DEBT
CANCELLATION:
A CASE FOR NIGERIA
Nigeria obtained its independence
on 1st October 1960 as a Democratic Federation in very auspicious circumstances.
At home Nigerian citizens were full of great expectations, enthusiasm and
confident hopes that the country would quickly transform into a modern and
developed nation of happy citizens. Among its numerous friends and well-wishers
abroad, the feeling was one of high hopes that Nigeria would soon become one
of the leading and more prosperous nations of the world.
This optimism was anchored on the knowledge that the country enjoyed high
level of reserves accumulated by the various Commodity Marketing Boards, and
a very healthy balance of payments situation at independence. The economy
was growing at a healthy rate of over 8% per annum with an inflationary rate
of only 2%. During the period, primary agricultural exports accounted for
an average of 62% of total export earnings and a similar proportion of the
Gross Domestic Product (GDP). Although oil had been discovered since 1956,
it only started to have significant impact on the Nigeria economy after the
Civil War in 1970, when a combination of increasing production and rising
oil prices made the country relatively rich.
The easy and windfall earnings from the oil sector diverted Nigeria's attention
and encouraged the neglect of the nation's agricultural export potentials.
This led to a sharp decline in agricultural output during the 1970s leaving
Nigeria unable to feed its own population for most of that decade. The oil
boom also has the effect of driving up the value of Nigeria's currency, making
its traditional export uncompetitive in foreign markets and therefore exacerbating
the debilitating dependence on oil.
Between 1973 and 1977, Nigeria has earned much income from the sale of petroleum
resources, which empowered it to embark upon ambitious development plans involving
expenditure of some $20 billion. The projects implemented under these plans
were on the whole sound ones, which left lasting benefits to Nigeria. The
rate of expenditure involved however means that Nigeria could only cope without
recourse to international borrowing if the oil boom lasts. As the oil prices
started to plummet, Nigeria began to run into debt. As at 1980, Nigeria's
external debt stock was $3.5 billion. After four years of civilian rule, the
level of Nigeria's external indebtedness has mounted to $20 billion. The debt
continued to rise throughout the next seven years of military rule from 1984
to 1990, when it totalled about $31.5 billion.
THE DEBT CRISIS
As far back as the late 1970´s the world, particularly the Western World
had taken note of the signals that indicate a possible inability of indebted
Third World countries to pay back their debts. The international community
reacted to the prospect of this development by coming up with plans to ensure
that these indebted countries pay back their debts. Such efforts as the Brady
plan, the Trinidad/Naples Terms, the Mauritius Mandate and the Highly Indebted
Poor Countries (HIPC) Initiatives were all put forward to address what has
now become the debt crisis.
THE BRADY PLAN
The Brady Plan was fashioned in 1989 at a time when it was realized that debts
owned to commercial banks were no longer worth their value on paper because
the banks had written off large chunks of them in theory, assuming they would
never be repaid. Brady argued that the banks should reduce the actual value
of the remaining debt for larger debtor countries, so that they had less to
pay. The banks were to do this either by writing off some of the debt with
the help of funds from the IMF and World Bank, or by rescheduling some of
the remaining debt by converting it into bonds - which could be sold on the
secondary market. It was under this deal that Nigerian government obtained
about 60% debt remission from private banks after long sessions of negotiations.
In that deal Nigeria exchanged about $8 billion of principal debts it owed
to banks, including about $2 billion of overdue interest payment for $2 billion
in bond, which the Nigerian government had been servicing regularly.
In terms of total debt stock however, the Brady plan did not help Nigeria
and many other indebted countries greatly. As Nigeria's commercial debts nose-dived,
its multilateral debts continued to rise. Resources continued to flow out
of the country to pay interest on Brady Bonds.
TRINIDAD/NAPLES TERMS
The then British Chancellor
of Exchequer John Major put up the Trinidad Plans at a meeting of the Commonwealth
Finance Ministers Meeting in Trinidad in 1990. Because of the lack of speed
in the implementation of the Trinidad terms, the plans were put on the table
at the G7 meeting in Naples in 1994. It was there that an agreement for the
Trinidad/Naples Terms was reached. This agreement offered remission at a two-thirds
or better level to a list of low-income countries that had satisfactory record
of following the IMF Structural Adjustment terms. However in practice, this
level of reduction was only applied to a small proportion of poor countries'
debts. While Creditors have been very reluctant to offer debt relief, indebted
countries have been forced to keep to stringent Structural Adjustment Programmes
to get debt relief and were not exempted from any repayments to the IMF or
World Bank. Nigeria has not been a beneficiary in this regard apparently due
to the then prevailing political perception of the country by the international
community.
The IMF's Structural Adjustment Programmes (SAPs) have particularly affected
the countries of sub-Saharan Africa including Nigeria, whose economies are
already the poorest in the world. SAPs consist of measures designed to help
a country repay its debts by earning more hard currency - increasing exports
and decreasing imports. In a few countries SAPs appears to have had some good
effect; in most they have worsened the economic situation. In all countries
applying SAPs the poor have been hit hardest. In 1986 when Nigeria adopted
the IMF Structural Adjustment
Programme in order to
obtain more foreign currency, it had to:
Spend less on Health, Education and Social Services - people had to either
pay for them or go without;
Devalue the national currency (Naira), lowering its export earnings and
increasing the cost of imported items;
Cut back on subsides on fertilizers and other essentials, which forced their
prices to go up in a matter of days beyond the reach of average citizen;
Cut jobs and wages for workers in government industries and services, which
raised the unemployment figures with its concomitant effect on crime and
other unlawful activities;
Encourage privatization of public industries, which corrupt government officials
and their foreign partners hijacked for their own personal benefits to the
detriment of the majority poor of the country;
Nigerians have long objected to the imposition of Structural Adjustment programme
as codified in the nationwide INF-Debate held in 1985. They have questioned
the usefulness of an economic programme that daily pushes them to the brink.
It took Western creditors, the IMF and the World Bank until September 1999
to publicly acknowledge the failure of Structural Adjustment policies in tackling
Africa's debt.
THE HIGHLY INDEBTED POOR COUNTRY (HIPC) INITIATIVE
In October 1996, there
was a major shift by the IMF and the World Bank when they produced a debt
relief initiative, which contemplated for the first time the cancellation
of debts owed to them. The initiative was the first comprehensive approach
to reduce the external debt burden of the poorest and most heavily indebted
countries of the world and was seen as an important step forward in the effort
to place debt relief at the centre of international effort to eliminate poverty.
Although the initiative has yielded some early progress, it had come under
intense scrutiny from multilateral organizations, bilateral creditors, civil
societies and governments of debtor countries. A major review of the initiative
in 1999 led to suggestions by Britain's Chancellor of Exchequer, Rt. Hon.
Gordon Brown MP, that the initiative should be financed through the sale of
IMF gold. The new review also proposed 80% debt relief by the key creditor
countries (Japan, the US, Germany, France and the UK). The World Bank also
responded to the package by announcing the establishment of a Trust Fund to
finance the Initiative. While the World Bank has committed resources to the
Trust Fund, the IMF refuses to do that. Instead it proposed to give cheaper
loans to the Highly Indebted Poor Countries (HIPC) to enable them pay off
their expensive debts. Unfortunately there has been no agreement to sell IMF
gold. And the Paris Club of key creditor countries have been reluctant to
give the necessary minimum 80% debt relief.
In practice, HIPC has been very limited in effect. So far only Uganda has
received debt relief. Mozambique, after treatment under HIPC will only pay
1% less in debt payments than it is paying now. As a result, no money will
be released for spending on health and education. Only 3 countries are likely
to see any benefit before the end of year 2000, but Nigeria is not one of
them. However, they will have to maintain strict Structural Adjustment Programmes.
According to Christian Aid, only 6.4% of the total debt of 41 poorest countries
will be tackled, while at the same time debt service is due to rise and commodity
prices to fall.
HIPC AND NIGERIA
Nigeria was one of the
original HIPC countries, defined by the World Bank and the IMF as eligible
for substantial relief. These are countries that are only eligible for highly
concessional assistance from the International Development Association (IDA),
the part of the World Bank that lends on highly concessional terms, and from
the IMF's Poverty Reduction and Growth Facility, formerly known as the Enhanced
Structural Adjustment Facility. HIPC membership was also opened according
to the World Bank and the IMF to those countries facing an unsustainable debt
situation even after the full application of the Naples Terms under the Paris
Agreement. These eligible countries were expected to undertake implementation
of integrated poverty reduction and economic reform programmes.
The World Bank and the IMF cancelled Nigeria's categorization as a HIPC country
in 1998. The reason given by the IMF was untenable: namely that Nigeria is
eligible for non-concessional loans from the International bank for Reconstruction
and Development (IBRD); as well as concessional loans from the soft-lending
arm of the World Bank, the International Development Association. In other
words that Nigeria was a iblendî country. But this was true for Nigeria
when it was included in the HIPC list in the first place. Nothing had changed
except the advent of democracy. Nigeria's GDP per capita is still $300 per
person or even less.
It also needs to be pointed out that while it is true that Nigeria has outstanding
debts to the IBRD as well as IDA, that fact is also true of 23 other HIPC
countries. Besides, Nigeria government was not aware that borrowing from the
IBRD was likely to exclude it from eligibility for HIPC. The new democratic
government has clearly stated that it has no intention of borrowing from the
IBRD, and indeed its IMF agreement would prohibit it from taking IBRD loans.
So in reality, the new government has expressed its determination to take
Nigeria back to its IDA status.
Nigeria and HIPC criteria.
Nigeria's stock of external indebtedness stands at around $31.5 billion, approximately
equal to about 100 per cent of its Gross domestic Product (GDP). This is a
very high and telling statistics in absolute terms. However, INF and World
Bank regulations do not allow them to base eligibility for consideration as
HIPC on debt to GDP ratios.
For consideration as a HIPC country, the key ratio used by the IMF is the
debt to export ratio. Nigerian economy is dependent on oil, which accounts
95% of the country's export earnings. The size of Nigeria's earning from its
exports is also dependent on the volatile and unpredictable oil prices. This
also means that the Debt to Export ratio would be dependent on the volatility
and fluctuation of the oil market. Oil prices have been at less than $20 a
barrel over the last decade, and in spite of the recent rise in the prices,
the London Futures Market has projected that the price would return to that
mark by the beginning of 2001.
Based on the average price of around $20 per barrel and a production capacity
of 2 million barrels per day, Nigeria's oil export revenues (95% of all revenues)
are at most of the order of $14.6 billion. Allowing for production costs and
the share that goes to foreign firms, oil revenues based on $20 per barrel
would provide export earnings of no more than $11 billion to Nigeria. This
means that the effective debt to export is over 250%.
The total debt service due to export revenue ratio, which is another consideration
for membership of HIPC, also presents a very telling statistics about the
capacity of the Nigerian economy. For the year 2000, the total debt service
due is $3.6 billion. The ratio of this figure to Nigeria's export revenues
is over 30%.
Both these ratios have exceeded by far the ratios for eligibility for HIPC
set by the IMF and World Bank. Besides, the IMF and the World Bank have never
defended their decision to remove Nigeria from the HIPC list, despite repeated
challenges for justification by the Nigerian government, the Jubilee 2000
Coalition and other advocates of international debt remission for Third World
countries.
Mauritius Mandate
In September 1997, Rt. Hon. Gordon Brown MP, tried to put some fresh impetus
into the HIPC initiative at the Commonwealth Finance Minister's Meeting in
Mauritius. He called for three-quarters of the 21 countries designated as
highly indebted countries to reach their decision point for debt relief by
the year 2000. Jubilee 2000 Coalition believes at least 50 countries (Nigeria
inclusive) should reach their completion point by the year 2000. Yet even
this limited proposal was frowned at by other creditors at the Autumn 1997
World Bank and IMF meetings in Hong Kong.
Creditors' inherent reluctance to grant debt relief has been revealed more
recently in delays in debt relief for Nicaragua and Ethiopia. The debts of
Guyana, Mozambique and Uganda have been reduced by far less than expected.
When this happened a number of interested observers began to raise real concerns
about HIPC. People started to view it as essentially a framework to guarantee
that indebted countries still service some of their debts.
None of these plans have been adequate to deal with the whole debt problem.
Although some improvements have occurred, mostly in South America, the problem
remains.
The impact of the debt
crisis
The debt crisis is clearly a disaster for poor people who live under the claws
of debt like in Nigeria. However it is not only in the indebted countries
that the effect of the debt could be observed, the fact is that many of the
results of international debt boomerang back to hurt the rich world as badly
as it did the world of the poor.
Susan George in her book, "The Debt Boomerang", has shown how "six
boomerangs" affect the Western world and the creditor countries as much
indebted countries with regard to:
the environment
drugs
bailing out the banks
lost jobs and markets
immigration as well as conflict and war.
Environmental and Ecological
Degradation
Serious environmental destruction began in many Third World countries in the
1970s and 1980s. Easy money was available from industrialised countries for
'development'. Much of it was spent on large dam projects, power plants and
charcoal driven industries. These usually didn't help the poor, and did damage
the environment.
As debts mounted, what poorer countries needed most was foreign currency to
pay back their debts. One easy solution was to milk the earth's resources
for the hard cash they brought in, and cut back on the environmental conservation
programmes. Third World countries have done this by over exploitation of valuable
timbers and pressures on the soil, bushes and low forest from domestic needs.
It is a fact of life that the world's largest debtors are the countries chopping
down their forests the fastest. Brazil is the world's largest deforester and
one of its largest debtors, owing US$112 billion. It is cutting a staggering
50,000 square Kilometres of forest every year. Nigeria is also in a similar
position as the use of chemical fertiliser and oil exploration has brought
glaring ecological problems to the landscape. The environmental damage that
goes with these activities are too obvious to require elucidation here.
As Third World countries struggle to pay back their debts, they have to export
as many goods as possible and cut back on imports. This might seem like a
good way to earn money. In fact they don't earn as much as they should, because
many Third World countries are exporting similar products, flooding the market.
So prices have been plummeting over the last few years.
It is not only debtor countries who lose out by the 'earn more, spend less
principle'. The countries demanding repayment also suffer economically. Western
countries are losing out on earnings from some factory and farm produced goods
because it is so much cheaper to import them from the Third World. At the
same time they are not able to export equipment and other manufactured goods
to Third World countries, which used to be trading partners, because these
countries have no money to buy them. So jobs are lost and unemployment rises.
Before the debt crisis broke, Europe sold about a fifth of its exports to
the Third World, and Nigeria accounted for a substantial share of this trade.
By 1990 however, the entire European sales to Africa was only a little more
than a tenth.
Illicit Drugs
Millions of Americans and Europeans regularly use illicit drugs. Governments
across the Western World have poured money into the struggle against drugs.
The narcotics market in Europe is expanding rapidly, contributing to social
breakdown and violent crime. But for all their strategies to fight drug trafficking,
no government has come up with a solution, which tackles one of the factors
making it possible - international debt. Almost all the major drug-producing
and trafficking countries also have high international debts. To repay debts
they need hard currency from the sale of commodities -like cocoa from Nigeria,
whose value has been falling. Meanwhile cocaine prices have been rising.
Banking on debt
Commercial banks have suffered very little from the accumulation of unpaid
debts. This is largely because Western taxpayers (mostly without knowing it),
inflation, and currency speculation have cushioned the blow for them. In most
countries banks have able to write off their unpaid Third World debts in the
accounts as losses. This means they pay substantially less tax. Yet the debt
still remains and the debtor country has to continue repaying it. While the
weight of the bank's loss is in part made good by the taxpayer, the burden
for the debtor country is enormous.
Another way that banks can gain tax relief on a loan, which is not being repaid
is through selling the debt. In a special system of exchange, one bank can
sell the debts owed to it at a reduced price to another bank, which feels
confident it will eventually be repaid at a higher rate than that discount
price. This is called the secondary market. The banker who sells the loan
can then claim tax relief on the 'loss' he has been made by selling the loan
at a reduced price. Yet the debtor country gains nothing.
ARMED CONFLICTS
Britain uses export credits to subsidise arms sales to the South. In 1993/94,
50 per cent of all export credits provided by the DTI to exporters was for
arms sales. In time, these credits become debts for poor countries. 96 per
cent of the debts owed to Britain by poor countries are owed to the Export
Credit Department of the DTI. Many Third World countries have become deeply
indebted because of high military spending. And as wars escalate, these countries
borrow more to buy more arms and they are less able to repay the money they
owe. One estimate suggests that between 1960 and 1987 Third World governments
borrowed around $400 billion dollars to fund arms imports from industrial
states.
The Third World arms trade has declined after a peak in the late 1980s. Most
of the dictators who invested so heavily in arms are no longer as they once
did. But the debts are still left to be paid.
36. Debt can also lead
to and contribute to war and unrests. As countries become poorer because of
their debts, one route that people take is violence and protest. As it escalates,
it can end in war and it does in many countries of the Third World. As the
debt crisis broke in the early 1980s, violence in many indebted countries
around the Third World erupted into war or escalated conflicts dramatically.
A CASE FOR NIGERIA
Today, after almost one
year of the return of Nigeria to civilian democracy, the true situation of
Nigeria's debt is painfully clear. The debt burden now stands at around $31.5
billion, approximately equal to about 100 per cent of our Gross National Product.
Given the impoverishment of the Nigerian people, with income less than $1
per day on average, even a small amount of debt servicing denies our people
the income that they urgently need for their basic sustenance. When our creditors
demand even $1.5 billion of annual debt servicing, they are demanding nearly
4 per cent of our Gross National Product. More importantly, they are demanding
approximately 4 times what we have been able to muster for public health expenditures
in recent years.
In their book "The Crisis of Poverty and Debt in the Third World"
Martin Dent and Bill Peters captured the reality of the Nigerian debt situation
when they stated that Nigeria has been treated a lot more harshly than its
sub-Saharan Africa counterparts in terms of its loans. The two writers and
leading campaigners for debt cancellation indicated that "Nigeria has
paid an average of 3.5% higher rate of interest, on loans taken between 1985
and 1991 than the average for the rest of Africa South of the Sahara and has
paid $12.241 billion in interest in the 12 years between 1985 and 1996."
While Nigeria was making this huge payment of an average of over a billion
dollars annually to western creditors, it got only $70 million per annum of
grants and aids over this period. Nigeria was probably being treated in this
way because of the false assumption that the country is rich due to its oil
production. The reality however is that with dwindling earnings from petroleum
due to poor oil prices and a population of about 120 million people, Nigeria
clearly could not get as the very huge amount required for debt repayment.
There is also the moral imperative to debt cancellation for Nigeria since
it has in real terms paid the debt over and over again. The fact here is that
Nigeria owed only $3.5 billion in 1980, but had since then paid back $14 billion
to western creditors. Of the current debt balance of about $31.5 billion,
about $9.2 billion is principal arrears and $5 billion is interest arrears.
In all about $18 billion of Nigeria's current debt stock represents penalties
and interests. If consideration were placed only on the direct financial consequences
of Nigeria's huge financial payments to service its unsustainable debt burden,
it might be said that Nigeria had long paid its debt. If there is a moral
obligation to pay debts there is also an equally strong moral obligation to
forgive unsustainable debt.
In addition to the above, Nigeria deserves debt cancellation in consideration
of her peacekeeping and dispute resolution efforts within the West African
sub-region. The stabilising role of Nigeria in West Africa and its leadership
role in ECOMOG, which brought peace and stability to Liberia and Sierra Leone
at a personal cost of over $8 billion to Nigeria, is the point in view here.
This was at a time when its economic fortune was tightest. If Nigeria did
not undertake to bankroll the ECOMOG operations, the United Nations and the
international community would have been forced to address and pay for costs
of maintaining peace and security in our region.
While it is true that Nigeria is endowed with natural resources, it is equally
true that the country has to feed about 120 million mouths in an environment
where unemployment is now very high and with seriously high level of poverty.
Ripples of all these reflect in the sporadic violence and unrest in many parts
of Nigeria. A recent example is the Kaduna Riots, which spread to some parts
of South Eastern part of Nigeria. Many graduates in Nigeria are at present
unemployed and those that are unable to find their ways to Europe, the United
States and other greener pastures of the world, engage in acts of vandalism
destructions and violence.
It also needs to be pointed out that Nigeria's nascent democracy can only
be saved if creditor countries can come to her aid by granting debt cancellation.
People's expectation is that democracy can only be saved if creditor countries
can come to her aid by granting debt cancellation. People's expectation is
that democracy will usher in prosperity, economic recovery and social development.
But they are becoming disillusioned and restive because no measure is yet
in place seriously to address poverty alleviation.
The government is being hindered in this direction by the IMF's and the Paris
Club's insistence that Nigeria devotes $3.6bn - nearly 9% of GDP - to debt
service. The government has made public its intention to use the gains from
recent rise in oil prices for poverty alleviation. IMF staff, in private negotiations,
have vetoed this strategy, and demanded that the revenues be diverted instead,
to Western creditors. The sums to be diverted to western creditors contrasts
with resources available for poverty reduction. The new Poverty Alleviation
Programme just passed by the National Assembly amounts to $100 million - 0.3%
of GDP. Health spending by the Federal Government is set at $150 million -
0.4% of GDP. Education spending has been fixed at $400 million - 1% of GDP.
Despite promises made in Washington in September 1999, when western creditors
recognised the failure of structural adjustment policies in Africa, there
were very tough negotiations before the decision to lay more emphasis on poverty
reduction.
Besides, there is a clear case of social urgency for fundamental debt relief
for Nigeria. Life expectancy in Africa's most populous country is on the decline,
standing at less than 54, as the country suffers from profound crises of health,
nutrition, water, and environmental decline that cannot be met with current
resources. The AIDS epidemic alone is estimated to have reduced life expectancy
by four years, and the crisis will get considerably worse if Nigeria lacks
the resources to combat it with full force. Tens of millions of people lack
access to rudimentary health care, education or clean water. Providing these
services, which are vital to human survival, democracy, and social progress,
will cost tens of billions of dollars in the years ahead. The foreign debt
burden stands as a fundamental barrier to achieving those aims.
Nigeria's social and economic conditions place the country squarely within
the scope of the Highly Indebted Poor Countries (HIPC) initiative. Nigeria
has a per capita income of approximately $300, similar to and in some cases
less than that of the other HIPC countries. The debt burden is more than 100
percent of GNP, much higher than in many HIPC countries. The debt stock is
also several times the value of annual government revenues.
Nigeria was originally included in the list of 41 HIPC countries drawn up
in 1996. It was dropped from the list in 1997, perhaps because of the political
conditions in the country, but without any apparent explanation. The decision
to exclude Nigeria from concessional finance was made by the International
Development Agency (IDA), which is an agency of the World Bank administered
by the same staff as the Bank. The decision to exclude Nigeria from the HIPC
initiative was anchored on a decision of IDA for which the World Bank is primarily
responsible. This is undoubtedly a curious circumstance in which the World
Bank is using its own decision at a certain level as a justification for another
decision. It does appear to be a double jeopardy in which Nigeria was excluded
from IDA's concessionary finance and then as a consequence of that it has
also been excluded for consideration for debt remission as a Highly Indebted
Poor Country.
To compound the issue of the exclusion of Nigeria from HIPC, there are indicators
that the country is not the only eligible HIPC country being financed by both
the World Bank and the IDA. About 23 other HIPC countries are also in this
situation.
Nigeria is technically classified as a "blended country", eligible
(in theory) to borrow from both the IBRD and IDA. This is truly a technicality,
as Nigeria has no intention whatsoever of borrowing non-concessional funds
from the World Bank. Indeed, one of the terms in the IMF draft agreement with
Nigeria is that the government will not take on new non-concessional debt.
Such technicalities must not be allowed to stand in the way of needed debt
cancellation, and Nigeria's technical status with the World Bank should be
changed as necessary to effectuate deep debt relief.
The social conditions in Nigeria are critically low. Life expectancy is in
real terms now less than 54 years, having declined by around 4 years as a
result of the growing AIDS epidemic. Approximately 35 percent of children
under 5 are malnourished. Vaccine coverage has declined to critically low
levels with the breakdown of the public health sector in the past decade.
More than 60 percent of the population lack access to clean water, and must
therefore spend hours per day to meet basic needs for fresh water, or rely
on unsatisfactory water sources that cause debilitation and death due to diseases
such as cholera, dysentery, and other water-borne killers. Education at all
levels has collapsed to intolerable conditions. Physical infrastructure is
in decline. Teachers have abandoned the educational system because of lack
of wage payments. Course materials are unavailable to vast numbers of children.
The Nigerian Government is planning to launch major programmes in education,
health, water, and other rural development as part of its programme of economic
recovery. Already the government has announced the Universal Basic Education
(UBE) programme, calling for universal school attendance in primary and lower
secondary schools, and universal literacy, including adult education. Plans
are on to announce other fundamental reform programmes to provide access to
clean water, primary health care, AIDS control, family planning, micro-credit,
and electrification of rural communities. Realistically, these programmes
will cost billions of dollars per year in the years ahead. The burden of debt
is a serious setback and real inhibition to all these programmes, which at
the moment remain mere dreams.
As the government strives to raise health spending from its current level
of around 1 per cent of GDP to an appropriate target of 3-4 percent of GDP,
and similarly raise spending on other critical social needs, the trade off
between basic needs and debt servicing become critically clear.
The Nigerian Government has also clearly declared its preparedness to welcome
the participation of donors and international agencies in the conceptualisation
and monitoring of these urgent social programmes. In this way, donor countries
and multilateral institutions can be assured that debt cancellation will be
translated directly into effective and monitorable social expenditures.
At this juncture, it needs to be enunciated with full clarity, the position
of the Nigerian Government regarding its foreign debt burden.
Nigeria cannot manage the existing debt burden if it is also to address
the urgent social needs of the needs of the Nigerian people;
A mere postponement of debt servicing through a "rescheduling"
of debt will be insufficient and inappropriate. That, in the past has led
to accumulation rather than reduction. As long as the overhang of un-payable
debt remains, Nigeria's democracy and future will continue to be threatened.
Our country has gone through several rescheduling. We cannot agree to another
such exercise if it does not fundamentally reduce the long-term burden of
the debt;
Nigeria is intent on using the saving from debt reduction - to build a long-term,
effective, monitorable and transparent programme of poverty alleviation,
with emphasis on primary health care, AIDS control, availability of clean
water, rural electrification and universal education for primary and lower
secondary schools and provision of basic infrastructure. We would like to
carry out these programmes in conjunction with the international financial
institutions, especially the IMF and the World Bank. However, we can accomplish
those goals only within the framework of debt cancellation;
Nigeria is now ready to sign an IMF programme based on a framework of macroeconomic
stability, market reforms, and enhanced social programmes, but only within
a framework of fundamental debt cancellation;
We understand that the completion of debt cancellation may require an interim
period of one year. During that period of time, Nigeria will carry out its
programme of reforms and social development, in collaboration with the international
institutions. Nonetheless, the mutual commitment of Nigeria and the creditor
nations to deep debt cancellation should, however, be agreed at the beginning
of the process, and not left to the vagaries of a subsequent negotiation;
Nigeria would expect debt cancellation in order to tackle social needs and
economic realities of the country and the economy. As has been ably demonstrated
above, Nigeria fits the pattern of the Highly Indebted Poor Countries, for
which, the President of the United States and other leading countries have
pledged a 100 per cent cancellation of the debts when the social circumstances
arise. It is pertinent therefore to state that Nigeria's social conditions,
debt burden, democratisation, and ambitious social goals merit treatment
like those of the HIPC countries.
During the interim period, before the completion of the debt cancellation
process, we would expect cash flow relief commensurate with our needs. In
discussion with the IMF, it was suggested that we would pay up to $1.5 billion
this year, but this was premised on our understanding that the IMF would
mobilize up to $1 billion in cash grant assistance, low interest loans and
aid from donor governments, much of which would be used to deal with the
issue of poverty alleviation. With lower cash grant assistance, our capacity
to service the debt this year would obviously be reduced on an equivalent
basis. Some creditors have apparently focused on the $1.5 billion figure
for the year 2000 without considering the correlation of the accompanying
cash-grant and loan interest assistance.
There are indications that some creditor governments have not yet been clear
about the urgency of this issue and misunderstand the position of the Nigerian
government. They do hope that somehow Nigeria would resume debt servicing
at much larger amounts, and would not seek debt cancellation. Unfortunately,
these creditors may fail to appreciate the grim social and economic circumstances
of our country, and the fact that despite the oil revenues, the country remains
extremely poor.
The President of the United States, Mr. Bill Clinton has shown great leadership
in calling for a deep reduction of the debt of the poorest countries when
the social circumstances as the United States President took the lead in the
HIPC initiative and directed his administration to seek 100 per cent reduction
of debt for the countries in need. The Nigerian President therefore appealed
to all members of the EU and G8 to prevail on the IMF and the World Bank to
ensure that Nigeria is restored within his framework as a way of supporting
the urgent need to get this debt issue fully and fundamentally behind. Even
where there is no debt at all, it is certain that Nigeria's social and economic
challenges in the coming years would be profound.
SUMMARY CONCLUSION
Nigeria's current debt
stock of about $31.5 billion is largely due to massive lending received in
the 1980s and the failure of subsequent governments to repay these loans in
the 1990s. While this government accepts vicarious responsibility for these
debts, a great proportion of which was not used for the benefit of majority
of Nigerians, it needs to be indicated that the burden, which repayments of
these debts impose on ordinary Nigerians is becoming increasingly unbearable.
The debt figure is approximately equal to 100% of the country's GDP. Given
the impoverished condition of most Nigerian households, with income of less
than $1 a day on average, even a small amount of debt servicing denies the
government the resources to address the urgent issue of providing basic means
of sustenance to the people. There are few clearer cases of unsustainable
debts that require creditor consideration.
The dwindling fortunes of Nigeria over the last decade and the incredible
degeneration of its social and economic infrastructures necessitated the country
to pay only one third or at the most, one half of the debt service she was
due to pay. In the 13 years between 1985 and 1997, this huge payment of an
average of $1.04 billion annually to its creditors, it was getting an average
of only $70 million per annum of grants and aids over this period. With such
massive transfer of scarce Nigerian resources to service the debts it was
only a matter of time before it becomes obvious that the economy could not
sustain the situation.
It is clearly unrealistic for creditors to demand full repayment of Nigeria's
debt while the country is struggling to restore social and economic stability
after the devastation of the past 15 years.
NIGERIAN FUNDING FOR POVERTY
REDUCTION
In negotiations with the
IMF and the Paris Club, Nigeria had offered to pay the sum of $1.5 billion
for the year 2000 out of a total due payment of $3.6 billion. This commitment
was made within a framework of fundamental debt cancellation and on condition
that the IMF mobilize up to $1 billion in cash grant assistance, low interest
loans and aid from donor governments. With its current resource base, Nigeria
cannot afford to devote $3.6bn - nearly 9% of GDP - to service its debts with
Paris Club, IMF, World Bank and regional bank creditors.
The position of the Nigerian Government regarding its foreign debt burden
has been that Nigeria cannot manage the existing debt burden if it is also
to address the urgent social needs of the Nigerian people. In this respect,
a mere postponement of debt servicing through a "rescheduling" of
debt will be insufficient and inappropriate. That, in the past, has led to
accumulation rather than reduction. As long as the overhang of un-payable
debt remains, Nigeria's democracy and future will continue to be threatened.
Our country has gone through several rescheduling. We cannot agree to another
such exercise if it does not fundamentally reduce the long-term burden of
the debt.
Nigeria also has a clear commitment to use the savings from debt cancellation
to build a long-term, effective, monitorable and transparent programme of
poverty alleviation, with emphasis on primary health care, AIDS control, availability
of clean water, rural electrification, universal education for primary and
lower secondary schools and provision of basic infrastructure. The country
is happy to carry out these programmes in conjunction with the international
financial institutions, especially the IMF and the World Bank. However, we
can accomplish those goals only within the framework of debt cancellation.
Nigeria is also willing to sign an IMF programme based on a framework of macroeconomic
stability, market reforms, and enhanced social programmes, but only within
a framework of fundamental debt cancellation. We understand that the completion
of debt cancellation may require an interim period of one year. During the
period of time, Nigeria will carry out its programmes of reforms and social
development, in collaboration with the international institutions. This would
however require that Nigeria and its Creditors agree to debt cancellation
at the beginning of the process and not be left to the vagaries of a subsequent
negotiation'.
Nigeria would expect debt cancellation in order to tackle social needs and
economic realities of the country and the economy. It has been ably demonstrated
in this booklet that Nigeria fits the pattern of the Highly Indebted Poor
Countries (HIPC), for which, the President of the United States and other
leading countries have pledged a 100 per cent cancellation of the debts when
the social circumstances arise. It is pertinent therefore to state once more
that Nigeria's social conditions, debt burden, democratization, and ambitious
social goals merit treatment like those of the HIPC countries.
The government has made public its intention to use the gains from recent
rise in oil prices for poverty alleviation. Unfortunately however, Creditors
are demanding that these revenues be diverted to service the debt. These sums
are by far higher than what the government was able to muster for poverty
reduction. The new Poverty Alleviation Programme just passed by the National
Assembly amounts to $100 million, which represents a mere 0.3% of GDP. Health
spending by the Federal Government for the year 2000 is set at $150 million
- 0.4% of GDP. Education spending for the same period has been fixed at $400
million - 1% of GDP. In the face of this statistics, we think it is unfair
to continue to insist that Nigeria pays $3.6 billion in debt service. For
Nigeria huge debt service repayments and substantial poverty alleviation programmes
are contradictory policy objectives.
It needs also to be recognized that the economies of creditors countries did
not suffer as a result of the non-payment of this debt all this while. On
the contrary, their economies boomed, and they benefited, in part, because
of Nigeria's low oil and commodities prices. These low prices for oil and
other agricultural and mineral resources effectively represented a transfer
of wealth from the poor people of Nigeria to their rich western creditors.
Perhaps it would be better appreciated when a reflection is made on the fact
that per capita income in Nigeria is less than $1 a day. In Britain, it is
$57 per day; in Germany, it is $78 per day; in France, it is $72 per day;
in Italy, it is $55 per day.
REAL VALUE OF THE DEBT
Nigeria's total debt is estimated at $31.5 billion, which in real terms is
probable valued at about 10 per cent of face value by the Paris Club. (The
US Treasury values poor country debt at only 10% of the face value). Debt
owed to the Paris Club is $21 billion, which is probably valued at only $2
billion. The cost to Paris Club creditors of writing off Nigeria's debt repayments,
spread out over a number of years, would be very little.
Nigerian assets in western banks.
As a result of capital flight and corruption, large amounts of Nigerian reserves
are deposited in foreign banks and institutions. This was clearly known to
western bankers and creditors - in London, Washington, Frankfurt and Zurich.
HIPC AND NIGERIA
Nigeria, as already stated above, was one of the original HIPC countries,
defined by the World Bank and the IMF as eligible for substantial relief.
It was dropped from the HIPC list in 1998. The reason given by the IMF was
untenable: namely that Nigeria is eligible for non-concessional loans from
the IBRD; as well as concessional loans from the soft-lending arm of the World
Bank, IDA. In other words that Nigeria was a "blend" country. But
this was true for Nigeria when it was included in the HIPC list in the first
place. Nothing had changed except the advent of democracy. While it is true
that Nigeria has outstanding debts to the IBRD as well as IDA, that fact is
also true of 23 other HIPC countries.
Furthermore, Nigerian Government was not aware that borrowing from the IBRD
was likely to exclude it from eligibility for HIPC. The new democratic government
has no intention of borrowing from the IBRD, and indeed its IMF agreement
would prohibit its borrowing from IBRD. So in reality, the new government
is taking Nigeria back to IDA status.
NIGERIA AND HIPC CRITERIA
Nigeria's Debt is about 100 per cent of GDP - very high in absolute terms.
However, the IMF and World Bank do not base eligibility on debt to GDP ratios.
For the IMF the key ratio is the debt to export ratio. Nigeria's ratios are
dependent on volatile and fluctuating oil prices. Oil prices have been at
less than $20 a barrel over the last decade, and which the Futures market
is projecting will return to that price by next year. Based on prices of around
$20 per barrel, Nigeria's oil export revenues (95% of all revenues) are of
the order of $14.6 billion. Allowing for production costs and the share that
goes to foreign firms, oil revenues based on $20 a barrel would provide export
earning of no more than $11 billion to Nigeria. This means that the effective
debt to export ratio is over 250%. The debt service due for the year 2000
($3.6 billion) ratio to export revenues is over 30%. As could be seen, both
these ratios exceed by far the ratios for eligibility for HIPC set by the
IMF and World Bank.
It is an irony that the IMF and World Bank provided no justification to date
for their decision to remove Nigeria from the HIPC list, despite repeated
challenges for justification by Jubilee 2000 and other advocates of debt cancellation.
NIGERIA AND 2015 TARGETS
Nigerian GDP per capita is $300 per person or less. Health spending per capita
is a shocking $1.5 per person; life expectancy is 54 and falling because of
Aids; only 38% of children were immunized against measles in 1995-7, 36% of
under 5 children are underweight; and 51% of the population do not have access
to safe water.
According to a calculation by Jubilee 2000, the difference between Nigeria's
taxing capacity and its required social spending to meet the DAC targets is
more than $5 billion a year. This is more than its debt service due. Therefore,
even if Nigeria's debt is entirely written off, it will still need additional
aid of more than $1 billion a year, if it is to meet the internationally agreed
poverty reduction targets for 2015. This means that Nigeria needs total debt
cancellation plus additional aid.
NIGERIA'S POVERTY INDICATORS AND HUMAN DEVELOPMENT INDEX RANKING
45% of Nigerians are below 15 years of age. It is ranked 31st out of about
200 countries.
15th lowest purchasing
power in the world (3% of United States of America).
Nigeria is not even ranked
among the first 100 countries in the UN Human Development: 145th in rank Index
rankings (bottom 13th - Quality of Life).
Average 10% inflation rate
per annum, which is 44th highest in the world: 145th in rank.
21st highest foreign debtor,
28th highest in debt service payments (15th highest if we pay all debt due).
Even though we are very
poor, we are not listed among the 100 highest aid recipients in the world.
Per capita Income is less
than $1 a day ($300 per head)
Life Expectancy:
Male - 52 years
Female - 55 years
Infant Mortality/1000 live births - 77
Access to safe water as
% of population - 50%
Hospital beds per 1,000 people - 01.7 beds
Doctors per 1,000 people
- 0.2 Doctors
Education spending by the
Federal Government (N40.7b) is about 1% of GDP compared to:
Botswana - 10.4%
Namibia - 9.1%
Congo - 6.2%
Benin - 3.2%
Health spending by the Federal Government is (N14.7bn), which is 0.4% of GDP,
compared with:
Niger - 1%
Cameroon - 1.4%
Ghana - 1.7%
Kenya - 2.6%
South Africa - 7.9%
USA - 14.1%
Water: - 96 billion - 0,15% of GDP
Debt Service without reduction
-N350 billion (US$3.5bn) - 8.75%
Debt Service with reduction
-N150 billion (US$1.5bn) - 3,77% GDP
Nigeria
High Commission
London
31st March, 2000