Transcript Nigeria’s Debt Burden – An Overview…

Background to Nigeria’s Economic
Reform Program…

In May 1999, President
Obasanjo’s
democratically-elected
government inherited
key development
challenges.
Economic
and
Productivity
Decline
Infrastructural
and Institutional
Decay
High
Poverty
Levels
Key
Development
Challenges
Poor
Economic
Management
Low
Investor
Confidence
Debt
Overhang
(external
and
domestic)
Widespread
Corruption
2
GDP and Productivity decline…
Sharp decline in per capita
GDP since 1980s.
Real GDP Growth stagnant
or negative for most of
1990s.
Nigeria: Trends in GDP Per Capita (USD)
Declining Productivity
Trends
in
Total
Factor
Productivity, 1960-1999:
GDP Per Capita (US$)
800
700
600
500
400
300
200
100
0
1960
1980
1999
2000
2001
2002
Year
3
Infrastructural decay…
Poor state of Infrastructure
(Power Supply, Roads, and
Telecommunications).
In 1999, no new power
stations for a decade. No
major overhaul of power
plants for 10-15 years. Only
19 of 79 generating units
operational.
Infrastructure
deficiency
constitutes major barrier to
doing business today.
Infrastructure
24
Corruption
19
Financing
12
Policy Instability
11
Gov. Bureaucracy
10
Crime & Theft
5
Electric power consumption
kw per capita (2001)
Electricity Generationb(mw)
2003
Road to Population Ratio
1000km per million people
(1995-2001)
Paved primary roads –
percent of roads (19952001)
Telephone – Mainlines per
1000 people (2002)
Access to sanitation –
percent of population (2000)
Access to safewater % of population (2000)
Nigeria South
Africa
3,793
82
SSA
LIC
HIC
456
317
8,421
4,500
45,000
1.1
8.5
2.6
--
--
30.9
20.3
13.5
16
92.9
6
107
15
28
585
54
87
54
43
--
62
86
58
76
--
Sources: World Bank: World Development Indicators, African Development Indicators (various).
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0
The State of Infrastructure – A Comparison
10
15
20
25
30
4
High Poverty levels and poor socioeconomic indicators…
High poverty levels and poor
socio-economic indicators in
comparison with other Low
Income Countries.
Nigeria ranked 142nd in the UNDP
Human Development Index,
lower than most Low Income
Countries.
Serious crisis in the health and
education sector due to neglect
and poor funding.



SELECTED POVERTY AND SOCIAL (MDG) INDICATORS
Nigeria
Low Income
Countries
450
58
82
121
75
39
92
GNI per capita (Atlas method US$)
320
Life Expectancy at birth (years)
47
Infant mortality (per 1000 live births)
87
Under-5 mortality rate (per 1000 live births)
184
Access to improved water source (% of population) 57
Illiteracy (% of population age 15+)
32
Gross primary enrolment (% of school-age
82
population)
Sources: World Bank – Nigeria at a glance tables, 2004; and Nigeria, Official
sources.
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Per capita health expenditure in
2001 was $15 compared with $29
for SSA, $222 for South Africa and
$2,841 for High Income Countries.
19 physicians per 100,000 people
between 1990-99 compared with
about 65 for South Africa.
Looming HIV-Aids pandemic prevalence rate at 5% in 2001.
Immunization rates less than
50%.
Public education expenditure
0.7% of GNP in 1995-97 compared
with 3.4% for SSA in 2001.
Over 33% primary school drop-out
rate and only 50% progression to
secondary school.
Sources: World Bank - African Development
Indicators and World Development Indicators.
5
Public sector/Economic management
weaknesses…
Weak Public Sector
Institutions and poor
governance structures
Lack of Transparency
and Accountability and
high levels of
Corruption.
Poor Economic
Management:

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Accommodating fiscal
and monetary policy;
fiscal indiscipline,
distorted expenditure
patterns; weak revenue
effort;
90
80
70
60
50
40
30
20
10
Pro-cyclical expenditure
patterns
resulting
in
boom-bust growth cycles
and
associated
consequences.
CHART 3: TRENDS IN % CHANGES IN OIL REVENUE AND
TOTAL EXPENDITURE: 1971-2001
% CHANGE IN REV
& EXP

Poor management of
oil revenues
300
250
East
West
North
200
150
100
50
0
1971
-50
1976
1981
1986
1991
0
1996
2001
Oil revenue
1st Qtr
2nd Qtr
3rd Qtr
YEARS 4th Qtr
Total Expenditure
6
Large external debt burden…
Large External Debt Burden as
measured
by
traditional
indicators.

350.0
35000.0
300.0
30000.0
Debt stock($mil)
Debt Ratios (%)
Nigeria - Debt Indicators, 1970-2002
250.0
200.0
150.0
100.0
50.0
25000.0
20000.0
15000.0
10000.0
5000.0
0.0
0.0
1970-811982-85 19861992
Debt/GDP
19931998
1999
Debt/Export
2000
2001
Growth in debt stock associated
with accumulation of penalties
and arrears.
2002
Debt stock($m)
Over 80% owed to Paris Club
creditors.
Paris Club
Multilaterals
Commercial Creditors

Rescheduled amount in December
2000 comprised 24% late interest;
21% interest; 48% principal
arrears, and only 7% principal
balance.
Worsening position. Since
December 2000, arrears have
accumulated to the tune of about
$5 Billion.
Cross-currency exchange risks have
added over $5 billion to the debt
stock in dollar terms since 2001,
due to dollar depreciation. Dollar
accounts for less than 25% of debt.
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Large domestic debt burden…
External debt burden exacerbated by Rising Public
Sector Domestic Debt


Securitized public debt now at $10 billion equivalent. Mostly
short term T-Bills, which exposes government to serious financial
risks.
Huge unsecured arrears arising from past mismanagement.

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Arrears to Local Contractors (including large foreign companies)
amounting to $4.2 billion equivalent, some dating back 10-15 yrs.
Unpaid pension liabilities, including Military pensions, now over $8
billion equivalent.
Arrears have also been accumulated on allowances due to teachers,
doctors and health workers, and liabilities of Foreign Missions,
amounting to over $200million.
Total securitized and non-securitized public debt now well over
$56 billion or 83.6% of GDP 2004.
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Low aid flows and negative transfers…
Nigeria is the lowest aid recipient in Sub-Saharan
Africa.

Per capita annual aid flow is about $2 compared with
$28.2 average for Sub-Saharan Africa (2002).
Presently experiencing net negative transfers of
approximately $1.6bn, or $11.9 Per capita per
annum in 2002 (GDF and DAC figures).
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Addressing the development challenges
- NEEDS
National Economic
Empowerment and
Development Strategy
(NEEDS) is Nigeria’s
home-grown Medium Term
Economic Development
and Poverty Reduction
Strategy for:
 Poverty reduction
 Wealth creation
 Employment generation
 Value Reorientation
States have also
commenced preparation
of SEEDS to complement
efforts.
Key Pillars of NEEDS
include:

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
Redefining the role of
government in the economy.
Creating an enabling
environment for private
sector growth.
Improving social services
delivery.
Creating a new value
system.
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Main Focus of the Reform…
Economic management

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
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Fostering macroeconomic stability – fiscal discipline
Public Expenditure Management
Public Revenue reforms; Tax reforms and customs
restructuring;
Improving public resource management/utilization
Governance and accountability

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
Procurement reforms - due process mechanism.
Oil Sector Transparency.
Rule of Law/Security
Public service restructuring

Focus on efficiency, responsiveness, service delivery.
Accelerated privatization and liberalization
Financial Sector Reforms
Rebuilding physical and social infrastructure
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Addressing the development challenges
- SEEDS
State Economic Empowerment and Development
Strategy (SEEDS) complement efforts of Federal
Government.

Each SEEDS has core measures on improving Public
Expenditure Management.

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Procurement Reforms: Several States have adopted
Due Process Mechanism and are setting up Units.
Emphasis also placed on creating enabling
environment for Private Sector Development.
Some limited progress in redefining role of
government.
12 States ahead of the Pack:

Bauchi, Cross Rivers, Ebonyi, Enugu, Federal Capital
Territory, Kaduna, Katsina, Kwara, Nassarawa,
Ogun, Sokoto and Osun.
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Rationale for a home-grown program…
Bitter historical experience with previous IMF
adjustment programs.
True ownership of reforms.
Depth of adjustment - large and significant – hence
need for true ownership.
Nature of Program – endorsed by the IMF


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Judged by the IMF to be at least as tough as or tougher
than the standard fund programme.
Well-laid out and transparent structural matrix of
reforms, with well-defined performance benchmarks.
Quarterly monitoring by the IMF.
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Progress to date…
Progress in consolidating democratic
institutions, structures and processes,
which constitutes bedrock for economic
reform.
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Successful democratic transition effected.
Establishment of workable relationship with
the legislature.
Search for unity, peace and harmony.
Vigorous civil society.
Virile, (free?) press.
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Progress to date…
Macroeconomic Stability
Measure
Present Status
Fiscal
Deficit
2004 Deficit no
more than 2.1%
of GDP with
budget at $25 a
barrel.
On target. Ended with
projected deficit of N147
billion instead of N181 billion.
Surplus recorded if higher oil
price is considered.
Inflation
Low Double
Digits
10 – 11%
Monthly moving average
inflation rate at 15%. 12month inflation moderated
June to June 14.1%; July to
July 10.9%, Aug-Aug 13.0%,
Dec-Dec 10 %.
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Progress to date…
Macroeconomic Stability
Measure
Present Status
Exchange
Rate
Stability
Exchange Rate has been
relatively stable in the past 6
months at about N132 to $1.
Parallel mkt. Premium stable
at 5%.
Foreign
Reserves
Upto 6 months
of Imports
Reserves at about $20 billion
including $5.9 billion excess
crude revenue
Growth
Rate
Targeted 5%
real GDP Growth
On target – growth rate in
2004 is 6%.
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Progress to date…
Anti-corruption drive, Transparency and
Accountability
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Procurement Reforms: Due Process Mechanism.
EITI - Audits to be launched shortly.
G8 Transparency Compact.
Economic and Financial Crimes Commission – progress
with tackling advance fee fraud, cybercrime, oilbunkering, and high-level political crimes.
Independent Corrupt Practices Commission - 55 cases
under investigation.
Police Reform – Increase in size, equipment and training.
But true reform yet to begin.
Legal and Judicial Reform under preparation.
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Progress to date…
Improved public expenditure management
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MTEF Medium Term framework to give strategic focus and
expenditure prioritization.
MDG-directed expenditures in 2004 and 2005 Budgets.
Fiscal Discipline – Commodity-Price Based Fiscal Rule.
Public expenditure reforms also on-going at state level to varying
degrees.
Commodity-price based fiscal rule adopted in 2004:
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savings of $5.9 billion equivalent for the entire nation, as a
result of oil price rise. Amount kept in reserves.
50% of amount saved for volatility cushioning fund against oil
price volatility. 50% to be shared between Federal and
State/Local Governments.

FG’s share applied to 2005 Budget – education, power, roads,
pension and structural reforms, as well as security.
Fiscal Responsibility Bill in progress to lock in changes.
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Progress to date…
Enhanced budget monitoring with key performance
indicators.
Improved budget transparency

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Publication of mid and end-year budget performance
review.
Monthly publication of revenues to tiers of government.
Publication of revenue allocation over past 5 years.
Improved revenue management.
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Tax reform bill under preparation.
Customs Reforms involving major clean-up of top tier.
Trade and Tariff Reforms underway to harmonize
tariffs to ECOWAS Four Tariff Bands.
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Progress to date…
Civil service reforms
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5 pilot Ministries:
Restructuring focused on re-professionalization; improving
efficiency and service delivery as well as reducing waste.
Payroll audits in a pilot Ministry has weeded out 5000 ghost
workers.
Monetization of in-kind benefits for civil servants to curb waste.
Privatization and deregulation

Deregulation of Downstream Petroleum sector.
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Progressive phase out of subsidies on petroleum products has clawed back
$1 billion into the budget over the last few years.
Sale of 29 Enterprises to date, although not as rapid progress
this year.
Deregulation of Telecoms Industry
Planned deregulation of power sector.
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Progress to date…
Financial sector reforms.

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Bank recapitalization from $15 million to $188.3
million.
Proposed Insurance Sector Reforms.
Pension Reforms
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Pension Reform Bill passed.
New contributory pension scheme under
implementation. Large transition cost.
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Progress to date…
Improved Debt Management
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New Debt Office created to improve debt management
-More professional/technical approach to debt
management.
Progress in External Debt Management.
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Improved Relations with creditors – restoration of
dialogue.
Working with PC to address burden-sharing.
Timely payment of agreed amounts.
Progress in domestic debt management:
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Curtailment in domestic borrowing due to tight fiscal
policy.
Limited domestic borrowing now on a limited basis to
deepen capital markets ad restructure short term debt.
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Next Big Push…
Legislations to lock in Reforms

Procurement Bill, EITI Bill, Fiscal Responsibility Bill, Local
Government Bill, Power Sector Bill (passed).
State-level Reforms.

Carrot and Stick approach – matching grants, performancebased allocation of donor funds, legislation.
Improving human/physical infrastructure and promoting
real sector growth.
Improving service delivery.
Big push on privatization.
Political Reforms – National Political Conference
commenced
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Key challenges…Managing the political
economy of reform
Contending with vested interests
Need to deliver visible “wins” to the
population quickly to broaden political
support.
Balancing political and economic reforms
Managing complex Federal-State relations.
Managing costly trade-offs while ensuring
reform stays on track.
Dealing with Reputational overhang –
burden of past history.
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Key challenges…Building national
consensus on debt strategy.
Keeping dialogue going on the debt issue remains difficult.

Debt repayment seen as too large a portion of national
resources.

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Combined external and domestic debt service exceeds Federal
Capital Budget.
Even $1 billion paid to PC represents 70% of total (recurrent and
capital) education budget and 110% of health budget (both
States and Federal).
More than $3 billion needed annually to service external debts in
next 5 years.
Concerns about origins and escalation of the debts.
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Fraudulent loans.
Devastating effect of accumulating arrears.
Exchange rate effects.
25
Key challenges…Financing the MDGs.
Oil revenues insufficient to meet financing needs.

Even with higher prices, oil earnings in 2004, oil revenues
amounted to only about $28.5 billion.

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$3.2 billion reinvested in oil industry as Nigeria’s share of
production costs, with a net of $25.3 billion, of which $5.9 billion
is excess crude.
With population of over 130 million, oil earnings translate to
about 53 cents per capita per day.
Huge financing needs for achieving MDG targets.

Work underway by various organizations - Preliminary estimates
indicate average annual spending requirements in 2005-2009 as
$7.65 billion, compared with $4 billion NEEDS estimate:
 Power, Transport and Water - $5.2 billion
 Education - $1.7 billion; Health - $720 million
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How can you assist?
Realistic appraisal of Nigeria’s situation and the facts
on ground.
Recognition of Nigeria’s size and role in improving
MDGs for SSA.
Recognition of Nigeria’s role in peace-keeping and
regional stability.
Acknowledgement of strong efforts to address key
challenges and support for Reform effort.
Recognition of “window of opportunity” for dialogue.
Strong partnership approach.
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What do we owe you?
Strong implementation of structural reforms in
open, transparent and monitorable manner.
Strong anti-corruption drive.
Strong commitment to channelling savings
from debt relief towards poverty reduction.
Strong acknowledgement of our debt
obligation to you.
Implementation of agreement in a fair manner
to all creditors.
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