The popular saying goes “a beggar has no choice”. When a country begs for debt forgiveness, it is likely because it has failed to manage its debt portfolio properly. This poor management could be in the form of not paying attention to critical debt threshold, poor debt scheduling, the concentration of debt in the hands of a single lender, and FX- adjustments on foreign currencies-denominated debts. The federal government allocates a fraction of the budget to the sinking fund annually to retire existing debts, but most Nigerians are not certain how it is utilized.
Having failed to diversify the economy, the government falls back on borrowing every time to raise capital to finance mostly recurrent expenditure. A report by Business Day Newspaper claims that over 50% of our budget will go into debt servicing by the end of 2021. With this reality dawning on the government, it appears debt forgiveness is the only solution. Well, fair enough, but multilateral lenders will extend debt forgiveness based on the fulfillment of underlying conditions.
In 2005, the Paris Club wrote off US$18bn (60%) debt owed by the Nigerian government to the cartel. In achieving this ‘olive’ branch, the Paris Club agreed to recognize Nigeria’s implementation of its home-grown reform programme under the International Monetary Fund (IMF) intensified surveillance as a legitimate instrument that fulfils the requirements for debt relief. Furthermore, the funds saved from the debt servicing must be channeled into SDG-related projects, particularly in education and health. Quite right, Nigeria has some programmes they can present, but most of these have not fostered enough growth and development.
To the crux of this article, if the federal government is crying out loud for debt forgiveness, why is there a fresh approval request of $6.1 billion sitting on the table of the national assembly? It practically is confusing. An appeal for debt forgiveness means a country cannot pay back its debt and instead of filing for bankruptcy with its international lenders, a debt forgiveness route is taken. Bringing in a sense of responsibility to this will suggest that very little debt should be taken in the medium term to prevent debts from growing outside the ‘perimeter’ again.
The truth is that the federal government did not learn from the 2005 debt forgiveness driven by Okonjo Iweala. The whole idea of debt forgiveness is to make a country debt-responsible – being mindful of how much to borrow, having a plan on what to do with the borrowing, auditing after a while to confirm if the borrowed funds are utilized for their original purpose, devising cash flows from capital projects to finance the debt servicing, growing the sinking fund to retire debts and so on. The federal government is aware of these measures but they are yet to make the best of it.
With all these said, I doubt if Nigeria will get a fresh debt pardon from its lenders. Whereas Ghana was considered for a payment extension in 2020, Nigeria was denied, and it stemmed from the fact that Ghana’s borrowing seems to follow a plan, one which accommodates a clear path of repayment, not tied to a volatile oil-based cash flow. Besides, economic blueprints in Nigeria like the Economic Recovery and Growth Plan, Nigeria Economic Sustainability Plan, Strategic Revenue Growth Initiative, etc. have either not achieved their set goals or simply exists as documents. There is a slim chance that any lender will take Nigeria seriously for debt forgiveness; they will rather wait for default and lay claim on our national asset. We hope it does not get to that.
Written by Michael Ogunremi
Credit: Business Day Newspaper, Dreamstime