Debt Relief for a Green and Inclusive Recovery, by Luckscheiter, Adeniran, Okereke and Kwaga

Given Nigeria’s institutional knowledge and experience in conducting debt restructuring negotiations since the last round of debt relief, aligning the use of climate change debt swaps with the government’s plan to further develop the country’s green bond market, and the country’s urgent need but low fiscal capacity to move away from the fossil economy, the idea of ​​debt relief for a green and inclusive recovery seems to be a promising option. Nigeria’s debt is rising rapidly and approaching unsustainable levels. The country will be hard-pressed to meet its climate and development commitments given mounting fiscal constraints. A green and inclusive recovery debt relief initiative could provide innovative solutions to address these challenges. Nigeria’s economy has been hit hard by the impacts of the COVID-19 pandemic. In 2020, the country posted its deepest quarterly contraction since the 1980s, with around minus 6 percent in the second quarter. Oil exports in 2020 fell by about 43 percent and tax revenue by as much as 28 percent. Although the Nigerian economy grew by 3.4% in 2021, more than five million Nigerians will have fallen into poverty by 2022 due to the lingering impact of the COVID-19 pandemic. This brings the number of Nigerians living in poverty to about 95 million (or 46 percent of the population) according to the World Bank. More than a third of the labor force remains unemployed or underemployed. Nigeria’s medium- and long-term economic prospects are equally worrying. Despite the rise in world energy prices due to the war in Ukraine, the pace of the global energy transition away from fossil fuels will accelerate. While the European Union (EU) is currently striving to diversify its oil and gas imports away from Russia and towards Nigeria in this regard, the EU Commission’s REPowerEU Plan raised the 2030 headline target for renewables from the 40 to 45 percent. A 2021 report by the think tank Carbon Tracker estimates that countries dependent on fossil fuels could see a 51 percent drop in government revenue from oil and gas in a shift to a low-carbon world over the next two decades. Among other things, due to a large debt burden, Nigeria lacks the fiscal capacity to meet its commitments to achieve the Sustainable Development Goals (SDGs) and contribute to the achievement of the Paris climate goals. What the United Nations has framed as a “Decade of Action” is beginning with Nigeria and many other developing countries regressing, rather than making accelerated progress. But even before the impacts of the COVID-19 pandemic kicked in, Nigeria’s economy and state finances were on shaky ground as the country struggled to emerge from the 2016 recession caused by falling oil prices. Petroleum. Between 2015 and 2019, the country’s debt more than doubled, from 12.6 trillion naira to 27.1 trillion naira. By June 2021, this figure has risen to around N39 trillion and is expected to reach N45 trillion by the end of 2022. While the debt-to-GDP ratio remains below the self-imposed 40 per cent mark, debt service costs have reached a worrying level. In 2021, Nigeria at the federal level spent approximately 76% of its revenue on debt service. At the same time, Nigeria’s external debt structure has fundamentally changed, with commercial debt now accounting for a large portion (about 40 percent) compared to the early 2000s. Bilateral debt is largely owed to China, unlike the Paris Club countries. Among other things, due to a large debt burden, Nigeria lacks the fiscal capacity to meet its commitments to achieve the Sustainable Development Goals (SDGs) and contribute to the achievement of the Paris climate goals. What the United Nations has framed as a “Decade of Action” is beginning with Nigeria and many other developing countries regressing, rather than making accelerated progress. The investment needed for the country’s development and the climate commitments seem more daunting than ever. The financial gap for Nigeria to achieve the SDGs by 2030 is estimated at 125 billion naira. The estimated cost of implementing the country’s Nationally Determined Contribution, which would reduce Nigeria’s emissions by up to 47 percent, compared to the business-as-usual scenario by 2030, is N74 billion. An international debt relief initiative for a green and inclusive recovery could bring innovative solutions to address these challenges. The Vulnerable Group Twenty (V20) of Finance Ministers of the Climate Vulnerability Forum to which several Nigerian peers from the ECOWAS region belong, including Senegal, Ghana, Niger and Liberia, among others, issued a statement before the last meeting United Nations Climate Change. conference in Glasgow advocating a major debt restructuring initiative for countries overburdened by debt, development and climate challenges. To ensure the participation of private creditors, multilateral agencies could establish guarantee mechanisms that would facilitate debt relief negotiations and provide credit enhancements for new “green and inclusive recovery” bonds that would be swapped for old debt at a discount. In addition, strict transparency and accountability measures would need to be put in place to ensure the development impact of any debt relief. In essence, the proposal suggests that the debts and debt service costs of developing countries be reduced in exchange for clear and measurable commitments and investments in programs and projects for the achievement of the SDGs and the Paris Climate Agreement. To decide which countries are eligible, the World Bank and IMF must improve their debt sustainability analysis to include climate and other sustainability risks and needs in their assessment. If they find that a country has unsustainable public debt, debt relief will be granted, involving public and private creditors alike. To ensure the participation of private creditors, multilateral agencies could establish guarantee mechanisms that would facilitate debt relief negotiations and provide credit enhancements for new “green and inclusive recovery” bonds that would be swapped for old debt at a discount. In addition, strict transparency and accountability measures would need to be put in place to ensure the development impact of any debt relief. This could take the form of a dedicated “green and inclusive recovery” fund with its own accounting, auditing and reporting systems that encourage oversight and citizen participation. Nigeria’s political leadership is becoming more and more accustomed to the idea of ​​the need for debt relief in Africa. President Muhammadu Buhari called for debt cancellation for African countries at the United Nations General Assembly in September last year. More recently, the speaker of the House of Representatives, Femi Gbajabiamila, brought together the speakers of African parliaments in another call for full debt cancellation. As any international debt initiative seems more likely if a broad coalition of relief-seeking countries puts plans and tangible commitments on the table, the Nigerian government should closely question its peers’ proposals. Given Nigeria’s institutional knowledge and experience in conducting debt restructuring negotiations since the last round of debt relief, aligning the use of climate change debt swaps with the government’s plan to further develop the country’s green bond market, and the country’s urgent need but low fiscal capacity to move away from the fossil economy, the idea of ​​debt relief for a green and inclusive recovery seems to be a promising option. Even if only limited debt relief were granted, the proceeds would easily be a multiple of the N15 billion raised through Nigeria’s second green bond issue in 2019. Jochen Luckscheiter is with the Abuja Office of the Heinrich Böll Foundation, while Adedeji Adeniran is with the Center for the Study of African Economies, Chukwumerije Okereke is with the Center for Climate Change and Development, and Vahyala Kwaga is with BudgIT. SEE: Governor Yahaya Bello’s roadmap to Hope 2023 Read More Related News Here Let here it in the comment below if you do have an opinion on this; Debt Relief for a Green and Inclusive Recovery, by Luckscheiter, Adeniran, Okereke and Kwaga