The International Monetary Fund (IMF) recently warned Nigeria and other sub-Saharan African economies to urgently check rising debts and diversify their revenue bases. It advised that they should not delay such reforms because of rising oil prices in the international market as the ‘good times’ would not last for long.
Specifically, the IMF warned the Federal Government to check the rising levels of debts and deepen diversification efforts and revenue base. Failure to heed the warning could result in serious economic crisis. This is not the first time this year that IMF has warned Nigeria of the likelihood of debt crisis, its latest warning came at the IMF/World Bank annual meeting in Bali, Indonesia, during which it unveiled the World Economic Outlook entitled, “Challenges to Steady Growth.”
We urge the government to critically examine all the areas of the economy that the IMF has raised concerns and initiate far-reaching reforms that will stimulate sustainable growth.
We agree with IMF that looming debt crisis, occasioned by frequent borrowing without deploying such funds to productive sectors, the need to enhance the non-oil revenue mobilisation and proactive banking supervision, are some of the challenges the government must quickly address. For instance, Nigeria’s debt stock reached N22.3trn as at June 30, 2018. About two-thirds of the government’s revenues are reported to go into servicing interest payments, with the principal still awaiting redemption at maturity. In 2017 alone, N1.8trn was spent by the Federal Government on debt servicing, out of which N1.455trn went into domestic debt servicing.
We recall that President Muhammadu Buhari is seeking the approval of the Senate for a fresh $2.86bn external loan for part-financing of key infrastructure projects, and another $82.54m from the international capital market to refinance the balance of $500m mature Eurobonds.
In all, fiscal plan recorded N2.426.73trn shortfall, according to figures from the Budget Office of the Federation (BoF). The Economic Counselor of IMF, Mr. Maurice Obstfeld, observed that the Nigerian economy and those of other sub-Saharan African nations may witness growth rebound as a result of the current high oil prices, but warned that rising borrowing levels will likely vitiate the gains. This, therefore, calls for boosting non-oil revenues and fiscal consolidation plans. Such fiscal buffers will make room for policy responses in the likelihood of the “next recession” that awaits countries that fail to plan against the ‘rainy day.’
In spite of the Federal Government’s assurances that its borrowing plan is still within the acceptable threshold as well as its commitment to diversify the non-oil sector, we are inclined to side with the IMF position that our economy is yet to receive boost from policy implementations that can truly withstand the shocks that pushed it into recession a few years ago. The IMF and the World Bank had insisted last year that the fanfare that greeted Nigeria’s exit from recession came on the heels of new foreign exchange measures by the Central Bank of Nigeria, rising oil prices, attractive yields on government securities, a tighter monetary policy regime and increased external reserves. But some of these are on the reverse gear now.
No doubt, Nigeria’s fiscal challenge is about revenue shortfalls and lack of wise investments of available resources in critical projects that can stimulate growth. Borrowing is not bad, it is how such loan is deployed into productive sectors that matters. Statistics from the BoF and the Debt Management Office (DMO) show that the ratio of interest payments is rising at great proportion. Therefore, the government should be careful about issuing debts in international capital market as it is currently doing.
Available statistics also support IMF position that Nigeria is still retaining higher fiscal deficits, driven by weak revenue base. Therefore, it has become imperative to enhance financial resilience through proactive banking supervision, by ensuring adequate provision for losses and improving resolution frameworks that will keep expensive public bailouts at bay and foster a financial system supportive of Nigeria’s economic growth.
There is creeping concern that the forthcoming general election may make the government pay less attention to the economy. That will further slow down growth projection which is currently 1.9 per cent. Government should heed the IMF warning and come up with measures that will stimulate economic growth.