FINANCE: Advocates Press Nigeria’s Case for Debt Relief

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Nov 28 2001 (IPS) - Nigeria deserves quick and significant debt relief because its huge oil exports are dwarfed by the demands of the country’s external debt and the burdens of developing Africa’s most populous nation, say anti-poverty campaigners and the country’s officials.

Creditors counter, however, that debt relief would be premature in the absence of economic restructuring and decisive action to curb corruption.

Nigeria is the world’s tenth largest oil producer but remains Africa’s largest debtor, saddled with 32 billion dollars in official foreign claims against it. Its annual debt service bill amounts to some 1.7 billion dollars. It ranks 151st out of 174 countries on the U.N. Human Development Index, meaning its people are among the worst-off in the world.

Yet, “its creditors are still demanding 15 times in debt service what it is able to spend on poverty reduction,” the London-based group Jubilee Plus said in a report this month.

Thus, the country’s capacity to confront critical socio-economic and political challenges is crippled by creditors’ claims against it, said the report, “Drops of Oil in a Sea of Poverty: The case for a new debt deal for Nigeria.”

Officials in the elected government of President Olusegun Obasanjo have expressed similar views.

“I’d like to tell our creditors that this debt is too much for us to bear. Cancel it and we’ll start on a clean slate,” said a Nigerian diplomat here who asked that he not be identified by name. “This debt has prevented us from focusing on fighting AIDS and from subsidising health services. It has prevented us from carrying out effective social services. It has prevented us from doing much to alleviate poverty. It’s a suffocating scheme.”

Creditors acknowledge debt overhang is a problem but argue that since debt servicing consumes only about 10 percent of the country’s oil revenues, the government should look elsewhere for a windfall.

“What should be of more immediate concern is how 90 percent of oil revenues are spent,” said Dirk Reinermann, the Nigeria programme coordinator at the World Bank. “It is no secret that money mismanagement and corruption are rampant in Nigeria and the government of President Obasanjo knows it very well and are engaged in an uphill task to correct it.”

The Nigerian diplomat, in turn, assailed the World Bank and International Monetary Fund (IMF) for objecting to a civil service pay raise, designed to decrease the need for graft, and construction of a football stadium, intended to stimulate the economy through public works projects.

“They said all that was a waste of money and of oil revenues,” the diplomat complained. “But we are trying to better our civil servants so that they can do a better job for our people. We also need sports for better development. This is no waste of revenues.”

Reinermann, however, said the Bank was concerned that with salaries already consuming 85 percent of the national budget, the government had little room for manoeuvre. As to the sports arena, he added: “In a country where 70 percent of the population live under the poverty line of one dollar day, building a stadium that costs 450 million dollars should not certainly be at the top of national priorities.”

But are the creditors themselves partly responsible for the corruption and mismanagement they abhor?

“A massive 65 percent of projects, accounting for 76 percent of the value of funds loaned to Nigeria in our survey have failed,” Jubilee Plus said in its report. It added that about half of the total debt stems from arrears.

Much of the lending had been to military dictatorships and much of it to develop the oil industry. This provides 40 percent of gross domestic product, 85 percent of foreign exchange earnings, and about 65 percent of budget revenues, according to the World Bank.

Lenders have since railed at the corruption the sector has spawned and at Nigeria’s failure to diversify its heavily oil-dependent economy, according to Jubilee Plus.

Subtracting arrears, the principal on the country’s external debt stands at about 14 billion dollars. Of this, some 40 percent represents loans to “Nigeria’s military dictators; often given knowing that the money would be siphoned off and deposited in British, Swiss and U.S. banks,” according to Jubilee Plus.

Kwesi Owusu, the group’s Africa programme director, said that apart from tolerating graft, lenders have exaggerated the wealth- generating potential of oil.

“Revenues net of production costs and foreign company earnings are approximately 11 billion dollars, which for a population in excess of 111 million equates to net revenues of only 100 dollars per person per annum, or 27 cents a day,” said Owusu.

Following the signing of a stand-by agreement with the IMF in August 2000, Nigeria received a debt-restructuring deal from the Paris Club of bilateral creditors and a one-billion-dollar loan from the IMF. Both were contingent on economic reforms.

Since then, slumping world oil prices and global economic slowdown have added to the strain on Nigeria’s budget and prospects for its 126 million people.

The country’s annual per capita income is estimated at only 880 dollars a year, compared to 22,093 dollars for Britain and 26,251 dollars for Canada. Poverty has been cited as among the main reasons for ongoing ethnic and communal tension.

Just this week, at least 50 people in poor communities died in disputes over land rights in the town of Donga. Hundreds more reportedly have fled the vicinity.

“Poverty is a significant root cause of the ethnic and religious conflicts in Nigeria, as the struggles over scarce resources intensify within local communities,” said the Jubilee Plus report.

From the Nigerian diplomat’s perspective, the key to peace in those communities lies in the hands of Western governments, with which Abuja is engaged in a bid to reschedule, and preferably write off, some of the debt.

“We keep on missing paying off our debt,” he said. “We told the Paris Club that we need a reconsideration of our debt and that this is a huge country with huge development requirements but they say that Nigeria is rich because of oil – even though our annual per capita income is only 800 dollars.”