Opinion: What Prospects, As Buhari Calls for Debt Cancellation?

 
BY
MUSA ILALLAH
For the developed and developing nations, borrowing in the world is not just a pasttime but a necessary evil that is taken to address scorching and depressing financial needs of such countries during critical times. It is in most cases a norm to take loans, grants or aids to facilitate development and stabilise their economies.
In 1988, under the banner of the Jubilee 2000 campaign, 70,000 people surrounded the G7 summit in Birmingham, UK demanding that the debts of 52 impoverished countries are cancelled by the year 2000.
Uganda, an African country became the first country to qualify for any debt cancellation under the Heavily Indebted Poor Countries Initiative, but its debt was reduced by just 20%, while in 2001,  Tanzania qualified for debt relief after meeting the condition to privatise its water system in Dar es Salaam.
Then came Malawi which entered a food crisis just a year after it was made to sell off its grain reserves as a condition to qualify for debt relief. Malawi finally got debt relief in 2006.
Ghana in 2004 became the 14th country to qualify for debt relief through the Heavily Indebted Poor Countries Initiative, getting 50% of its debt cancelled.
In total 14 countries have had $29 billion of debt cancelled by their various creditors.
In 2005, Under the banner of “Make Poverty History”, 250,000 people marched in Edinburgh, UK, during the G8 summit calling for debt cancellation, trade justice and more and better aid. The G8 instructed the IMF and World Bank to cancel all the debt owed to them by countries which have completed the ‘Heavily Indebted Poor Countries’ process on loans before 2003. Total debt cancelled under the scheme by the end of 2005 was $77 billion for 18 countries.
However, international loans to the governments of the most impoverished countries increased from $56 billion in 2008 to $151 billion in 2014.
Global prices for raw materials fell rapidly from the middle of the year, causing big falls in income and exchange rates for raw material exporters such as Ghana and Mozambique. The fall in exchange rates rapidly increased the size of debts owed in USDollars and other foreign currencies.
In response to global campaigning, the IMF agreed to $100 million of additional debt relief for the countries affected by the Ebola crisis – Guinea, Liberia and Sierra Leone.
Coming home, precisely in 2005 during the second term of President Olusegun Obasanjo, Nigeria and the creditors Club reached an agreement on the $30 billion debt with the Paris Club. The creditors cancelled $18 billion outstanding against Nigeria while the country repaid $12 billion. Most of the $18 billion was registered as aid, justifying the question whether the cancellation contributed to development in Nigeria.
One can vividly recall that after Nigeria exited recession In 2017, the level of new borrowings at the Federal level and all tiers of Government as shown in the annual Appropriation Acts, had been declining as part of the PMB Administration’s commitment and  measures to moderate the rate of growth In the Public Debt Stock in order to ensure debt sustainability.
New borrowing to part-finance Budget deficits had declined steadily from N2.36 trillion in 2017 to N2.01 trillion in 2018; N1.61 trillion in 2019 and N1.59 trillion in the initial 2020 Appropriation Act.
Regrettably however, the trend was reversed in 2020 due to the economic and social impact of COVID-19 pandemic as new borrowing in the revised 2020 Appropriation Act was N4.20 trillion.
This was not peculiar to Nigeria as many countries including the developing, developed and advanced countries also increased their level of borrowing as a result of the COVID-19 pandemic.
It is therefore worth noting here that apart from the new domestic borrowing of N2.3 trillion, the other new borrowings were concessional loans from the International Monetary Fund (IMF) to the tune of $3.34 billion and other multilateral and bilateral lenders.
This incremental borrowing to part-finance the 2020 Budget and the additional issuance of promisory notes were to settle some arrears of the Federal Government of Nigeria.
 This undoubtedly contributed to the increase in public debt stock. New domestic borrowings by State governments also contributed to the growth in the public debt stock.
Total public debt to gross domestic product as at December 31, 2020 was put at 21.61% which is within Nigeria’s new limit of 40%.
The various initiatives of government to increase revenues such as the strategic revenue growth initiative and the Finance Act 2020, should help shore up government’s revenue and reduce the debt service to revenue ratio.
Meanwhile, President Buhari has sought approval of the National Assembly for a new external borrowing plan of N2.343 trillion (about $6.183 billion) as contained in the 2021 national budget.
This new borrowing will raise Nigeria’s debt stock to about N36.3 trillion while the Debt Management Office (DMO) said at the time that “total public debt to Gross Domestic Product as at December 31, 2020 was 21.61 per cent, which is within Nigeria’s new limit of 40 per cent.” It added that the proposed new capital raising is the new external borrowing already provided for in the 2021 Appropriation Act.
The President also urged the National Assembly to approve a list of all donor-funded projects under the 2018-2020 Federal Government External Borrowing rolling Plan.
Nigeria’s President Muhammadu Buhari at the summit in Paris last week called on European countries and global financial institutions to consider debt cancellation for African countries aimed at reducing devastating effect of the Corona virus pandemic on African economies through restructuring debt portfolios, opting for complete reliefs, and releasing vaccines to the continent, which is still behind in protecting majority of its citizens.
President Buhari noted that the fall in commodity prices as Covid-19 took a toll on the global economy further slowed growth in some countries and strained health facilities.
“It is in this vein that we solicit the support of the French government with its influence in the European Union to lend its voice to the efforts being made to mobilize additional  resources for developing economies most especially Africa in order to strengthen the quantum of investments to our economies. This financial support should also be extended to the private sector,” he said.
The President used the unique opportunity offered by the gathering to call on the European Union to encourage fair and equitable distribution of the COVID-19 vaccines in less developed countries and further promote the establishment of manufacturing facilities.
The President rightly noted that many African countries were already experiencing debt distress. He expressed the view that the debt service suspension by France and G-20 countries does not go far enough adding that there was need for more sustainable and affordable financing solutions including debt relief and further debt restructuring.
On the Paris agreement for Climate Change, President Buhari noted that African countries would need financial support for green energy investment and COP-26.
He said Nigeria will refocus on gas, while adopting a strategic revenue growth Initiative.
On the theme of “Africa Private Sector — Reforms – Infrastructure’’, President Buhari who spoke on a number of burning issues affecting African countries disclosed that Public Private Partnership, PPP will be fully explored to ensure more precision in development, cutting down waste and reducing chances of corruption.
“The government intends to leverage on Public Private Partnership to bolster its job creation and anti-corruption drive. In terms of job creation, Nigeria has an abundant labour force since 30.5 percent of its population is between the ages of 25 and 54.’’
MUSA ILALLAH wrote in from EMEKA ANYAOKU STREET ABUJA