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Nigeria: Debt Deal Views

AfricaFocus Bulletin
Oct 27, 2005 (051027)
(Reposted from sources cited below)

Editor's Note

Nigeria has reached a new agreement on debt with its bilateral creditors, gaining $18 billion in debt cancellation at the price of $12 billion in payments over the next year and a new program of economic monitoring by the International Monetary Fund. Reactions to the deal are mixed.

While Todd Moss of the Center for Global Development in Washington praised the deal as a "win-win" situation and "a great boost for Nigeria," debt cancellation campaigners were more cautious, citing particularly the $12 billion that Nigeria is required to pay rich country creditors under the agreement. They stressed that much of the arrears was in fact due to higher interest rates, that Nigeria had already paid back more than the original loans, and that the money would be much better spent on urgent needs to address poverty and health in Nigeria.

Other critics, such as Soren Ambrose of the Solidarity Africa Network in Action, stressed the danger to Nigeria of increased IMF control through the new "Policy Support Instrument" mechanism (see And Africa Action noted that under the deal Nigeria would pay more on debt service than on healthcare over the next two years (

Nigeria's capacity to make the deal at this time is enhanced by higher world oil prices. But the repayment ensures that it remains a commercial write-off rather than acknowledgment of debt cancellation campaigners' demands that the debt is illegitimate and should be cancelled entirely.

This AfricaFocus Bulletin includes the official press release from the Paris Club on the debt reduction agreement, press releases from the Jubilee USA Network and the Global AIDS Alliance with commentary on the agreement, and additional background material from the Center for Global Development, a Washington think tank that played a role in facilitating the agreement.

For earlier AfricaFocus Bulletins on the issue of Africa's debt, visit

For earlier background on this long-discussed issue not addressed in earlier international debt negotiations, see

Nigeria: Debt, Loot and the Economy


Nigeria: Call for New Debt Deal

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Paris Club Agrees on a Comprehensive Treatment of Nigeria's Debt

Paris Club

October 20, 2005

The representatives of the Paris Club creditor countries met on 18, 19 and 20 October 2005 and agreed with the representatives of the Federal Republic of Nigeria on a comprehensive treatment of its debt. This agreement implements the debt treatment framework for Nigeria announced by the Paris Club on 29 June 2005.

The representatives of the Paris Club creditor countries welcomed the ambitious economic program implemented by the Nigerian authorities since 2003 and their desire to secure an exit treatment from the Paris Club.

This agreement takes place after the approval by the Executive Board of the International Monetary Fund of the Policy Support Instrument (PSI) on 17 October 2005 and includes a debt reduction under 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 implemented in two phases in consonance with the implementation of the PSI:

  • in the first phase, Nigeria undertakes to pay arrears due on all categories of debts and Paris Club creditors grant a 33% cancellation of eligible debts;
  • in the second phase, after the approval of the first review of the PSI by the Executive Board of the IMF, planned for March 2006, the Nigerian Government will pay amounts due under post-cut off date debt, Paris Club creditors will grant a further tranche of cancellation of 34% on eligible debts, and Nigeria will buy back the remaining eligible debts.

In total, this agreement allows Nigeria to obtain a debt cancellation estimated at US$ 18 billion (including moratorium interest) representing an overall cancellation of about 60% of its debt to the Paris Club of around US$ 30 billion. Paris Club creditors will be paid an amount of US$ 12.4 billion, representing regularization of arrears of US$ 6.3 billion, plus a balance of US$ 6.1 billion to complete the exit strategy.

This exceptional treatment of Nigeria's debt offers a fair, sustainable, and definitive solution to Nigeria and Paris Club creditors. With the large debt relief included in this agreement, Paris Club creditors extend their strong support to Nigeria's economic development policy and its fight against poverty.

Background notes

  1. The Paris Club was formed in 1956. It is an informal group of creditor governments from major industrialized countries. It meets on a monthly basis in Paris with debtor countries in order to agree with them on restructuring their debts.
  2. The members of the Paris Club which participated in the reorganization of Nigeria's debt were representatives of the governments of Austria, Belgium, Brazil, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, the Russian Federation, Spain, Switzerland, the United Kingdom and the United States of America.

Observers at the meeting were representatives of the governments of Australia, Canada and Norway as well as the International Monetary Fund, the World Bank, the African Development Bank, the European Commission, the Organization for Economic Cooperation and Development and the Secretariat of the U.N.C.T.A.D.

The delegation of the Federal Republic of Nigeria was headed by Dr (Mrs) Ngozi OKONJO-IWEALA, Minister of Finance. The meeting was chaired by Mr. Xavier MUSCA, Director General of the Treasury and Economic Policy Department of the Ministry of Economy, Finance and Industry, Chairman of the Paris Club.

Technical notes

1. The Policy Support Instrument (PSI) concluded by Nigeria with the International Monetary Fund was approved by the Fund's Executive Board on 17 October 2005.

2. The total stock of Nigeria's public sector has been estimated as at end 2005 at US$ 36.2 billion, out of which around US$ 30 billion due to the Paris Club (source: IMF staff report and Paris Club creditors).

Nigerian Threat to Repudiate Helps Force Paris Club to Deliver Debt Cancellation

Civil Society Concerned by Creditors' Insistence on Immediate $12 billion Payment to Secure Cancellation, IMF Conditions

Jubilee USA Network

October 20, 2005

Contact: Debayani Kar, 202-783-0215, 202-246-8143; Neil Watkins, 202-783-0129, 202-421-1023


Nineteen rich country creditors grouped in the Paris Club officially announced today an $18 billion write-off of Nigeria's debt, whose total debt to these creditors is around $30 billion. While Jubilee USA Network and other civil society groups welcome the Paris Club's move to write off a substantial portion of Nigeria's debt, groups expressed specific reservations on the deal, including the terms of the debt buyback and the involvement of the International Monetary Fund (IMF), which is not a Nigerian creditor. Some observers pointed to the role of an early 2005 process in the Nigerian parliament calling on the government to repudiate the impoverished country's debt as a key factor forcing the Paris Club to act.

Jubilee USA is concerned however about specific terms of the agreement reached today that would require the Nigerian government to spend $12 billion on debt service payments over the next six months as part of the buyback arrangement, while adhering to a newly-created IMF economic program. The new IMF program, the Policy Support Instrument, extends IMF power to those countries it is not lending to. Past impoverished country experiences with similar IMF programs have shown that such programs lead countries to privatize essential services and cut social sector spending. Despite the concerns, Jubilee USA Network shares the Nigerian government's hopes that debt cancellation will allow the country to channel resources away from debt servicing and towards health care, education, and other critical social needs.

Debayani Kar, Communications and Advocacy Coordinator of Jubilee USA Network said: "Nigeria's debt write-off at the Paris Club demonstrates the partial success of the Nigerian parliament's threat to cancel its own debt through repudiation, which helped to force the hand of these creditors. While we are encouraged by the Paris Club's agreement to cancel some of Nigeria's debt, we don't think it makes sense to make an impoverished country like Nigeria pay $12 billion when that money should be spent on AIDS, health, and education."

Rev. David Ugolor, President of African Network for Environment and Economic Justice (ANEEJ) in Benin City, Nigeria said: "The Paris Club cannot expect Nigeria, freed from over 30 years of military rule, to muster $12 billion to pay off interest and penalties incurred by the military. Since the debt, by President Obasanjo's own admission, is of dubious origin, the issues of the responsibilities of the creditors must be put on the table at the Paris Club. As desirable as an exit from debt peonage is, it is scandalous for a poor debt distressed country, which cannot afford to pay $2 billion in annual debt service payments, to part with $6 billion up front or $12 billion in three months or even one year."

Sony Kapoor, Senior Advisor at Christian Aid (UK) said: "The deal will provide much overdue relief and free Nigeria from much of its debilitating debt. However it took the threat of repudiation to get this cancellation - as if the obvious need of the people and the odious nature of much of the debt were not enough. What is worse is that creditor countries are extracting a pound of flesh in the form of $12 billion worth of payments from Nigeria and have put in place a new IMF program despite Nigeria not owing anything to the Fund. On a more positive note, the deal has set the scene for a more assertive negotiating stance by other indebted developing countries."

Nigeria's Creditors Should be Ashamed, says Global AIDS Alliance

Nigeria to Send $12.4 Billion to World's Richest Nations

Global AIDS Alliance

Contact: Paul Zeitz, 1-202-365-6786

Washington, Oct 20 -- Today Nigeria reached an agreement with its largest creditors, grouped in what is known as the Paris Club. The agreement will lead to the cancellation of a large portion of Nigeria's massive $35.9 billion debt, 85.8% of which is owed to the Paris Club. The debt had built up over many years, following loans given by France, Germany, Japan, the United Kingdom and others to a string of Nigerian despots.

In today's agreement Nigeria has been granted cancellation of $18 billion of its eligible debt. But, to receive this deal, Nigeria had to commit to paying the Paris Club nations $12.4 billion, mainly to France, the UK, and Germany. This figure comprises $6.3 billion in arrears to be paid by the end of October, plus another $6.1 billion for a debt buy-back operation next March.

"This agreement extracts $12.4 billion from Africa and transfers it to a group of wealthy countries who do not really need the money," said Dr. Paul Zeitz, Director of the Global AIDS Alliance. "It is an outrage that creditors simply plan to use this payment to fill their treasuries. The annual budget of such creditors as Japan and the United Kingdom is over 100 times that of Nigeria. Surely we can do better than accepting taking billions from the world's poorest continent. We expect more from the G8 nations, who promised Africa so much in their Gleaneagles declaration in July."

"Nigeria's government has made the best of a terrible situation," he noted. "In the long run, Nigeria could save a billion dollars a year in debt repayments and potentially double health spending. That is an impressive achievement. Nigeria has the third highest number of HIV positive people in the world, and with these resources it could scale up AIDS treatment."

"However, the creditors should be ashamed of themselves if they simply take this money," Zeitz stated. "These creditors often knew that the money would be siphoned off by dictators and deposited in western banks, and the resulting debt is morally illegitimate. They bear a moral obligation to think more creatively about how to use this money. Nigeria has already paid these creditors $11.6 billion in debt service since 1985. We challenge the creditors to redirect this additional $12.4 billion to Africa's development."

"A substantial portion of this sum should be given to the Global Fund to Fight AIDS, Tb and Malaria and specified for high-quality health projects in Africa," Zeitz said. "The Global Fund has stated that it urgently needs greater contributions to proceed with additional grant-making next year."

"The contribution of Nigeria's debt payments would revolutionize the financial status of the Global Fund. Let's make sure African resources go towards helping Africa, not wealthy nations."


Nigerian Debt Deal Reduces Risk of Instability in Major Oil Producing Nation

Center for Global Development

Media Contact: Tony Kopetchny, ph: 202.416.0705, email:

Washington: A deal announced in Paris today to relieve Nigeria of $18 billion in debt is a major boost for poverty reduction and stability in a fragile nation that is Africa's most populous country and the world's fifth largest oil supplier, according to a leading debt expert.

"The Nigerian debt deal is a win-win solution," said Todd Moss, a leading scholar on Nigeria's debt at the Center for Global Development (CGD). "It is a huge boost for Nigeria, where the current leadership is working to break the stranglehold of cronyism and corruption. It is also good news for the U.S. and other rich countries, since greater stability in Nigeria reduces the risk of a major disruption in global oil supplies."

The Nigerian deal is the outcome of more than a year's worth of negotiations that gained momentum in June with a World Bank decision to reclassify Nigeria in a way that made it eligible for debt relief. Nigeria accounts for about 10% of U.S. oil imports and is one of the world's poorest and most populous countries, with 100 million people living on less than a dollar a day.

Moss said that Nigerian President Olusegun Obasanjo faces a hostile parliament that has made debt relief a major test of his administration. "The debt deal will strengthen Obsanjo's hand in pushing for reforms, thereby reducing the threat of instability," he said.

Under the deal, Nigeria's overall debt drops by about $30 billion. Nigeria will use windfall oil profits to pay rich country creditors roughly $6 billion to clear arrears, plus another $6 billion to buy back $24 billion at about twenty-five cents on the dollar. The deal saves Nigeria $18 billion it otherwise would have owed. When all is done, only a manageable $6 billion in commercial debt will remain.

CGD is an independent Washington-based think tank that works to improve the policies of the U.S. and other rich countries towards development. Research at CGD on Nigeria's debt led by Moss helped to shape the proposals that were announced today.

October 11, 2005

Todd Moss

CGD began working on Nigerian debt issues in early 2004 to provide analytical support to Nigeria's ongoing efforts to persuade its creditors to agree to an appropriate debt relief package. In October 2005 Nigeria and the Paris Club announced a final agreement that should lead to debt relief worth $18 billion and an overall reduction of Nigeria's debt stock by $30 billion. CGD Research Fellow Todd Moss, who leads Center's work on Nigeria's debt, explained how the deal will work in a Q&A just days before it was announced.

Q: What is the current status of Nigeria's debt? How much debt is there, and what are the prospects for debt relief?

A: Nigeria has about $36 billion in external debt, most of which is owed to the Paris Club creditors. More than half is owed to just Britain, France, and Germany. The Paris Club agreed in June to a 'framework' for reducing Nigeria's debt which involves two steps. First, Nigeria has to clear about $6 billion in arrears. Then Nigeria can negotiate a reduction with the Paris Club on so-called Naples terms for the remainder, which is likely to also include a discounted buyback. The signs are fairly good for a deal soon, perhaps the first step concluding later this month. The second step will depend on Nigeria keeping macroeconomic conditions under control for another six months or so. If that all happens, Nigeria's debt problem could effectively be over by early next year.

Q: Nigeria exports oil, and oil prices are at near record highs. Why should the rich countries be interested in providing Nigeria with debt relief?

A: It is exactly the high oil prices that enable this deal at this time. Nigeria will use a big chunk of its oil windfall to clear its arrears and buyback its debt. So the creditors are not giving anything away for free, nor is Nigeria avoiding its past obligations. At the same time, agreeing to a discount is in the interest of the creditors who not only want to collect this old debt, but also have other interests in the region, especially encouraging economic reform and helping to stabilize a fragile democracy in a volatile country which supplies a lot of western oil.

Q: What would the implications be of a Nigerian debt deal within Nigeria itself?

A: A successful debt deal would be a huge boost to President Obasanjo and his economic team which has been working to try to break the stranglehold of cronyism and corruption that stifles Nigeria. On a short-term cashflow basis, the impact isn't very large. But the deal will free up the government to focus on other pressing issues. One other bonus of a buyback is that it locks in a rate of return for the savings from oil. In the past Nigeria's oil savings have been stolen by crooked regimes. Using the extra money to buy back the debt means that the money can never be stolen, no matter who comes to power. And the debt will be gone forever.

Q: CGD has played a key role in the debate over Nigerian debt relief. What can you tell us about that?

A: If the deal goes ahead, the real credit goes to the finance minister Ngozi Okonjo-Iweala and her colleagues who have put in months of grueling work to get this done. The creditors also deserve credit for thinking creatively about how to get all sides out of this lose-lose situation.

CGD did help to move things along in two ways. First, Nigeria was not considered for debt relief in the past because of a technicality related to its classification within the World Bank. We did some analysis last year which showed that Nigeria was in the wrong category. In June 2005, partly as a result of our work, the World Bank reclassified Nigeria as IDA-only, opening the door to everything else. Second, in April this year we proposed a debt buyback and gave some benchmarks for a possible deal. This proposal was used to open the dialogue over the buyback and gave both sides an opportunity to openly consider what might otherwise have been a sensitive topic for either one to broach. As a neutral player with no financial interest in the outcome, CGD could make both of these proposals and be taken seriously by both sides. I think the key role for think-tanks like CGD is to undertake independent analysis and generate new ideas helping policymakers to solve problems of common interest. This is a great example of that in practice.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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