Quick question on the “Paris club refund”

First a bit of background. Nigeria incurred a lot of debt in the 80’s mostly from the Paris club, a group of international lenders. The federal government took these loans and spent it alone. A proverbial chopping and cleaning mouth. The loans of course needed to be serviced and paid back.

Now, since about 1995, the federal government implemented a practice of deducting money for servicing debts before sharing the rest of revenue based on the revenue allocation formula. In essence, the states were indirectly helping the federal government pay off its debt, even though they were not involved in incurring the debt in the first place. The practice continued until the $12bn debt repayment deal was made in 2002.

The states protested and said they want their money back, that is, money illegally deducted from them to service and pay off the debt. The federal government agreed to refund them. That is the story as I understand it.

From my understanding the Paris club DID NOT refund Nigeria. So there were no “in-flows” which the federal government is using to refund the states. The refunds were also not appropriated. No allowance was made for it in the 2015, 2016, or 2017 budget. It can’t be from the excess crude account, because the states have as much stake in that as the federal government. That would be like refunding the states with their own money. Finally, the federal government is not really flush with cash, so we can not say they found some loose change lying around. Even if they did, legally it would need to be appropriated. They are planning on running a record deficit after-all.

So the question is, how is the federal government financing the Paris club refunds? It is not an insignificant amount. The last tranche released came to just over N377bn.

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