critical to the well being of the Nigerian people, noted that “starting from budget 2006, an additional $1 billion will be invested in these areas.”

On using the windfall from the sale of excess crude to offset part of the debt, Okonjo-Iweala said the country will use the excess proceeds to pay some portions of the debt, but noted that the plan will have to be approved by the Council of State.

“I have just come from the meeting of the governors and as you know Nigeria is a federation with the Federal Government, state government and the local government. We will find the resources to pay our arrears. This is something that we have completely agreed to and to complete the buy back, we find the resources. This, of course, entails the discussion with the team. All of us have to come together and discuss this and agree. We are going to have that conversation very soon. I’m sure that Mr. President will give a convening date to discuss this.

“Yes we will find the resources and we are willing to channel some of our windfall proceeds towards doing this. I think this is something all Nigerians want to see us come out. It’s a strong issue in Nigeria that we want an exit and therefore we use some of our windfall to execute that and from next year we will be able to apply whatever amount that we hitherto put into debt service into poverty reduction and others,” she said.

On mechanism to avoid huge foreign debt in future, Okonjo-Iweala said, “I don’t think we should ever make the mistake again by getting ourselves into this kind of a mess that we find ourselves. This road to debt relief has been so long and so hard. This is not the first time we tried. In the 90s, we tried, we didn’t make it and now we got this to happen.

“In the cabinet we have agreed that we don’t want any loan that is not concessional. For example, IDA loans at zero interest with 40-year moratorium and 10 years with just commitment charge. That is the type we have been looking at. Even at that we have to watch ourselves. Any other type of loan, I think there is a consensus that we will not get ourselves into that. I think later we will be discussing what are the instrumentality for ensuring this discipline is kept in place.”