Interest fee

What to know about the contentious $418 million Paris Club advisory fee

The 36 Nigerian governors under the aegis of the Nigerian Governors Forum (NGF) are currently grappling with the office of the Attorney General of the Federation (AGF) over the payment of a $418 million commission to consultants.

The case is currently before the courts which is one of the arguments advanced by the NGF to the AGF for a stay of execution.

The genesis of this crisis could be attributed to Nigeria’s external debt which skyrocketed in the 1980s from around $8 billion to $30 billion in 2005. Available data shows that only $400 million was borrowed after 1985.

In 1992, Nigeria paid $8 billion of this debt to the Paris Club of creditors. The increase in external debt, which was about $23 billion, accumulated on the initial external borrowings in the form of interest arrears, interest collected on these arrears and penalties.

“Furthermore, instead of applying Nigeria payments to post-1985 loans to make these loans perform (arithmetically increase), creditors have applied payments on arrears and penalties. So post-1985 loans continue to accrue their own interest and penalties without challenge from every finance minister since 1985,” said Victor Oguejiofor Okafor, professor of African-American studies at Eastern Michigan University. , in his assessment of Nigeria’s debt scourge. .

The huge debt, accompanied by periodic debt service payments, has affected the government’s efforts to execute some development projects such as much-needed infrastructure.

It should be recalled that during the time of former President Olusegun Obasanjo, a process was initiated which led to the agreement with the Paris Creditors Club that 60% of Nigeria’s debt, that is 18 billion dollars, would be canceled while the balance, 12 billion dollars, would be paid by Nigeria in one fell swoop to the creditors.

The negotiation period with the Paris Club took some time and it was initiated by some concerned Nigerians who committed their resources to pursue the matter while most public officials were skeptical about the success of the legal initiative . The legal battle focused on excessive levies on foreign debts.

Seeing the progress made, the state governments were convinced that positive results would come out of the legal battle, culminating in these officials engaging more institutions and later signing agreements with the private law firms of the legal practitioners involved. to pay commissions to consultants. should they succeed. The commission was $418 million.

How much was paid as reimbursement to the States?

The repayment of the Paris Club repayment has spanned five years since it began in 2017. The first repayment to the 36 states took place in early 2017 when N516 billion was repaid to Nigerian sub-national governments. Also at the end of 2017, another installment was disbursed amounting to N243.795 billion.

In 2018, the federal government contributed $2.69 billion, which at the prevailing exchange rate during that period was 523.5 billion naira. In 2019, the last installment of the repayment which was N649.43 billion was made. A total of N2.233 billion has been refunded to the 36 sub-national governments from the Paris Club refund.

Controversy

The disputed $418 million is the commission due to the private law firms that pursued the case to the logical end before Nigeria’s foreign creditors agreed to write off some of our debt and repay excess deductions. .

Also Read: $418m Paris Club Reimbursement: Governors’ Objections Are Groundless – Malami

In November 2021, the Federal High Court in Abuja advised the Federal Government not to proceed with the deduction of $418 million from the accounts of the state governments. The parties to the case included the Attorney General of the Federation (AGF), the Debt Management Office (DMO), the Accountant General of the Federation and the Ministry of Finance, the Central Bank of Nigeria (CBN), the Federation Accounts Allocation Committee (FAAC), as well as the Association of Local Government of Nigeria (ALGON).

But in a recent media conversation with the public, the AGF said the governors’ motive for stopping reimbursement was groundless because they had made a partial payment to the contractors before opting for an out-of-court settlement.

“Governors felt the advisory fees were too high and they wanted to put an end to it. Unfortunately, it’s too late for them,” said Musbau Lateef, senior lecturer at the University of Hull Law School. , United Kingdom.

Governments at all three levels are currently facing a cash crunch. Debt service gobbled up 1.9 trillion naira in the first four months of 2022, 600 billion naira more than the 1.3 trillion in revenue generated by the Nigerian government during the same period. Consequently, the federal government and the 36 sub-national governments improvise to prevent the country from collapsing economically.

Pressure mounts on civil servants as rising inflation reduces household purchasing power and the situation is further aggravated by exchange rate volatility and the high interest rate regime which have increased the cost loans for governments and companies.