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WASHINGTON, Oct 18 (Reuters): The International Monetary Fund yesterday endorsed Nigeria's economic management, using a new policy tool to clear the way for Nigerian debt relief from the Paris Club of creditor nations.
The IMF's new Policy Support Instrument (PSI), unveiled last week, is designed to give the global lender's stamp of approval to poor countries without requiring them to borrow from the fund.
Markets, donors and creditors-including the Paris Club group-look to the IMF to signal whether a country is following sound economic policies and deserves their support.
For Nigeria, the first recipient of the new facility, the endorsement opens the door to finalised Paris Club negotiations over a tentative debt relief deal reached in June.
The 19-member body has agreed in principle to write off nearly $18 billion, or roughly 60 per cent of the debt owed by Africa's most populous nation to the Paris Club.
Under the proposal, Nigeria will pay back $6 billion in arrears using windfall savings from record oil prices, obtain debt reduction of at least 67 per cent on eligible debt and buy back the remaining debt at a discount.
Anne Krueger, the IMF's first deputy managing director, said the two-year PSI approved Monday could expedite Paris Club negotiations on the debt deal.
"Implementation of the agreement in principle that Nigeria has reached with Paris Club creditor countries should improve investor confidence and free up resources for poverty reduction," she said.
"Negotiations on a comprehensive debt treatment are expected to take place in the near future."
Nigeria is the world's eighth-biggest oil exporter, but with a population of 140 million its income per capita is among the lowest in the world. It has argued debt repayments would be better spent on education, health and infrastructure.
Under the new facility, the IMF will assess Nigeria's economic performance twice a year and issue reviews for donors and creditors. The fund said Nigeria's intended economic programme includes tighter macroeconomic policy and efforts to achieve single-digit inflation from 2006.
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