IMF cautions Nigeria against mounting debt to China

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The International Monetary Fund (IMF) has cautioned Nigeria and other African countries against their rising level of indebtedness to China, stressing that the non-Paris Club creditors, “create some instability or some vulnerabilities.” The warning came as Nigeria’s debt profile rose from N24.95 trillion to N25.7 trillion in the last three months. One year ago, it was N22.38 trillion.

The development showed that between April and June, the country’s obligations rose by N750 billion, and increased by N3.32 trillion when compared with the debt figures as of June 30, 2018. Government has, so far, paid more than N800 billion in servicing the multiple obligations, which cut across domestic and foreign deals in the first half of 2019.

Total domestic debts stood at N17.38 trillion, with the Federal Government having more than three-quarters of the stockpile. These include FGN Bonds, N9.69 trillion; Nigerian Treasury bills, N2.65 trillion; Promissory Notes, N708 billion; FGN Sukuk, N200 billion; Nigerian Treasury Bonds, N126 billion; Green Bond, N26 billion; and FGN Savings Bond, N10.4 billion.

On the other hand, the external debt components are made up of multilateral deals worth $12.7 billion; bilateral, $3.3 billion; and commercial, $11.2 billion. Among these external debt obligations, the World Bank Group, China and Eurobond are top creditors, with over $23 billion claims on the country.

With the deficit plans in the ongoing 2019 budget, analysts warned that the country’s debt could hit N27 trillion by the end of the year. The debt sojourn has appeared endless amid a shallow diversification and economic challenges. Besides, the proposed 2020 budget has more than an N2 trillion deficit to be financed by further borrowing.

The IMF also said the present global financial conditions due to the trade dispute between the United States and China, the shift towards a more dovish monetary policy stance in most developed countries, among others, present opportunities for Nigeria and other low-income countries.
 
The Financial Counsellor and Director, Monetary and Capital Market Department, IMF, Tobias Adrian, while responding to a question during a media briefing on the Global Financial Stability Report (GFSR) at the ongoing IMF/World Bank Annual Meetings in Washington DC; said investment flow to Nigeria and other countries in sub-Saharan Africa has been strong and is expected to reach record high this year.
“Global financial conditions are favourable to countries such as Nigeria, at the moment. Issuing bonds in hard currency and the domestic currency is possible because of favourable global financial conditions. And of course, what is key is what countries such as Nigeria are doing with those borrowed funds. Undertaking structural reforms to develop the economy is also key at this point in time,” Adrian stated.

Responding to a question on the elevated external debt levels in Nigeria and whether the federal government should shift to more of domestic borrowing, Adrian said: “Both domestic and external debt markets are important for economic growth and development and both markets should be well developed; but of course, any borrowing has to be managed in a responsible manner. There are both costs and benefits.

“So, borrowing can be helpful for economic growth and investment, but it can also be dangerous when negative shocks arise. So, we have done a lot of work in the IMF on debt sustainability and debt management and we have a host of recommendations of how to manage debt in a responsible manner.”

Also speaking, the Deputy Division Chief, Monetary and Capital Markets Department, IMF, Mr. Evan Papageorgiou, stressed the need for the federal government to ensure prudent debt management.
“Nigeria has a large exposure to non-resident holders of domestic debt, particularly with central bank bills and then as we understand in the central bank bills, there are lots of higher redemptions or those that have to deal with more rollovers in the coming quarters, and so managing those risks, particularly with respect to local currency and the behaviour of non-resident investors is very important,” he added.

While also responding to a question at a separate media briefing on the IMF’s Fiscal Monitor, the Assistant Director, Fiscal Affairs Department, IMF, Cathy Pattillo, reiterated the need for a comprehensive reform package in Nigeria in order to increase non-oil revenue. This, according to her, would also provide the opportunity for more investments in infrastructure. Pattillo, however, welcomed move to enhance non-oil revenue in the country.