An important argument against [debt relief] was precisely that Nigeria was oil-rich and that the country could easily pay its debts.
Obi Nwanodozie is a little less than four years and is born into a farming family with tremendous landed assets in a rural community near the commercial heart land of Abia State known as Ntigha in Isiala Ngwa Local government Area. Obi’s father, Mr. Eze is a big time farmer but had made up his mind to go into the business of importation from one of the core Western European nations just as he had the limitations of not been blessed with enough cash to back up his dream line of business.
The quick thinking rural farmer who planned to diversify his trade then approached a big man in a nearby community of Aba. The man who was approached to raise Mr. Eze a working capital in form of a loan, has the challenge of not having enough land in his family due to the extended size of that family which meant that land he inherited was so small.
The lender then demanded that Obi should tender his huge landed assets as collateral for the loan which he must pay back with less than five percent interest after seven years. The deal was sealed but not without reaching a legal agreement that should there be a default in payment the ownership of these massive family land will change hands to the lender in place of his N100 million loan he gave to the lendee. Walking away resplendently, Eze then proceeded to embark on his new business trip and made success out of the first few trips but the sixth trip became a huge problem.
Mr. Eze fell into wrong hands of professional dupes who took all his money and left him in penury. This tragedy happened incidentally in the sixth year into his loan agreement but he made frantic effort to reschedule the repayment without success because the big man was actually eyeing those lands.
The bigger tragedy happened when the time for repayment arrived but Mr. Eze has no money to repay but had to surrender the ownership of his land. This was exactly when his son was almost getting ready to enroll into college. Mr. Eze became so poor that he could not meet basic financial obligations to his family.
Ironically, the man who was rich in landed assets now became homeless and impoverished because of wrong investment choice and his encounter with the wrong business partners who were dubious.
The above story is the likeliest situation that Nigeria could face in the near future if the nation due to current high level of corruption cannot repay the massive loans the Muhammadu Buhari’s administration has continued to generate in the guise of building strategic infrastructure.
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Recall that few years back, the United Nations Office on Drugs And crime (UNODC) estimated that Nigeria has lost to government thieves over $400 billion revenue generated from exports of crude oil in the last four decades.
The signal Nigerians are now getting even from official quarters is scary and shows a nation whose leaders have gone a borrowing with little or no plan on how to repay these loans. Ironically, just before 2015 when Buhari came on board, the nation had exited the bad club of heavily indebted poor countries by virtue of the fact that the Finance Minister during the then Chief Olusegun Obasanjo’s administration Dr. Ngozi Okonjo Iweala successfully negotiated with Nigeria’s multilateral creditors for soft landing.
A development policy review published on September 5, 2013, edited by Geske Dijkstra of the Erasmus University Rotterdam had celebrated the so-called exiting from this inglorious club of debtors by Nigeria. The researcher had asked what did 18 billion dollars achieve? That is the 2005 debt relief to Nigeria.
The researcher said the aim of this paper is to assess the contribution of the 2005 debt relief agreement to Nigeria to this higher growth. This agreement eliminated Nigeria’s US$ 30 billion to Paris Club creditors; the creditors cancelled an unprecedented US$ 18 billion, while Nigeria paid US$ 12 billion. The agreement he argued was concluded in the midst of intensive international campaigns for more aid and more debt relief.
He recalled that the G8 summit had just decided to eliminate all multilateral debts for countries that had fully complied with conditions for the Initiative for the Heavily Indebted Poor Countries (HIPC initiative).
He recalled too that together with the HIPC initiative itself, this new Multilateral Debt Relief Initiative (MDRI) hugely reduced the external debts for the involved low income countries. But there was a big snag. Nigeria’s case was different. It was not a HIPC country, mainly because of its huge oil income, and most of its debt was with bilateral creditors. Debt cancellation for Nigeria was heavily disputed at the time, the researcher noted.
The researcher told us vividly that an important argument against it was precisely that Nigeria was oil- rich and that the country could easily pay its debts.
Another objection, he said was Nigeria’s bad reputation in terms of policies and governance, which made it highly unlikely that the country would use the debt relief savings well. On the other hand, he noted, it was argued that Nigeria was a low income country (in 2003, GDI per capita was US$ 320) with 54% of its about 150 million people living in poverty, and that the debt cancellation was necessary in order to help the country achieve the Millennium Development Goals (Moss et al., 2004; Okonjo-Iweala, 2008; World Bank, 2005). Not done. This financial historian recalled that some analysts also claimed that the creditors should have cancelled the debt a long time ago, since most debt was arrears (Rieffel, 2005).
Again, the writer said given the conflicting views on debt cancellation to Nigeria, it is the more relevant and interesting to assess what it has meant for economic growth and poverty reduction in the country. “This paper traces the three possible impact channels of debt relief, namely the flow channel (reduced debt service), the stock channel (removal of debt overhang) and the conditionality channel (Dijkstra, 2008).” The researcher reminded us that by carefully establishing the most likely counterfactual scenario for each of these channels, the paper concludes that the debt relief agreement played a key role in the country’s improved economic performance.