IMF tells Nigeria to brace for consequences of escalating borrowing
By Jeph Ajobaju, Chief Copy Editor
Despite floating a $50 billion trust fund to shore up low-income and vulnerable countries for their balance of payments obligations, the International Monetary Fund (IMF) has warned high debtors, including Nigeria, to brace for turbulent times.
Nigeria spent $520.78 million on external debt servicing in the third quarter of 2021, rising by 74.2 per cent against $298.9 million in Q2 2021, according to the Debt Management Office (DMO).
The rise was due to external debt which grew to $37.96 billion in Q3 2021, up from $33.47 billion in Q2 2021.
The 4 billion Eurobond raised from the international debt market to beef up external reserves above $40 billion also drove up foreign debt.
The IMF gave the warning in blog post titled, “A Disrupted Global Recovery’ discussing its World Economic Outlook”, saying the recent shift in monetary policy can negatively affect emerging economies like Nigeria.
“As the monetary policy stance tightens more broadly this year, economies will need to adapt to a global environment of higher interest rates.
“Emerging market and developing economies with large foreign currency borrowing and external financing needs should prepare for possible turbulence in financial markets by extending debt maturities as feasible and containing currency mismatches.
“In some cases, foreign exchange intervention and temporary capital flow management measures may be needed to provide a monetary policy with the space to focus on domestic conditions,” the IMF said.
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High risk of debt distress
It noted that 60 per cent of low-income countries already in or at high risk of debt distress will find it increasingly difficult to service their debts, per Nairametrics.
“The G20 Common Framework needs to be revamped to deliver more quickly on debt restructuring, and G20 creditors and private creditors should suspend debt service while the restructurings are being negotiated.”
Yet in a previous blog post in January, titled “A New Trust to Help Countries Build Resilience and Sustainability”, the IMF disclosed that
“A proposed $50 billion trust fund could help low-income and vulnerable middle-income countries build resilience to balance of payments shocks and ensure a sustainable recovery.
“The pandemic has taught us that not addressing these long-term challenges in a timely manner can have significant economic consequences, with the potential for future balance of payments problems.”
Nigeria and other emerging economies tapping into the trust fund means more borrowing which the IMF warns against in its latest blog post.
