Nigerian debt deal: Almost done, if not yet home free

April 18, 2006

The IMF announced today that it has completed its review of Nigeria’s policy support instrument (PSI). The Fund was laudatory, including a quote from first deputy MD Anne Krueger:

“Looking ahead, the authorities are committed to continue the ambitious macroeconomic and structural policies to entrench macroeconomic stability, strengthen public financial management, and reduce the costs of doing business further”
The PSI review is the final bureaucratic hurdle for the country to complete the Paris Club discounted buyback deal agreed last October. The first ever of its kind, the debt deal includes an $18 billion write-off and will reduce the country’s overall debt load by more than 80%. The country can now make its final payment later this month and clean up the books with all of its major bilateral creditors.Of course, the big question is what happens next? As the Fund notes, the country has made great strides and the reform effort seems on track. But the reforms remain highly vulnerable to political changes and with trouble stirring in the Niger Delta and President Obasanjo considering a third term, the chances of unrest seem to be going up. These are the risks of debt relief in a place like Nigeria where success is far from the most likely outcome. But given the importance of the country and the downside of failure, the debt deal still looks like a bargain for the major powers--and a boost to the reformers trying to lock in their gains.


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