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The farcical call for debt forgiveness

Last week I discussed Nigeria’s debt trap and how difficult it would be for the country to service its debt obligations in the face of declining crude oil prices and the global Coronavirus pandemic. Expectedly, Nigeria has applied for and received $3.4 billion in emergency financing assistance under the Rapid Financing Instrument of the International Monetary Fund (IMF) – the first time in its history. Of course, to secure the funding, the government made a host of promises and commitments; to end fuel, foreign exchange and electricity subsidies, improve non-oil revenue generation, resolve the shackling debt sustainability challenge of the country and above all, improve public sector transparency.

These were, in effect, all the conditionalities often given by the IMF to enable Nigeria secure its loans and for which both Nigerians and its leaders have always balked at. It remains to be seen how the government will fulfil these promises and reform its extremely opaque public accountability system. But the important takeaway is that Nigeria now has its back against the wall and has no other option than to take the IMF loan.

To underscore this point, the Nigerian President on Monday, in a meeting with leaders of the Non-Aligned Movement, called on the international financial institutions to outrightly cancel debt obligations of member states to enable them deal with the challenges brought by the Covid-19 pandemic.

That call appears to be directed at multilateral agencies such as the World Bank Group and the African Development Bank (accounting for $10.1 billion of Nigeria’s external debt), multilateral lenders such as Beijing-based Export-Import Bank of China (with loans of $3.2 billion), the French Development Agency (AFD), Japan International Cooperation Agency (JICA), The Exim Bank of India and Germany’s KFW. However, Nigeria’s highest debt is owed to commercial lenders (Eurobond holders) who account for $10.86 billion (about 40 percent) of Nigeria’s total $27 billion external debt.

As a BusinessDay analysis on Tuesday shows, debt cancellation will be a tough sell for a number of reasons: even multilateral agencies such as the World Bank Group and ADB mainly operate as commercial entities with shareholders. With the shareholders also facing the effects of the pandemic, it does not appear they have an appetite for taking a hit by going on a debt-cancellation spree. Nigeria just like other African countries complaining about the effects of Covid-19 are all shareholders of the African Development Bank. They wouldn’t want to take a hit either. Even the World Bank that is expected to lead the way is balking at the idea. The most they have offered is debt relief for a couple of months.

Neither are multilateral lenders such as China. The country has received a deluge of requests and applications for debt relief and cancellations from countries included in the “Belt and Road Initiative.” But the Financial Times recently quoted an official of the China Development Bank as saying that “the BRI loans are not foreign aid. We need to at least recoup principal and a moderate interest”. While admitting that they might consider extending loans and giving interest relief, the official insisted that “…in general our loans are issued according to market principles.”

Even if other countries were to secure debt relief and even cancellation by multilateral agencies, Nigeria may not benefit from the package as it has not shown it could turn any debt relief to a sustainable advantage

Commercial lenders, who basically aggregated people’s investments, can also neither cancel the debts nor offer debt relief. To be able to do that, they will have to find a way to get all the investors in their funds – including individuals with personal savings and pension funds – to agree to a debt cancellation or relief – which we know is practically impossible.

Even if other countries were to secure debt relief and even cancellation by multilateral agencies, Nigeria may not benefit from the package as it has not shown it could turn any debt relief to a sustainable advantage.

In 2005, after years of campaigns and struggles, former President Obasanjo and his Finance Minister, Ngozi Okonjo-Iweala, were able to secure a debt relief worth $18 billion and a total debt stock reduction of $30 billion. Nigeria was then expected to channel all its available resources into building a sustainable economy and ensure it is not entangled with unsustainable debt again. Fifteen years down the line, the country is even worse off, saddled with a huge unsustainable debt stock of over $80 billion.

Incidentally, when the government was on a borrowing spree, patronising commercial lenders with high interest rates, and with no obvious plans for the loans or repayments, we kept warning the government to beware or at the very least approach multilateral agencies for concessionary loans at one percent or less interest rate. But we were dismissed as economic illiterates. Now that our predictions have come true, we are now running helter skelter seeking for help where there is none and offering to undertake the same reforms we had balked at for decades.

Correction and apology

Two weeks ago in my piece “Abba Kyari and the Narcissism of our middle class”, I narrated the story of a friend on a federal government scholarship, which the government abruptly stopped funding, and their struggle to get the government to honour the agreement they reached. I narrated how greatly the scholarship recipients suffered as a result of the stoppage of their scholarship. I also directly attacked my friend for eventually meeting Abba Kyari, the late Chief of Staff of the President, who facilitated his payment to the exclusion of others in the scheme.

I have since gotten additional information that indeed, all the scholarship recipients were paid. In fact, I later got to realise that in an October 22, 2019 twitter chat I had with him, he confirmed to me that the government had “paid their outstanding tuition in July”, a conversation I totally missed while compiling our correspondence for the purpose of the article. I wholeheartedly apologise for the omission and the insinuation that he sold out his comrades in the struggle.

He has however declined my offer to him to write his own side of the story as he does not want to relieve the horror of their struggle with the government which led to a two year delay in his PhD studies and the withdrawal of many others. I hope one day when they are sufficiently healed, they will tell the story of the fiasco that was the PRESSID scholarship.

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