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Nigerian Debt Relief Now a Done Deal: Q&A with Todd Moss
April 24, 2006
Q: What does this debt deal mean for Nigeria?
A: The completion of the deal, which will see Nigeria exit from $30 billion in Paris Club debt, is absolutely historic. In the short-term it will mean that the budget can focus more on promoting private sector growth and development. But the longer-term implications could be much more important. Debt has been hanging over President Obasanjo and is one of the major barriers to consolidating the aggressive reforms being undertaken by his economic team. This gives them momentum to push further, including the passage of the Fiscal Responsibility bill now before parliament.
Q: What is the background to the completion of Nigeria’s debt deal this weekend?
A: Nigeria had been trying to get debt relief since Obasanjo was elected in 1999. These efforts failed until last year when three things finally came together. First, the government started cracking down on corruption. Second, the country was reclassified by the World Bank as "IDA only," a technicality that kept them out of consideration for either HIPC or a favorable Paris Club deal. Lastly, the treasury was able to save oil revenues (reserves have risen from almost nothing in 1999 to about $34 billion today) which gave Nigeria the cash to put on the table to get the deal done.
Q: Will Nigeria still be a borrower and/or aid recipient?
A: Nigeria has lots of cash, but there are two relevant caveats to this. First, the country has perhaps 140 million people, so the social service needs of the country are substantial. Perhaps more importantly, the systems for spending money are still far from being fixed, which means using money wisely is not that easy. Because of this, Nigeria will still probably look for donor help with things like HIV/AIDS and community development, such as in the Niger Delta. It already has started some modest private borrowing, a good sign that the government is keen to get the country re-linked to international capital markets.
Q: Will debt reduction have an impact on corruption?
A: Hard to say. On the one hand, debt relief strengthens Obasanjo’s hand and could open space for some more aggressive steps. He has already removed from power several senior officials who were corrupt. In addition to continuing to go after big fish, Nigeria’s long-term development demands that the government get a handle on the pervasive petty corruption which stifles small businesses. This is, of course, much harder to do.
Q: What has been CGD’s role in this deal?
A: The real credit for getting the debt relief completed goes to the finance minister Ngozi Okonjo-Iweala and her colleagues who have put in months of grueling work. The creditors, especially the UK and US, also deserve credit for finding a creative way out of what had become a lose-lose situation.
CGD is proud to have played a supportive role in two ways. First, we did some analysis in 2004 which showed that Nigeria was wrongly categorized by the World Bank, a technicality that was holding everything up. In June 2005, partly as a result of our work, the World Bank reclassified Nigeria as IDA-only, opening the door to real negotiations.
Second, in April 2005 we proposed the outlines of a bargain: the creditors would give Nigeria debt relief and the government would buy back the rest of the debt. We also gave some benchmarks for a reasonable price window of 20-33 cents on the dollar. Our 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. In the end the non-arrears portion was settled at 24 cents. As a credible neutral player, CGD could make both of these proposals and be taken seriously by all 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, and we’re pleased to have been able to make this modest contribution to a huge result.