http://www.businessdayonline.com/index.php?option=com_content&view=article&id=6080:-nigerias-renewed-frivolous-borrowings&catid=117:news&Itemid=349

By Ifeoma Ikeji,

Not long after Nigeria got a debt relief from its international creditors, the country’s external debt is steadily rising Four years after Nigeria got reprieve from its debt burden acquired over the years by successive governments, a fresh debt burden has started setting in with the renewed frivolous borrowings which the House of Representative described the manner in which they were obtained as “dubious, shady and corrupt.” In 2005, the country relieved itself of a total debt of $30 billion through the Paris Club deal during President Olusegun Obasanjo administration, but as at June 2009, the new debt status stood at about $3.7 billion while more borrowings were in the offing, but currently stalled by the resistance of House of Representatives who mandated its committee on debt management to investigate Nigeria’s loans and ascertain their legalityor otherwise.

Ken Henshaw, a programme officer of an international civil society group, Social Action, in a paper delivered at a town hall meeting held in Abuja recently, highlighted Nigeria ’s external debt history before the Paris Club deal and the renewed acquisitions, while calling on the National Assembly to bar further borrowings. Giving account of the country’s transition into the huge debt that was relieved in 2005, Henshaw said, “As revenues from oil production increased, Nigeria ’s attractiveness to predatory external creditors led to major borrowing by successive governments with the resultant huge external debt burden on the country. All manner of loans were collected from private and multilateral creditors by the federal and state governments during mostly military regimes. And the resultant debt burden meant that substantial amount of oil revenues were expended on annual servicing of accumulated external debts. “Despite its celebrations over an exit from indebtedness with the deal with the Paris Club of creditors, the Nigerian government may be returning to unsustainable indebtedness with fresh ‘frivolous’ borrowings from external creditors including China and the World Bank Group.

As it stands, Nigeria ’s external debt profile has increased to $3.7 billion as at July 2009, and is gulping a reasonable portion of the annual budget in service charges.” The programme officer alleged that the international creditors like the World Bank lure Nigeria into more loans because of what they gain from it as their service charges grow higher than the actual borrowed amount, while Nigeria suffers huge capital flight through annual debt servicing. Surveys showed that the cost of servicing these debts over the years surpasses what was actually borrowed by up to 100 percent. For instance, for a period of about 20 years before the supposed debt write-off by the Paris Club in 2005, Nigeria ’s actual borrowing was put at about $10 billion, while it had spent over $35 billion in annual debt service payments for the period and still owed about $36 billion. With the current debt status of about $3.7 billion, Nigeria , despite its supposed budget deficit of about N836.6 billion this year, earmarked the sum of N283.65 billion in the budget for debt servicing.

Henshaw noted that servicing the growing debt stock is gradually becoming a burden on the federal government and the states. He said, “In terms of external and domestic debt service revenue ratio, some states have had to submit a large proportion of their allocation from the federation account. In 2007, Cross River State suffered a 10.40 percent deduction from its gross federation account allocation to external debt service. Oyo State had a deduction of 8.84 percent, Lagos State 7.78 percent, Nasarawa State7.05 percent and Akwa Ibom State 5.88 percent. In actual monetary terms, the deductions amounted to $2.2 billion for Lagos State , $2.07 billion for Oyo State , $2 billion for Cross River State , $1.2 billion for Nasarawa State and $1.19 billion for Akwa Ibom State . According to the Debt Management Office, the total debt service payment by Nigeria to external creditors in 2007 was $3.186 billion.”

Most of the loans come with conditionality of economic liberalization imposed by the International Monetary Fund (IMF) and the World Bank which the country must meet to qualify. This neo-liberal strategy is principally focused on the promotion of free markets, including privatization, deregulation, trade liberalization, which analysts observe drastically reduce the ability of government to provide basic social services for the people. As conditions attached to loans, the international creditors have at various times demanded that Nigeria adopt the following neo liberal policies: • Reduction in overall public expenditure • Upward review of interest rates • Removal of petroleum and other subsidies •Trade liberalization •Devaluation of the currency All together, the external loans regime has ensured that more resources are leaving Nigeria to industrialized countries than the country receives in development aid from the G8. In 2005, the UK receipt from the $12.4 billion paid by Nigeria as part of the debt deal with the Paris Club is more than what the UK government spends in aid to the whole of Africa in five years and more than what G8 countries devote to conditional aid to the continent in ten years. The payments from Nigeria also represent one of the single largest capital transfers from one part of the world to another in all recorded history.

The budget deficit this year however has been attributed to the decline in crude oil price benchmarked at $45 per barrel this year, but the price has now risen above the benchmark, standing above $70. Analysts maintain that resorting to borrowing when the country was already making more than it anticipated from oil was only unnecessary but irresponsible. As it stands, Nigeria seems to be preparing frameworks and opportunities for more foreign exchange and capital flight from the country in annual debt servicing. This calls to question the $3.7 billion which the country is said to be owing and the proposition for fresh, unregulated external loans as offered by institutions like the World Bank. While $3.7 billion may not be too high in itself, what Nigeria should check is a situation whereby the debts mount up to the unsustainable levels that were enforced by creditors before the Paris Club exit.