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Nigeria in talks for $31 bln debt buyback

- Tom Ashby

(Saturday, June 4, 2005)

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"From the Paris Club, the understanding is that we are likely -- and this is being negotiated -- to get debt relief of 70 percent of the debt. So for $1, we would pay 30 cents," said a senior Nigerian government finance official.

Nigeria is in detailed talks with the Paris Club of sovereign lenders for a debt buyback under which it could get up to 70 percent discount on $31 billion debt, senior Nigerian finance officials said on Friday. The buyback is one of several options for cancelling debt in Africa's most populous nation, but the sources said it looked like the most probable outcome as it offered unique benefits for both parties. For Nigeria, the buyback option offers the chance to eliminate all $31 billion of its Paris Club debt in one fell swoop using windfall earnings that have already been saved from the recent oil price surge. For creditors, it delivers cash up front in exchange for debt that many thought might never be paid in full. It also fits with their objective of transferring more wealth to the world's poorest continent.

"From the Paris Club, the understanding is that we are likely -- and this is being negotiated -- to get debt relief of 70 percent of the debt. So for $1, we would pay 30 cents," said a senior government finance official, asking not to be named. "Everyone is pushing for a deal between now and the G8 meeting in July. We would expect a statement from them on the matter and something concrete by December." Britain will host the Group of Eight meeting of leading industrialised countries on July 6 and many believe the summit presents the best opportunity for a deal.

Mansur Muhtar, director general of Nigeria's Debt Management Office, said Nigeria was focusing principally on the final outcome of talks in terms of the level of debt relief and the speed of delivery. Speaking to Reuters by telephone from London, Muhtar said Nigeria was using so-called Naples terms, equivalent to a 67 percent discount on the face value of debt as agreed for other poor countries, as the reference point for relief. "Our reference for the level of debt relief has always been Naples terms, on stock and flow of debt, at the bare minimum," he said, adding that a solution was required very soon "given Nigeria's development needs and political pressure". The exact percentage discount has yet to be agreed, and the issue is very delicate in Nigeria because lawmakers had been pressing for a 100 percent write-off. It could also affect the value of existing Nigerian debt traded on the secondary market.


A diplomat for one major creditor said: "Most creditors are on board with the idea of a buyback, but we certainly don't see an agreement at a 70 percent discount." "The French originally talked about 30 percent discount, but 50 percent is now coming out a lot and we want to push for more."

Another senior Nigerian government source close to the talks said: "I believe 70 percent is not bad, but 75-80 percent would be better. I think 70 percent could be funded." Todd Moss, a research fellow at the U.S.-based Centre for Global Development, suggested in an influential paper in April that Nigeria offer to buy back its debt at 20-33 cents per dollar of face value. "Such a deal would cost the Nigerians $6-$9 billion, or about the increase in foreign reserves from the oil windfall," Moss said.

Nigeria, which is Africa's most populous nation with 140 million people, was passed over for debt relief in the 1980s and 1990s because it did not have an agreement with the International Monetary Fund (IMF) and was ruled by military dictators until 1999. But President Olusegun Obasanjo, elected in 1999, has introduced a home-grown reform agenda with IMF monitoring, and made debt relief his top priority in relations with the West. Nigeria's largest single creditor, Britain, has proposed a major increase in aid, debt relief and trade for Africa to help it achieve ambitious development goals for 2015. It has been pushing Nigeria's case in the Paris Club. Obasanjo has argued that $2.5 billion in annual debt dues would be better spent on education, health and power. The OPEC member has actually been paying only $1 billion a year to the Paris Club since 2003, less than half its dues.

The lack of a formal IMF programme had been cited by some creditors as an obstacle to a debt deal, but the government said last month that it hoped to be among the first countries to sign up a new programme, known as a Policy Support Agreement, when it is created by the IMF in July. Some creditors are also concerned that any new formula for debt relief agreed with Nigeria could devalue debt owed by other nations. The government saved $6 billion in above-budget oil earnings last year, and could save a similar amount in 2005. Analysts said the G8 meeting in Scotland next month could be the catalyst for a deal.

"Missing this opportunity not only will 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," Moss wrote.

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