Don’t waste fund on unsustainable policies, it tells Nigeria keen on fuel subsidy
By Jeph Ajobaju, Chief Copy Editor
Fuel subsidy extension for another 18 months likely to cost at least N3 trillion has prompted the International Monetary Fund (IMF) to caution Nigeria not to spend its $3.4 billion Special Drawing Rights (SDR) on wasteful projects.
Since Nigeria took the facility in August 2021, the IMF has been pressing it to stop fuel subsidy, devalue the naira further, and let the market determine electricity tariff, among other demands.
“There is no conditionality attached to the SDR allocation,” the IMF has just reiterated, but disclosed that it has advised Abuja to adopt transparent “accounting of the use of allocated SDR and not use it to support unsustainable policies”.
It explained that SDR “is not a loan. Thus, there is no repayment obligation for it” but countries like Nigeria that draw down on SDRs have to repay with interest costs.
“If a country uses SDR, that is, it reduces its SDR holdings vis-à-vis its cumulative SDR allocation,” the IMF said.
The $3.4 billion is Nigeria’s holdings in the IMF, but having drawn down the entire amount through SDR, if Nigeria refunds less than the $3.4 billion, it has to pay interest.
“Countries that exchange their SDRs for currency will incur net charges on the difference between their cumulative SDR allocations and their SDR holdings. The SDR interest rate (as of August 20) is 0.05 per cent,” the IMF explained.
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Allocation of SDR
The general allocation of SDR became effective on 23 August 2021 and was credited to IMF member-countries in proportion to their existing quotas in the fund.
The Nation explains that SDR is like the popular Nigerian cooperative in which members access money to address needs based on the amount contributed.
At an agreed due date, the drawer repays the amount “withdrawn” from the cooperative with a little interest. This is how the SDR works.
The $3.4 billion SDR allocated to Nigeria in 2021 was done as part of IMF’s general allocation of $650 billion SDR to all its member-countries.
It is the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis.
“The SDR allocation was intended to benefit all IMF members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy,” the IMF told The Nation.
Finance Minister Zainab Ahmed announced in January that Nigeria will start repaying the $3.4 billion “around June this year”, every quarter, for five years, based on the repayment schedule agreed with the IMF.