Posted by From Alifa Daniel and Azimazi Momoh Jimoh, Abuja on
BEFORE President Olusegun Obasanjo leaves next year, Nigeria may be free from the grip of its external creditors. Reasons: the Federal Government, which has successfully taken the country out of the Paris Club's $12 billion debt trap is extending the same measure to the London Club of creditors.
BEFORE President Olusegun Obasanjo leaves next year, Nigeria may be free from the grip of its external creditors. Reasons: the Federal Government, which has successfully taken the country out of the Paris Club's $12 billion debt trap is extending the same measure to the London Club of creditors.
President Olusegun Obasanjo, who is renewing the debt repayment drive, told the Senate yesterday that steps are in the offing to clear the $1.2 billion owed the London Club.
According to Obasanjo, with the Senate's support, the nation, he said was set to write off the $2.15 billion owed the London Club of creditors, very soon.
In his formal letter to brief the Senate on the conclusion of the Paris Club's debt payment deal, the President intimated the lawmakers on how the government would handle the London Club of creditors.
"As these categories of debts are traded in the international market, possessing different characteristics from Paris Club debts, a different approach is being adopted for their treatment. This is likely to take the form of a market-based transaction that will confer optimal financial and economic benefits to the country. We have invited proposals from reputable financial advisory services firms which will be competitively assessed to help us determine our strategic options", President Obasanjo said.
The President in the letter read by Senate President Ken Nnamani, stated that the London Club category of debts is made up of Promissory Notes, Par Bonds, and Associated Oil Warrants, adding that he would revert to the Upper House as soon as he was ready to begin the process of clearing the debts.
On how the government was able to pay the Paris Club's debts, which totalled $12 billion, the President recalled the various steps taken by the government to meet the debt pardon deal. He narrated that on October 20, 2005, the country successfully negotiated a comprehensive debt treatment, allowing the government to secure a full and permanent exit from this category of debts.
Obasanjo said that following the endorsement of the National Assembly with an appropriation of $12.4 billion from the Consolidated Fund in November 2005, the government went ahead to conclude the transaction.
"As intimated to you on various occasions, the funds were sourced from excess crude savings, which had accrued in 2005, with the full consent of all stakeholders. The states concerned reimbursed their part of the balance to be paid to Paris Club," he said.
The President confirmed that Nigeria was completely free from the debt noose of the Paris Club and thanked the leadership and members of the Upper House for their support.
Obasanjo proceeded to give details on how the debt was cleared. "In accordance with the terms of the Agreed Minutes signed with Paris Club of creditors in October 2005, the exit payments to the creditor countries were made in three phases and in various currencies, viz: US$, Euro, Pounds Sterling, Japanese Yen, Swiss Francs and Danish Kroner. ...
"You may wish to note that the dollar equivalent of payments referred to above under the three phases amounted to $12.09 billion, generating savings of about $306 million... These savings were realised on account of proactive exchange rate risk management conducted by the Central Bank of Nigeria (CBN) and Debt Management Office (DMO).
"In addition to the savings generated from proactive exchange rate risk management transactions, interest accrued on the account during the period amounted to about $605,000. It should, however, be noted that this amount does not include interest income accruing on monies deposited into the Bank of International Settlement (BIS) Special Accounts opened for the creditors pending the signing of bilateral agreements.
In accordance with the Agreed Minutes, interests accruing on these Special Accounts were to revert to the respective creditors," Obasanjo said.
He further explained that "the transaction cost amounted to $30.24 million, which represents commission charged by the CBN for services rendered. On my intervention, the commission has been reduced from the normal one per cent charge levied by the Central Bank on government transactions to 0.25 per cent. The Bank for International Settlements (BlS), which managed the accounts used for channelling the payments, offered its services gratis, as is the traditional practice in relation to its role as the Banker of Central Banks.
"Taking into account the foreign exchange gains, interest income, transactions costs as well as administrative charges levied by the CBN, I am pleased to report to the Senate that the actual cost to the nation of the Paris Club exit was $12,123,652,000 (i.e. approximately $12.12 billion). This represents net savings amounting to $276.3 million, in relation to the $12.4 billion payment negotiated with the Paris Club of creditors. I have instructed the minister of finance to return these savings to the excess crude account. With this step, I am happy to say that we have now put Paris Club debt behind us," Obasanjo declared.