The debt deal the Paris Club is offering Nigeria is not a relief but an “attempt to relieve us of our resources”.

Let me start by stating that it appears to me that majority of Nigerians agree that we are a highly indebted poor country, not in the HIPC sense used by the World Bank and other international financial institutions (IFIs), but in the sense of every reasonable construction of the words, “highly,” “indebted,” “poor” and “country.” It further appears to me that the majority of Nigerians are in agreement that we need debt relief to lighten our yoke. The majority of Nigerians also feel a sense of outrage that we found ourselves in this position where we ought not to be, and this sense of outrage is further accentuated by the evidence that mismanagement of resources, corruption, inefficiency, etc., played significant roles in our debt situation.

However, extant disagreements and controversy stem from the manner and approach to be used in exiting the debt trap. In some cases, there are calls for repudiation based on the odious nature of the debts and the fact that we have paid and repaid these debts several times over. Indeed, many Nigerians would wish that these debts were written off without our paying a kobo further, considering the statistics of what we borrowed, what we have paid and the purported outstanding balance. Thus, the controversy about the few available terms of the debt relief from the Paris Club is not one between some patriots who want to save the motherland and unpatriotic fellows and cynics who insist on chasing rats while their fathers’ houses are burning. It is a dialogue among patriotic Nigerians of all shades and it is about the best route to the Promised Land, which everyone is desirous of reaching. This position is taken from the point of view that the dialogue would lead to an enlightened pan Nigerian position that would be the basis of further negotiations with the Paris Club. If after the conclusion of this dialogue and the parties that will represent Nigeria insist on “no going back” from their earlier positions, then a division between patriots and villains will emerge.

From all the analysis so far and the available information, there is an agreement in principle to enter negotiations that will delineate the peculiar contours of the debt relief package. And the Paris Club (Club) noted the willingness of the Nigerian authorities to take advantage of “exceptional revenues” to finance an exit treatment from the Club. A condition precedent to the commencement of the negotiations to grant Nigeria relief is the payment of outstanding arrears due to creditors amounting to US$6b and the conclusion of a Policy Support Instrument (PSI) with the International Monetary Fund (IMF). The PSI and its terms will be subject to the approval of the IMF Board. The PSI according to the Debt Management Office (DMO) will be nothing more than the continuation of the enhanced surveillance that Nigeria had allowed the IMF to do over its economic policies in the past couple of years.

Negotiations are to begin in September and according to the DMO, we may exit the Paris Club debts by March 2006. Debt reduction will be up to 67 per cent under the Naples Terms and a buy back of the remainder at a market related discount is proposed. The President and Finance Minister have proposed that the first US$6 billion should be sourced from the Excess Crude Account (ECA) and meetings have been held with governors of states to discuss the issue.

It is pertinent to note that before Nigeria accumulated over US$24b in its foreign reserves and piled up another US$9b in the ECA, it had not been considered fit and proper to come to the negotiating table for any relief by the Club. Although the Nigerian authorities insist that the relief negotiations were the product of the approval by the Club of their reform agenda, one notes that the implementation of the structural reform agenda (privatisation, removal of real and imagined subsidies, deregulation, etc.) or National Economic Empowerment and Development Strategy (NEEDS) did not start in 2005 but has been ongoing since 1999.

Proceeding from this background, a number of core issues can be identified and will be elaborated upon. These issues are matters of process and the democratic deficit, the legal requirements for the payment of monies out of the Excess Crude Account or any other funds under the Constitution of the Federal Republic Nigeria 1999 (Constitution). The issues also include the opportunity costs, the time value of money and the alternative of investments, debt relief, NEEDS and contextualising development, payment to local contactors, a governance approach to debts and continued procurement of new loans. A conclusion rounds up the arguments.

At the point when negotiations were ongoing, before the G8 Gleneagles meeting and during the meeting, all that Nigerians knew was that debt relief was being negotiated, the details and terms of the negotiations on both sides were not available in the public domain. Even at some point in time, the National Assembly threatened repudiation as a viable option, which it could accomplish by refusing to appropriate monies for servicing and payment of debts. Thus, while the executive was negotiating the relief, the legislature and public did not know what Nigeria offered and the counter offer of the creditors.

Thus, what we have is a finished first part of the negotiation, which is in a “take it or leave it” shape. Public opinion played no role in shaping the position of our leaders. For our legislature, their expected input is to rubber stamp the agreements already reached and appropriate money for the initial payment of $6 billion because they are faced with a fait accompli. If they refuse to appropriate funds for this purpose, the second round of negotiations will not commence and they would be portrayed as having refused to let the nation exit the debt trap.

The second round of negotiations will proceed upon Nigeria and the IMF concluding a PSI. The PSI is needed notwithstanding the enhanced surveillance arrangement between IMF and Nigeria. To say that we have or had control over the enhanced surveillance and the PSI merely formalises what has been the practice for years is misleading. Essentially, for the PSI to make meaning to creditors, the IMF is required to give the nation a clean bill of health; that its economic policies as described in its Memorandum on Economic and Financial Priorities (MFEP) or its Letter of Intent (LOI) would meet the standard associated with upper credit tranche conditionality. Even if there is no need for a MFEP or LOI, then the National Economic Empowerment and Development Strategy (NEEDS) document needs to show itself as meeting that goal.

This raises the central question: Where is the MEFP or LOI sent by the Nigerian government to the IMF? What are its contents? Is it not proper that it should be in the public domain? It is imperative that all necessary institutions and the public be given the opportunity to input into the process since they will be involved at one stage or the other and the matter is one of overwhelming public interest.

If the IMF is required to give Nigeria a clean bill for debt relief negotiations to continue, what does it portend for the generality of the people in terms of their welfare and standard of living, for economic growth and productivity, etc? It is as good as Nigeria taking a loan from the IMF with its full conditionalities. If Nigeria is to meet the standard associated with upper credit tranche conditionality, she is likely to be instructed as it is the practice with the IMF; tighten fiscal policies, increase Value Added Tax (which is already presented as a bill before the National Assembly), reduce budgetary expenditure, constant upward review of the pump price of premium motor spirit, remove all real and imagined subsidies on social spending, further depreciate your currency, leave the private sector to develop the economy as government should be lean and a mere supervisor and regulator of the economy, etc.

The implication of this is that economic policy making and legislation will be further removed from the institutions recognised in the Constitution and deposited in the hands of cold, distant, ruthless technocrats who do not care about the welfare of Nigerians. They have not sworn to any oath of allegiance to the Constitution to ensure that the security and welfare of the people is the primary purpose of governance. Rather, they and their local cohorts revel in drawing graphs, charts and spinning figures of imaginary growth and economic expansion based on a distorted vision of society and governance.

It is submitted that if Nigeria agrees to pay $6b in the short term, there is no imperative for a PSI since we are not borrowing from the IMF. The implementation of NEEDS is already enough belt-tightening for Nigerians and as such, a demand for more belt-tightening will be suicidal.

Countless frictions between the National Assembly and the Executive on budgeting may have been premised on the executive arm having obliged Nigeria to a number of conditions not disclosed to the legislature. The executive always insist on pushing through such obligations and expects a docile legislature to pass budgets as presented without any inputs of their own. This was partly responsible for the earlier legislative-executive budgetary feuds during the years 1999-2003, when the executive through the finance ministry sent a MFEP to the IMF without legislative and public input.

The Legal Issues

The first point to note is that the money in the Excess Crude Account (ECA) cannot be spent without legislative appropriation. The second is that the money does not belong to the federal government alone. It belongs to the federal government, the states and the local governments in accordance with the extant revenue sharing formula. The implication of this is that the federal government alone cannot lawfully take a decision on expenditure of funds contained in that ECA. Also, the states in collaboration with the federal government cannot lawfully take a decision on the expenditure of funds in that account to the exclusion of local governments. Therefore, for monies to proceed from that account for any expenditure, the three tiers must agree.

The third point to note is that the federal government and states do now owe creditors, (the Paris Club or others) in equal proportions. While some states are heavily indebted, others have comparatively low debts. Further, there are states that are heavily indebted whose share of the ECA are far lower than comparatively low debtor states with higher shares in the ECA. The implication of the foregoing scenario is that it will be fundamentally flawed to just spend funds from that account without disaggregating the debts owed the Paris Club by various states and the federal government, disaggregating the entitlements of various states from the ECA and then applying the monies from the ECA for repayment of debts based on this balanced and harmonised schedule.

The fourth legal issue is that it appears the federal government is labouring under the illusion that all it requires to take $6b from the ECA is the appropriation of the National Assembly. The evidence of this illusion is contained in the proposals for the Medium Term Expenditure Framework 2006-2008 wherein the federal government stated, “Nothing shall be distributed from this account in 2006 because all the savings of 2005 and the undistributed half for 2004 will be set aside to repay the Paris Club.” Contrary to this, there is the constitutional imperative of seeking the legislative appropriation of all State Houses of Assembly whose shares of the ECA will be used for the payment to the Paris Club. While the National Assembly appropriates the share of the federal government from the ECA for the payment of debts, it is the duty of the State House of Assembly, based on the proposal of the governor presented as [a] bill to appropriate the share of the state before it can lawfully and constitutionally be spent on the Paris Club.

Any other procedure will be contrary to the unambiguous provisions of sections 80, 81, 120 and 121 of the Constitution. Furthermore, for the shares of the respective local governments in the ECA to be lawfully used to repay debts, it must pass the legislative appropriation process at the local government level. Therefore, the National Assembly, all the 36 legislatures at the state level and the legislative arms of the seven hundred and seventy four local government areas in Nigeria need to agree and pass the necessary bills on the use of ECA funds for repayment of debts. Any state or local government whose legislature refuses to pass the appropriation bill into law will therefore not be in a position to make its share of the ECA available for debt repayment.

Opportunity Costs

There is a lost opportunity for every economic decision taken. How do we construct the scale of preference and where do we tilt the weight? Some commentators have even questioned whether we have a debt relief or whether we are being relived of our savings. In this case, we are faced with an opportunity to exit the debt trap at incredible cost or invest in the building blocks that will grant succour to our citizens, provide needed infrastructure for the private sector to create wealth, etc. Emission of $12b within a period of months is a great challenge for a poor country like Nigeria. Consider what $12b can fetch: Improvements in power (1megawatt of electricity = $1m, thus $6b can fetch [an] additional 6,000 megawatts, further imagine private sector investments contributing another 4,000 megawatts, and the distribution of these new megawatts in the national grid, the multiplier effect for industrial capacity utilisation and job creation). In education, more children will be enrolled in schools and there will be better funding of secondary and tertiary education. For health, there will be increased immunisation coverage for children, better funding of public health institutions, etc. Roads, water supply, security, etc, can all benefit from $12b, which is the size of the federal budget for one year.

Lets pose the question in accordance with the constitutional obligations of government and commitments under various standards on economic, social and cultural rights. Will the emission of $12b amount to using the maximum of available resources for the progressive realisation of economic and social rights [for] Nigerians? Is it a step in the direction of realising the Millennium Development Goals (MDGs)? Any debt sustainability analysis that takes cognisance of what Nigeria needs to realise the economic, social and cultural rights of its citizens or achieve the MDGs will come to the conclusion that this emission is unwarranted and is clearly injurious to the welfare of citizens and the health of the economy. The answer to the posers is therefore in the negative.

The Time Value Of Money And The Alternative Of Investment

Nigeria had been paying about $1b annually for her indebtedness. The implication is that if we continue servicing our debt at this level, we would have paid $12b in twelve years. However, the offer on the ground is for the country to shell out the twelve year payment within six months. By the calculation of the Club, there is no need to wait forever to collect their monies from Nigeria since there are “exceptional revenues” which they can collect immediately. $30b in twelve years is not exactly of the same value as an immediate $12b, which can be invested and made to yield profit over the twelve year period they would have waited.

If we must pay this debt, imagine the following calculation; with $9b in the ECA and $24b in the foreign reserves, we have a total of $34b reserves. Leave $14b in the reserves and invest $20b in a diverse portfolio of investments at a return rate of 20% per annum. This will give a return of $4b annually; out of this $4b, increase the debt repayment to $2b yearly and you would have grown the initial investment to $22b after debt servicing. The extra $2b can be reinvested and generate further growth and enhancement of the initial investment. Even if the return is calculated at 10% per annum, the investment would still generate $2b per annum. So the central question is; what is the sense in letting go, a golden opportunity to enhance our capital and debt repayments without compromising our national interests? Does it make economic sense to shell out so much resources at once? It makes eminent sense to invest so as to be in a position to repay the debts, grow the initial capital and reasonably expect our money to work for us.

Debt Relief, NEEDS And Contextualising Development

NEEDS abridges the concept of development by reducing it to the mere token of a private sector led process where investors, capital and profits take pre-eminent positions against the people. For the purpose of clarity, there is a right to development, which is an inalienable human right. As stated in the United Nations Declaration on the Right to Development, it is a right “by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all human rights and fundamental freedoms can be fully realised” “The human right to development also implies the full realisation of the right of peoples to self determination . . . the exercise of their inalienable right to full sovereignty over all their natural resources”

NEEDS states inter alia its intention to create wealth by repositioning the private sector as the engine of growth, reform government, tackle corruption and implement a social charter. NEEDS influenced government’s debt relief strategies. All current economic policies find their bearing in NEEDS including the recent proposal for a Medium Term Expenditure Framework (MTEF) and NEEDS manifests in the language of governance and economic postulations.

According to the Budget Office of the Federation, the first objective of the proposed Medium Term Expenditure Framework 2006-2008 is to achieve macroeconomic stability without compromising economic development. A cursory appreciation of this framing will suggest that all is well. But the thinking implicit is to mistake the means to an end, as the end itself. Should the overriding objective be macroeconomic stability or abridging development to only economic development? It is submitted that the objective should have read “achieve development” and macroeconomic stability and economic growth made sub-objects of the broader development goal.

Furthermore, qualifying and restricting development to the economic is unnecessary. Achieving economic development per se is not sufficient, what is needed is the right framework that guarantees human centred development including economic development and the distribution of the fruits of development as widely as possible to achieve an egalitarian society. This position is premised on the fact that nowhere in the constitution is macroeconomic stability or economic development made an overriding imperative for good governance.

For a moment, let us imagine that the NEEDS framework can lift the economy out of the doldrums. If the proposal for economic development is contextualised within the framework of NEEDS, can it be achieved without the enabling environment for the private sector to succeed in wealth and employment generation? The answer obviously is in the negative. For the private sector to take the position envisaged by NEEDS, there is need for massive infusion of resources in critical areas like power, roads, water, general infrastructure, etc., to create the enabling environment.

Local Debts

Debt to local contractors is stated to be in excess of one trillion naira. One is not privy to information that indicates the kind of penalties and interests that have so far accrued and continue to accrue in respect of these local debts. However, since economics is hostage to power and these creditors may not be as powerful as the Paris Club, government appears to be comfortable ignoring the repayment of their debts and not prioritising their repayment.

But the advantages of repaying local contractors are legion. First it will help in lifting the economy from the doldrums of the current squeeze, make available a pool of investible resources for wealth creation, generate demand for goods and services and create employment in the economy. Therefore, if we are in a hurry to repay debts, local contactors and suppliers should enjoy priority. Also a democratic government should be accountable to the people and prioritise the interest of its citizens rather than overtly reacting and only responding to external stimuli. This state of affairs impedes national development.

A Governance Approach To Debts

Most of the loans that inflated our national debt were procured without due process and cannot be linked to any existing or previous developmental project or process.

Apart from the need for legislative approval to finance deficits and repay debts, it is imperative that the legislature plays an active role in the determination of borrowing needs beyond certain thresholds, particularly for the procurement of foreign loans and large domestic loans. Since the legislature will be required to make appropriations in future for the repayment of such borrowings, it is only logical that they be involved in the process of determining the “when, how and what” of borrowing.

It is suggested that the process of procuring new loans above the threshold of N20m should need legislative approval; it should be advertised in the federal or state official gazette and in full pages of three major newspapers. The legislature should hold public hearings, debates and forums about the loan and its conditionalities with opportunities for civil society, the private sector and all interested stakeholders to make contributions to the process. A new law should guarantee this process and guard against the splitting of loans by the executive to evade the N20m threshold. This can be achieved by a provision that mandates the executive to submit with the Appropriation Bill, all loan and borrowing requests for the entire year.

The Ugandan Public Finance and Accountability Act 2003 provides a lead in this direction. Although it vests the Minister of Finance with authority to raise loans, it makes the authority subject to legislative approval. S.20 (2) and (3) is explicit on this:

(2) Loans may be raised upon such terms and conditions as to interest, repayment or otherwise as may be negotiated by the Minister, but only for the purpose of-

(a) financing budget deficits;

(b) treasury and monetary policy management purposes;

(c) obtaining foreign currency;

(d) on lending to an approved institution; or

(e) otherwise defraying expenditure which may be lawfully defrayed.

(3) With the exception of any loans raised for the purpose of paragraphs (b) of subsection (2), the terms and conditions of any loan shall be laid before Parliament and shall not come into operation unless they have been approved by a resolution of Parliament.

There is also the need for the interrogation of the sources of the indebtedness or an attempt at tracing the debts. It has been indicated that a large percentage of public debts were corruptly incurred through over invoicing of projects or outright embezzlement of funds. Some were private debts guaranteed by the state and the creditors found it more convenient to demand repayment from the state rather than engage individuals and non-state actors.

The suggestion is for a sincere campaign by the state on the recovery of looted funds. This will provide the framework for anti-corruption agencies to trace the procurement, investment and repayment of the borrowed sums and where offences have been committed, to bring offenders to justice. Where debts are incurred for specific projects and activities, and the proceeds were never invested, the responsible persons and agencies must explain the circumstances of the misapplication of resources. A meticulous disaggregation of the debts is imperative. Happily, time does not run against the state in terms of limitation of action for the prosecution of offenders.

This approach will guarantee that debts will only be incurred on the authority of the popular will as against the current practice where members of the executive surreptitiously procure loans, recklessly spend it and repayment from the national treasury further impoverishes the poor. Through the new approach, Nigerians can be guaranteed a future, reasonably free of indebtedness.

Continued Procurement Of Loans

The executive arm of government is still procuring new loans on a day to day basis. The loans are either for water supply, basic education, roads and other infrastructure, etc. These loans are undertaken without the approval of the legislature, civil society and the private sector. However, the question is; does it make good economic and political sense to continue borrowing when such projects could be financed from the ECA or the reserves?

The argument in government circles is that the loans are concessionary with interest rates under 1% and charges of the same or less percentage. And the loans are repayable over a thirty five year period. The government argument is quick to cite some Chinese dams and projects that are being built with concessionary funds whilst China has a very large foreign reserve. They further state that the reserves will earn more interest than resources spent on servicing the loans. But the basic issue remains that the loans will still be repaid whether the date of repayment is today, tomorrow or in a hundred years time.

The second issue is that while the Chinese economy is the fastest growing in world with an inbuilt capacity to regenerate itself, pay off loans, Nigeria’s economy is hardly growing and by the time the oil and gas is gone in the next thirty years, it will be extremely difficult to repay these so-called concessionary loans with a maturity period of thirty to forty years. Where are our investments that will yield resources so as to put the future generation in a position to pay these debts?

The unfortunate aspect is that the loans are being invested in sectors that are not directly involved in earning foreign exchange. Thus, Lagos and Cross River States guaranteed by the federal government can access new World Bank loans to provide potable water under a cost recovery plan denominated in naira. But the loan is repayable in dollars and pounds, etc. So where would the governments source the foreign exchange from? Do we need foreign loans to give our citizens potable water? What happens to the monthly statutory allocations to the three tiers of government? The same federal government that holds unto the allocations of Lagos state government despite clear constitutional provisions and the judgement of the Supreme Court is willing to guarantee Lagos state for a foreign loan!

The thrust of the argument in support of the concessionary loans from the World Bank and other institutions is the contradiction and paradox that started Nigeria’s journey into debt bondage We were told by the “masters” that we were under-borrowed and a rich county like Nigeria must have debts. The same international financial institutions like the IMF that will frown at Nigeria spending her ECA and reserves so as not to distort macroeconomic stability would rather have us borrow to spend in our economy. Accordingly, this new source of funds guarantees macroeconomic stability! Something is wrong somewhere with our ability to reason out of the box.

Conclusion

It is the duty of the legislature at the federal, state and local government levels to critically examine the details of the purported debt relief and come out with a national position based on purely nationalistic considerations for our development. The Paris Club countries are under the agreement in principle supposed to negotiate on the basis of their national laws. Therefore, Nigeria must also enter negotiations on the basis of national laws and enlightened self-interest. The National Assembly should take the lead and therefore reconvene immediately to garner the input of all stakeholders before giving a clear legislative direction to the executive. The State Assemblies should also follow suit. And this direction must be followed to the letter in subsequent negotiations with the Paris Club by the executive arm of government.

Determining the terms and conditions for debt relief is a matter of significant national importance and should not be left to a few technocrats with a limited world view of the issues at stake. There is the need for a holistic view that takes cognisance of the demands of a poor and developing Nigeria. The proposed $6b to be used in repayment are public resources and do not belong to the President, his Finance Minister or the DMO boss. Paying out $6b and ultimately $12b will shake the economy to its foundations. There is need for further negotiations with the Paris Club for genuine debt relief. What we were offered is […] not a relief; it is an attempt to relieve us of our resources.

Eze Onyekpere is Executive Director, Socio Economic Rights Initiative (SERI).

Eze Onyekpere, Daily Independent, September 15, 2005