Nigeria’s N87tr total debt profile manageable, says IMF.
The International Monetary Fund (IMF) has said Nigeria’s N87.3 trillion ($113.4 billion) total public debt position is manageable and does not present any risks to the economy.
Speaking yesterday at the presentation of Economic Outlook for Sub-Saharan Africa, at the ongoing IMF/World Bank Annual Meetings in Marrakech, Morocco, IMF African Department Director, Abebe Selassie, said rising debt service cost is Nigeria’s biggest challenge as far as its debt position was concerned.
He said Nigeria is unable to generate enough tax revenue to service its debts and invest in key infrastructure, adding that IMF was not aware of any debt discussions, debt profiling or debt restructuring that are going on, on Nigeria.
He said the assessment of debts should not be based on the nominal value of a debt stock but on how it relates to many other economic variables.
“So yes, it’s at the highest level because you mention it in naira terms but as a ratio to Gross Domestic Product and as a ratio to many other indicators is what you have to look at.
“When we look at the debt in Nigeria, our sense is that the stock is manageable in general, it is the debt servicing that is much more difficult and the debt service is hampered by the country, for not generating enough non-oil tax revenues. And I think that is by far the most important area of work and reform there is for any administration in Nigeria,” he said.
Selassie said: “In Nigeria, the most important cause of the pressures is the fact that the government does not generate enough tax revenue for all the services it needs to provide. Interest payment as a share of revenue is very high and not leaving much room to spend on other issue that needed to be worked on.
“While there is not enough tax revenue, I think in the past reliance on oil when prices were high, and second is the subsidy regime which also implies and entails lots of government resources being directed where they should not be. These are all interlined issues including causing some of the inflation that you see.
“The debt stock is manageable; it’s the debt service that is the problem,” he stated.
The IMF also backed the Central Bank of Nigeria (CBN) for removing forex restrictions placed on 43 items that can be produced locally.
Selassie said such restrictions never worked in many economies that practice it. He said: “On the trade restrictions in Nigeria, our view has always been that many economies are so sophisticated and complex to allow such restrictions to work.”
Selassie said the difficulties associated with tapping from the international capital market pushed the government to rely more on domestic financing which of course has crowded out the private sector and put constraints on monetary injections, and in the process, weakened the exchange rate.
The IMF director said Nigeria has incredible potential, with the reforms moving in the right direction in recent months. The Fund said fiscal discipline will support Nigeria’s drive for exchange rate stability.
“What is needed, we feel, is making the reforms holistic. So, the exchange rate reforms that the government did was very welcome as it is trying to unify the rates. Similarly, the fuel subsidy will not help or stick unless they tighten monetary policy. Unless you are also doing something to mobilise more tax revenue,” the Fund said.
“So, a holistic package of reforms is what is needed and we have to give a bit of time to the new administration also.
“The CBN governor has just been appointed, and the minister of finance has only been appointed a few weeks. So, we are hopeful that they would move in the right direction and we stand to provide every policy advice that the government needs,” Selassie said.
Of course, the tax policy you can also use if you really want to lean against certain types of import etc. In general, I think the direction CBN has moved in is a helpful one.
“Lastly, on the monetary policy coordination, I think when we pointed out that the adjustment and correction to the exchange rate gap were necessary but not sufficient unless you underpin it with tighter monetary policy conditions.
“This is because if monetary policy conditions are loose, it creates a lot of liquidity, then it’s going to create inflation and then of course exchange rate will inevitably move.
“So, unless you are tightening monetary conditions, it would not be enough.
Continuing, the IMF called for the support of monetary policy with some fiscal policy tightening.
“The fact that the government is absorbing a lot of the liquidity to finance the large deficit it has that is causing monetary policy to be loose. So, that is the type of holistic and coordinated reform package Nigeria is going to need.
“And Nigeria has incredible politicians and policymakers. It is something that can be done, and it is the political will and the decision to move in that direction that is needed,” he said.
Credit: The Nation Newspaper.
