Debt cancellation for Nigeria agreed in principle

Creditor countries have in principle agreed to cancel around $17 billion of Nigeria's debt. This debt cancellation is long overdue - but is being implemented in a way that could mean Nigeria paying more money to the rich world in the short term.

The deal was agreed by the Paris Club, a creditor cartel of 19 rich countries. The UK (which is Nigeria's biggest creditor) was the strongest advocate for debt cancellation for Nigeria, having come under strong pressure from campaigners. The offered cancellation of $17 billion is a huge amount - but it is dependent on Nigeria paying off arrears of about $6 billion, and 'buying back' around $8 billion of the debt.

The terms of the buy back (that is, the price Nigeria will pay) are to be negotiated over coming months. However, a deal of this sort is likely to leave Nigeria paying more in the short term. Moreover, the money that will be used to pay off arrears will come from the fund set up to channel oil profits towards reducing poverty in Nigeria. Given that 70% of Nigerians live on less than $1 a day, and more than 2,500 Nigerian children under five die every day, Nigerian campaigners are understandably reluctant to see money that should have gone towards tackling Nigeria's poverty go to rich countries instead.

"After we have suffered to save money, will that be used to service debt that should not be paid?" David Ugolor, Jubilee Nigeria

Another worry is that the final agreement of the terms of the deal is dependent on the IMF putting in place a 'Policy Support Instrument' in Nigeria. Many in Africa feel that IMF interference in national economic policy causes them more harm than good.

The vast majority of Nigeria's huge debt was built up through penalties and compound interest on loans which rich countries made to former military dictators during the 1970s and 1980s. In 1985, Nigeria owed Paris Club governments $8 billion. By the end of 2004, it owed them $31 billion (out of a total debt of $36 billion) despite having had almost no new loans. That is, Nigeria's debt to the Paris Club ballooned by around $23 billion dollars because of arrears, fines and compound interest. Nigeria's people did not see any of this money, but have been repaying it anyway.

"Our debts seem to be perpetually on the increase. It is a sore that has refused to heal. The more we pay, the more we seem to owe. And our debt has been paid many times over." Rachel Ordu, Centre for Economic Growth and Development, Nigeria

Moreover, the original loans were made to corrupt and oppressive former dictators, who often stole the money. (This is known as 'odious debt'.) Those lending the money were fully aware of the nature of the regimes they were lending to, but have not taken any responsibility for propping up these despotic leaders. Instead, they have continued to demand money back from the current democratic government, which has been making substantial and effective efforts to curb corruption.

"The Paris Club did not acknowledge its role in the Nigeria debt overhang, which is largely illegitimate and tainted with corruption." David Ugolor, Jubilee Nigeria

Jubilee Debt Campaign is supporting campaigners in Nigeria, who are calling for guarantees that the proposed deal will not take money away from poverty reduction in Nigeria; that all deals with the Paris Club and the IMF should involve parliament and civil society; and that debt cancellation should be extended to 100% of Nigeria's historical debts, particularly since most of the debt is 'odious'.

"130 million people are being denied their economic and social rights which guarantee access to employment, education, health, water, electricity and employment as a result of Nigeria's debt burden." Rachel Ordu, Centre for Economic Growth and Development, Nigeria.

See also www.newstartnigeria.com