The World Bank recently appealed to the United States, the United Kingdom and other member countries of the G20 to allow “the poorest countries to suspend all repayments of official bilateral credit” due to the COVID-19 pandemic. The President of the multilateral financial institution, David Malpass, made the call during the G20 Finance Ministers’ conference call. Instructively, many countries in Africa, including Nigeria, are currently in huge debt. For instance, loans from China alone are reported to account for about 80 per cent of all the bilateral credit to Nigeria, according to data from the Debt Management Office (DMO). This has brought Nigeria’s debt stock to over N27trillion.
Currently, China provides loans to Nigeria to build railways, power plants and rehabilitation of some airports, thus helping to bridge the huge infrastructure deficit in the country. According to the World Bank’s President, it has become imperative to suspend all debt repayments until it has fully assessed the reconstruction and financing needs of the poor countries. The International Monetary Fund (IMF) and other official bilateral creditors are also working with the World Bank in that regard to finalise the process, expected to be concluded at the end of April. These are “difficult times for all,” the World Bank said, especially for the poorest and most vulnerable, and therefore, they need prompt support during this unprecedented crisis that has upended life, the economies and healthcare systems across the globe.
On March 17, the World Bank Group and its subsidiary, the International Finance Corporation (IFC) boards approved a $14 billion package to respond to COVID-19. Of that amount, $8billion will be given in relatively fast-acting financial support for private companies. In addition, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) will provide $6billion in the near term to support healthcare.
We commend the World Bank for showing understanding with the poorest countries, and asking the G20 to suspend all repayments of official bilateral credit. Indeed, this is the right time to do so. Sequel to that appeal, the Ministers of Finance from African countries last week called for debt relief of at least $100billion from bilateral, multilateral and commercial partners to cushion the devastating impact of the virus on their economies. In a statement issued by the Economic Commission for Africa (ECA), the Finance Ministers in the region said the debt relief should be done with the support of multilateral and bilateral financial institutions such as the World Bank, IMF and the European Union (EU). They said African countries need longer period for debt relief, of between two and three years. This debt rescheduling is very crucial to Nigeria for obvious reasons. According to latest data from the DMO, as at December, 2019, Nigeria’s external debt was N9.02trillion, representing 32.93 per cent of the total debt stock of N27.4trillion. Nigeria spent $1.31billion last year to service external debt. This covered external debt obligations between January and November 2019. About $1.47billion was spent in 2018 the same purpose. Nigeria’s debt servicing has increased by 254 per cent in five years. This includes the lump sum to service external debt granted to Nigeria by the African Development Bank (AfDB), the World Bank, Exim Banks of China and India. In 2015, Nigeria paid $378.9billion to external debt repayments. In the 2020 budget, debt servicing will gulp N2.45trillion.
While Nigeria’s debt-to-GDP ratio may have been sustainable, the outbreak of the coronavirus, according to financial experts, may have hit hard on Nigeria, as the cost of servicing the debt is taking much of the country’s already depleted revenue. The budget debt before COVID-19 outbreak was N2.175trillion. This means that debt servicing will gulp 23.1 per cent of the total budget. According to a recent IMF figures, Nigeria’s debt-to-GDP has increased to 28 per cent.
Also, Nigeria’s inflation rate has hit a two-year high of 13.2 per cent. Trade surplus decreased in December 2019. It is likely to decrease further by the time the first quarter 2020 figures are out. Also, private sector activity growth reached a seven-month low, just as service activity growth slowed badly in February 2020. Nigeria stocks fell for 8th consecutive session, while rating agencies such as Fitch, Standard & Poor, have revised downwards, Nigeria’s credit outlook. All hands must be on deck to rescue the economy from collapse. We, therefore, urge both the Federal Government and the CBN to initiate concrete policies that will stimulate the economy.