Nigeria has a new Minister of Finance, Olusegun Aganga a managing director at Goldman Sachs branch in Britain. Aganga, a free marketer has a substantial experience in private industry together with his academic brilliance, he can efficiently manage and oversee Nigeria’s financial house. The minister of finance must be ready and keen to make sure that Nigeria will not fall into the trap of large external debt and higher inflation. This is important because Nigeria should not be throw back to the gloomy days of large foreign debt. Nigeria was overwhelm with the incireasing interest rates and arrears accumulated by the servicing of the foreign debt.
Nigeria external debt is currently over $5 billion dollars. Many Nigerians will be surprise to hear that Nigeria is still an indebted nation after she exited from the debt of Paris Club and London Club in 2006. Nigeria finally settled her debt of $36 billion but most Nigerians might think that Nigeria is forever free of external debt. But a thriving nation is likely to be in debt provided that the available credits are invested appropriately for creation of further wealth and improving the well being of the nation. Nigeria should try to establish criteria and benchmark for borrowing, at least to make sure that her debt does not exceed 2-3% of her GDP.
Nigerian Minister of Finance, Olusegun Aganga
In December of 2009, the former minister of finance, Mansur Muktar highlighted the state of Nigeria’s debt: "Nigeria’s exit from the Paris Club debt in 2005/2006, the external debt stock dropped dramatically and substantially from $35.94 billion to $3.54 as at the end of year 2006 but rose to $3.947 billion at the end of December 2009, including the $3.686 billion obtained from multilateral organizations namely World Bank, African Development Fund (ADF), International Development Association (IDA) and African Development Bank (AfDB) which has 40 year repayment period and 10 year moratorium period." It is essential that this is conveyed to average Nigerian taxpayers so that they become watchdogs to the finance of their country.
Also making the clarion call of country’s debt is Dr. Ngozi Okonjo-Iweala, the managing director of World Bank and the former finance minister of Nigeria. Okonjo-Iweala was among the principal leaders that facilitated and guided the country’s successful exit from both Paris and Club of Creditors in 2006. Recently in a lecture at University of Calabar she said, "In April 2006, Nigeria paid off the last installment due on its debt settlement agreement with the Paris Club, thereby erasing 30 billion dollars in external debt and reducing government external debt to 3.5 billion dollars."
Therefore the new minister of finance, Olusegun Aganga should deliberately and carefully monitor the country’s debt. The minister must closely work with Sanusi‘s Central Bank of Nigeria to tame inflation which can easily frustrate economic growth and further weaken the depreciating naira. Nigeria is issuing bonds to raise money for infrastructures development. Aganga must get involve and make sure that money raised will not be wasted and the burden of the debt passed down to powerless Nigerians.
Nigerian government in the year 2006 paid almost $20 billion to two giant international syndicates: Paris Club and London Club of Creditors to settle her foreign debts. This transfer of wealth by a relatively poor nation contradicts the entire prudent financial judgment and rudimentary economic disposition preached to Nigeria by the rich donor nations that babbles about the ills of capital flight in developing nations.
The government of President Obasanjo, the Nigerian ex-Head of state made the arrangement and secured the purported $18billion debt relief for Nigeria from the Paris Club of Creditors, which became the inducement for the country to pay off her $36 billion foreign debt. Nigeria's total foreign debt stood at $35.916billion as of June 2005. The largest chunk of the debt $31billion was owed to 15 of the 19 creditor-countries of the Paris Club.
On Friday, April 21, 2006 Nigeria paid the final installment of $4.518billion to exit the Paris Club. Earlier, Nigeria paid off $12.4 billion in arrears and debts as was stipulated to fulfill arrangement and concord reached with the Paris club in June 2006.
In addition, the federal government of Nigeria finally paid off the last batch of outstanding debts owed to the London Club amounting to $2.15 billion. For the settlement of both Paris Club and London Club of Creditors, Nigeria paid off almost $20 billion. This is one of the largest transfers of wealth by a third world nation to the first world nations.
On the global financial scale and rating, there is no doubt that Nigerian payment of her debts makes her a credit worthy nation with - BB- rating from Standard & Poor's. But for a country with enormous internal economic problems; with 70% of the population mired in penury poverty with increasingly educational and health challenges to repatriate such a wealth to the west is not a prudent decision. Without doubt, Nigeria was compelled to do so by those nations that supposedly are the partners in fighting poverty in Africa.
In 1985, Nigeria owned $8 billion to Paris club creditors, out of $19 billion of its foreign debt.
By the end of 2004, Nigeria owned Paris club $31 billion out of $36 billion of its foreign debt. Since 1992, Nigeria has not received any loan from Paris club. So, where is the justification for the increase of the debt? Blame it on the malleable interest rate, interest arrears and interest charged on the arrears. Maybe the political and monetary instability did contribute to the debt increase, but it is beyond the control of poor Nigerians who bear the brunt of poverty. The Paris Club would have cancelled the total debt, rather than requiring for the debt buy back of the 40% of the remaining debt. Nigeria has a good record of servicing and meeting its debt obligations, and has paid its principal and reasonable interest on the debt, that can justify 100% cancellation.
Britain the former Nigerian colonial ruler was the largest creditor of the debt; she received $3 billion from Paris Club. United Kingdom declined the request of Archbishop Desmond Tutu and development charities including The Jubilee Debt Campaign to return the share of her debt payment to Nigeria. Britain was criticized for accepting the payment from developing country Nigeria. (To finalize the debt payment deal, Nigeria made the total payment of $12.4 Billion to Paris Club and Britain the largest creditor received $3Billion).
“The British government has drawn sharp criticism from development charities for taking a debt repayment from Nigeria which dwarfs the UK's entire annual aid budget for the African continent. Charity Jubilee Debt Campaign says the payments mean the G7 will receive more in six months from Nigeria than the 2005 Gleneagles G8 deal will provide to poor countries in a decade. The G8 is the G7 plus Russia. Trisha Rogers, Jubilee's director, said: "It is obscene for G7 countries to take billions of dollars from one of the poorest countries on earth. In particular this means the UK will take from Nigeria almost exactly twice as much as it is giving in aid to the whole of Africa in 2005." In his letter dated 27 January 2007, Tutu said: "While it is to be welcomed that much of the debt has been wiped off the books, it is unacceptable that 40 per cent ($12.4 billion) must be paid in a one-off payment.”
"For rich creditors to be claiming such a vast amount of Nigeria's savings at this time smacks of a meanness of spirit which stands in stark contrast with so many of the sentiments expressed in 2005.” (In 2005 G8 leaders gathered at Glenglades in Scotland and pledged to effectuate debt remission for Africa). Prime Minister Tony Blair replied that Britain will keep the debt payment and will not refund any money to Nigeria.
It's perplexing to comprehend why Britain’s former Prime Minister Tony Blair refused to adhere to the appeal from eminent personalities of Desmond Tutu and Trisha Rogers caliber. The then Prime Minister Tony Blair had good credentials on Africa. He highlighted Africa in his leadership of G8 in 2005 and said that Africa's plight was "a scar on the conscience of the world." He also championed the cause of Africa with the formation of the Commission for Africa. During his leadership of G8 he recommended massive aid and debt remission for Africa, which has not been fully implemented due to the reluctance of some of G8 nations to oblige to their pledges. Africa is a continent beset with dire problems - Diseases, wars and instability are ravaging the continent. The least thing Africa needed is enormous capital flight. Every penny is needed to curb the problems and alleviate quality of life in the most populous nation in Africa. Britain and Blair understood Africa's political landscape and indeed Nigeria; particularly its sociological-economic needs more than the rest of the G8 and Paris Club members because of her colonial rule in Nigeria. Yet they participated in sharing the wealth from poor Nigeria.
The billions of dollars that Nigeria paid was larger than the donations the rich nations will be providing to poor countries in a period of ten years. The money paid to the rich nations of Paris Club and London Club of Creditors would have found its best use in Africa, if not in Nigeria.