World Bank: Nigeria At Risk Of $33 Billion Default

It has been a de rigueur to brand the Philippine economic setting as having segued into a state of crisis or of concerns of the possibility of ending up in an Argentinean-like morass. While the domestic financial balance sheets do reflect an exigent impasse requiring urgent reforms, it is not time to push on the panic button.

Because most of us are too confined with the domestic perspective this press release from World Bank would show that there are countries that have even more pressing problems than us…take for example Africa’s largest oil producing country, Nigeria…

World Bank: Nigeria At Risk Of $33 Billion Default

Nigeria is heading towards an Argentinean-style default on its $33 billion of overseas debt unless western creditors accept a deal to alleviate the country's financial burden, The Guardian (UK) reports a delegation from west Africa's biggest economy said in London yesterday.

As part of a four-country visit, the senior politicians warned that public unrest was growing over the hard-line approach adopted by the west and that time was running out for negotiations. Farouk Lawan, the chairman of the finance committee in Nigeria's house of representatives, said: "It is unconscionable that Nigeria has paid GBP3.5 billion in debt service over the past two years but our debt burden has risen by GBP3.9 billion - without any new borrowing. We cannot continue. We must repudiate this debt." Lawan, who moved a resolution last month calling on the government of president Olusegun Obasanjo to repudiate the debt, said parliament might trigger a crisis by refusing to sanction the funds to pay creditors.

"We are getting close to saying that we won't pay."

Britain is Nigeria's largest creditor, with 21 percent of its debt, and Gordon Brown has been backing an initiative to use Nigeria's windfall from higher oil prices to pay the creditors a fraction of what they are owed. Treasury sources in the UK said that no figures were at present on the table, although the starting point for negotiation has been a paper from a Washington think-tank suggesting that Nigeria should pay 30 cents for every dollar owed. That would mean Nigeria paying around $9 billion from its $17 billion reserves. The UK believes a strong Nigeria is vital for growth in the whole of west Africa, and has been seeking to broker a deal.

Other creditors have questioned whether Nigeria has really overcome the corruption that has bedeviled the country for decades and have expressed concerns about the lack of an International Monetary Fund economic reform program.

The group said Nigeria's plight was far worse than that of Argentina, which this year presented its creditors with a take it or leave it offer to pay 30 cents for each dollar owed. Lawan said 79,000 children under five were dying every month through a lack of healthcare, clean water, food and shelter. Todd Moss, of the Center for Global Development in Washington which came up with the proposals for the debt write-down, said the creditors should accept an offer. "In 2005 Nigeria has an unusual amount of cash on hand and an opportunity finally to resolve its problem. The creditors also have solid political, strategic and humanitarian reasons to cut a deal. Missing this opportunity will not only lose creditors their best chance to collect this debt but could also threaten the economic and democratic reforms in one of Africa's largest and most pivotal countries."

Meanwhile, in a special report on Nigeria, The Financial Times writes that the stakes have been rising in Nigeria's bid for relief on its foreign debt which, at almost $36 billion, is the largest in Africa. The government wants a deal from the Paris Club of bilateral government creditors, which holds the bulk of the debt, for a two-thirds reduction.

But arguing the case for debt forgiveness has been hard at a time when Nigeria has been using high oil export prices to build record foreign exchange reserves, now equivalent to abut 60 percent of its outstanding external debt. But Ngozi Okonjo-Iweala, finance minister, insists: "We don't want to wait until oil prices crash." Britain, the leading creditor with about $8 billion outstanding, has been Nigeria's chief supporter.

Nigerian negotiators say the US has also been sympathetic, with the strongest reservations coming from the Netherlands, Germany and Japan. Paris Club negotiators, however, want first to see proven results of Nigeria's reforms, especially in tackling corruption.

The Financial Times also writes in a separate piece that Nigeria has been growing in real terms at an annual rate of six percent or more but is still searching for a more diversified economy that would create jobs and make a decisive impact on poverty. The counterweight to Nigeria's position as Africa's largest oil producer is its growing population of more than 130 million. Oil revenue per head is less than any of the other top exporters. Last year's, after deduction of its share of production costs, worked out at $0.53 per day for each Nigerian. The windfall from oil prices last year brought savings of $5.9 billion from revenues above the budgeted price level of $25 a barrel. Half of this is earmarked for priority spending areas this year, such as education, health and vital infrastructure facilities, the remainder kept as a buffer against future oil price volatility, in an effort to avoid the zigzag growth pattern Nigeria has suffered in the past.