What you should know about the Paris Club’s controversial $418 million advisory fee – Businessday | Vette Leader

Nigeria’s 36 governors, under the auspices of the Nigerian Governors Forum (NGF), are currently locked in a battle with the Office of the Attorney General of the Federation (AGF) over paying a US$418 million commission to some advisers.

The case is currently in court, which is one of the arguments that NGF is making to AGF for a stay of enforcement.

The emergence of this crisis can be traced back to Nigeria’s external debt, which skyrocketed from about $8 billion in the 1980s to $30 billion in 2005. Available data shows that after 1985 only $400 million was borrowed.

By 1992, Nigeria had paid $8 billion to the Paris Creditors’ Club for that debt. The increase in foreign debt, which totaled about $23 billion, was due to interest arrears, interest charged on those arrears, and penalties on the original foreign loans.

“Furthermore, instead of applying Nigeria’s payments to post-1985 loans to make (arithmetically increment) those loans, creditors have offset the payments against arrears and penalties. Therefore, post-1985 loans continue to accrue their own interest and penalties, with no challenge to all finance ministers since 1985,” said Victor Oguejiofor Okafor, a professor of African American Studies at Eastern Michigan University, in his assessment of Nigeria’s debt plague.

The huge debt, accompanied by regular debt service payments, hampered the government’s efforts to carry out some development projects such as much-needed infrastructure.

It should be recalled that during the tenure of former President Olusegun Obasanjo, a process was initiated that led to an agreement with the Paris Creditors’ Club that 60 percent of Nigeria’s debt, or $18 billion, would be written off while the balance remained outstanding, 12 billions of dollars, Nigeria would pay the creditors in one fell swoop.

The negotiation phase with the Paris Club lasted a while and was initiated by a few concerned Nigerians who lent their resources to pursue the case when most officials were skeptical about the legislative initiative’s success. The litigation focused on excessive deductions on foreign debt.

Given the progress made, the state governments were confident that the litigation would yield positive results, culminating in these officials involving more institutions and later signing agreements with the private law firms of the lawyers involved to pay commissions to the consultants they did succeed. The commission amounted to $418 million.

How much has been refunded to states?

The Paris Club refund has spanned five years since it began in 2017. The first repayment to the 36 states came in early 2017 when N516 billion was repaid to the Nigerian sub-national governments. Also at the end of 2017, another tranche of N243.795 billion was paid out.

In 2018, the federal government paid US$2.69 billion, which amounted to N523.5 billion at the exchange rate prevailing during the period. In 2019, the final tranche of the repayment was made at N649.43 billion. A total of N2.233 trillion was returned from the Paris Club reimbursement to the 36 sub-national governments.

The controversy

The disputed $418 million is the commissions that accrued to the private law firms that took the case to its logical conclusion before Nigeria’s foreign creditors agreed to write off part of our debt and refund the overdeductions.

Also Read: Paris Club Refund of $418M: Governors’ Objections Unfounded – Malami

In November 2021, the Abuja Federal Court advised the federal government not to proceed with withdrawing $418 million from state government accounts. Parties to the case included the Attorney General of the Federation (AGF), the Debt Management Office (DMO), the Comptroller General of the Federation and the Ministry of Finance, the Central Bank of Nigeria (CBN), the Federation Account Allocation Committee (FAAC) and the Association of Local Government of Nigeria (ALGON).

But in a recent media call with the public, the AGF said the governors’ reason for halting the repayment was unfounded, as they made a partial payment to the contractors before deciding to settle out of court.

“The governors felt the advisory fee was too high and wanted to stop it. Unfortunately it’s too late for them,” said Musbau Lateef, Lecturer at the Law School of the University of Hull, UK.

The governments of the three levels are currently confronted with liquidity bottlenecks. Debt service sucked up N1.9 trillion in the first four months of 2022, which is N600 billion more than the N1.3 trillion generated by the Nigerian government over the same period. Consequently, both the federal government and the 36 sub-national governments are improvising to prevent the country’s economic collapse.

Pressure is mounting on officials as rising inflation reduces households’ purchasing power, and this is being exacerbated by volatile exchange rates and the high interest rate regime, which have pushed up borrowing costs for governments and businesses.

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