July 01, 2005/Source The Guardian
EDITORS NOTE: We are asking readers to write in and tell us what they believe will be the impact of this debt-write off on their personal finances. We will publish selected responses on the website.
Nigeria\'s vigorous campaign for debt pardon has paid off. Some of its creditors under the Paris Club, which have rated the Federal Government\'s economic reforms as far-reaching and focused, have written off $18 billion or 60 per cent of the $30 billion Nigeria owed the cartel.
That is not all. The creditors said that they would go further to raise the amount of the debt to be cancelled to $20 billion or 67 per cent very soon.
In a statement conveying the cheering news to the Federal Government, the Paris Club said that in arriving at the debt forgiveness option for Nigeria, it took special cognisance of the economic reform programmes of President Olusegun Obasanjo\'s administration.
Only recently, the Group of Eight (G-8) richest nations wrote off $40 billion debt of the world\'s poorest countries, 14 of which are in Africa.
Nigeria was completely excluded from the G-8 largesse, but officials of the Federal Government and some foreign financial agencies like the World Bank had assured that the nation was being considered for debt pardon under a special package.
Hence, when the news came from the Paris Club yesterday, an elated Finance Minister, Dr. Ngozi Okonjo-Iweala, went into the nitty-gritty of the creditors\' action.
The creditors, which also noted the government\'s willingness to take advantage of exceptional revenue to finance an exit treatment from the Paris Club, said that the significant relief would ensure long-term debt sustainability.
The creditors said that the measure represents their contribution to Nigeria\'s economic development.
\"It would also help Nigeria in its fight against poverty,\" the creditors said in the statement yesterday.
Okonjo-Iweala, who announced the olive branch from the Paris Club in Abuja yesterday, said that Nigeria would still be expected to clear the arrears of about $6 billion (about 40 per cent) debt to the cartel. Thereafter, government would buyback the remainder to provide it an exit from the Paris Club.
\"The whole package is such that we can expect debt relief of about 60 to 67 per cent of our current Paris Club debt. We expect to pay off the balance of about 40 per cent through a buy-back option. This effort would represent a write-off of between N18 to N20 billion for Nigeria, which compares favourably with the $40 billion write-off for 18 low-income heavily indebted countries of which 14 are in Africa.
\"The Paris Club has agreed to recognise Nigeria\'s implementation of its home-grown reform programme under the International Monetary Fund (IMF) intensified surveillance as a legitimate instrument that fulfils the requirements for debt relief. This is unprecedented and a major achievement for the country. This approach will now be encapsulated in a new instrument modelled on Nigeria and known as Policy Support Instrument (PSI),\" the minister said.
Following the action, Nigeria has been invited to conduct detailed negotiation and finalise a Memorandum of Understanding (MoU) with the Paris Club in September 2005. Nigeria will be expected to discuss with the 15 creditor-nations the remaining issues on the debt over-hang at the meeting.
To enjoy debt relief, Nigeria was considered alongside other poor countries because of its celebrated performance of the current reform.
Similarly, working with the World Bank and IMF, Nigeria successfully argued its case for the use of debt service funds for education, health, agriculture, water and power - areas which are related to the Millennium Development Goals (MDGs) and crucial to the well-being of Nigerians.
Okonjo-Iweala reaffirmed that whatever money Nigeria saves by not servicing its debt would be channelled into development projects that would impact on the lives of Nigerians, adding that after the debt reduction, the country would use part of its resources to pay off the balance.
\"We will pay off our 40 per cent through our resources and have a buy-back from the Paris Club,\" she said.
From next year, the minister said that an additional $1 billion would now be invested in these areas.
On the possibility of Nigeria returning to the status quo through the accumulation of more loans in the future, Okonjo-Iweala said that there was now a consensus among government players that the nation won\'t get into the situation again.
As an assurance of seeing that the saved funds are channelled from the point of release to the point of expenditure, she said that one Mrs. Amina Ibrahim, has been appointed to head a committee constituted by the President for that purpose.
Also, a system to track MDGs related expenditure and link it to results on the ground has been developed and President Olusegun has inaugurated a commission chaired by himself to undertake the exercise quarterly.
Obasanjo had in April 1999 after his election initiated a relentless campaign for debt relief for the country. The crusade gathered momentum as he went ahead to appoint an economic team led by Okonjo-Iweala to oversee the reform process. The implementation of the economic reform programme provided the anchor for government\'s renewed efforts to persuade the creditors to listen to Nigeria\'s case for debt relief.
The Paris Club statement read: \"The representatives of the Paris Club creditor countries met in Paris on 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. 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 International Development Association (IDA) only borrowing status and at a time when Nigeria has decided to renew closer relations with the 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 debt 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 would be phased in relation with appropriate IMF review under the 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 instrument with the IMF. \"
Hopes of a possible debt deal for Nigerian were raised when the new Managing Director of the World Bank President, Mr. Paul Wolfwitz had at the conclusion of his visit to Nigeria on May 17, 2005 stressed that a pronouncement to that effect was to be made soon.
He was quoted to have said: \"Regarding debt relief from the Paris Club, the President is hopeful that a mutually agreeable solution that is satisfactory to Nigeria would be reached soon. I noted that Nigeria\'s strong economic performance augurs well for reaching such a solution, and that the IMF would be prepared to provide an assessment letter to this effect, if requested by the Paris Club.