The International Monetary Fund has warned Nigeria to expect a significant reduction in foreign loans as the global economy continues to experience new shocks and contractions.
The IMF Deputy Divisional Chief, Wenjie Chen, stated this during a keynote presentation at the International Monetary Fund Regional Economic Outlook which was held in Lagos on Tuesday.
According to Chen, borrowing costs, high-interest rates and the increasing value of the dollar have continued to put a strain on Nigeria’s economy and that of its Sub-Saharan African counterparts.
She noted that due to the uncertainties surrounding the global economic environment, loans from China as well as other advanced economies to Africa have been on a decline.
Stating that the public debt ratio has doubled in the region in the past decade, Chen added that debt vulnerabilities of Nigeria and the rest of SSA would continue to increase.
Chen said, “In terms of the funding squeeze, the three main manifestations that many countries are facing are: the rise in borrowing costs. You can see that virtually all the frontier markets have been shut out of the Eurobond markets since the spring of 2022. What that means is that they cannot raise financing on these international markets. Eurobond market has been a large component of financing for these countries.
“Lastly, what this has meant in terms of the global economy’s reaction to the Russia-Ukraine war in terms of rises in price and the cost of living crisis has placed very high interest rates. Not only were interest rates rising, the value of the dollar rose to a 20-year high last year. For many African countries, the cost of servicing these debts has also gone up.
“Inflation is still a major concern for many African economies. Many countries are still going through recovery after the pandemic.”
To address the many issues confronting the Nigerian economy, Chen said the IMF’s policy advice to Nigeria is based on four key policy priorities — fiscal policy, monetary policy, exchange rate policy and structural reforms.
She said the new emphasis on addressing the current liquidity squeeze should focus on reducing off-budget commitments (extra-budgetary spending, arrears, guarantees, etc), enhancing debt management and domestic revenue mobilisation.
On forex-related challenges, Chen said that significant exchange rate pressures in the past year largely reflect global factors; terms of trade changes and monetary policy normalisation.
Noting that the scope of forex interventions is limited in many cases by low foreign reserves, she said Nigeria and its counterparts would have to adjust to new fundamentals
Also speaking, IMF Representative for Nigeria, Ari Aisen, said that with the funding squeeze, it would be critical for Nigeria to rely on internally-generated funds.
He, however, said that the global lender remains confident of its earlier projection that Nigeria’s economy will grow by 3.2 per cent this year.
Ari further stated that for Nigeria’s economy to react positively to this funding squeeze, the private sector needs good macroeconomic policies to thrive.
Ari said, “In Nigeria, we always believe that growth has the potential to be much higher, but because of the shocks since the pandemic and the food price shock because of the Russia-Ukraine war, the economy managed to grow by three per cent. We are forecasting 3.2 (this year).
“It could be higher. It’s helped by services which is the main driver of growth on the supply side of the economy. The oil sector has not also contributed as much as it should have contributed, partly because of investments in the sector and partly because of leakages, particularly oil theft. These issues are gradually being addressed and we are hopeful that it will continue, so we are now projecting 3.2 per cent growth.”
Also speaking, the Deputy Director of the IMF’s Africa Division, Catherine Pattillo, advised the Nigerian government to prioritise fundamental issues such as power, logistics and other infrastructural challenges that would help the private sector drive economic growth in the country.
On his part, the Chief Executive Officer of the Nigerian Economic Summit Group, Laoye Jaiyeola, said Nigeria needs a more transparent tax regime.
According to him, there are too many indirect taxes that do not go into consolidated government accounts, adding that as Nigerians are desirous of paying taxes, they are often discouraged because they are unable to feel the impact of the taxes being paid.
He said, “On growing revenue. We’ve talked about the fact that Nigerians are under-taxed. The figures may say we are doing 5 to 6 per cent, but the reality is that If you look at proxies, in terms of taxes and levies, Nigerians are doing around 16 per cent. We at the NESG have done a better tax promotion. The issue of about growing revenue in Nigeria is very simple — let us plug the leakages.”
Jaiyeola also commended the African Export Import Bank for its initiative in developing an intra-African payment system that will facilitate payments for trade within African countries. This, he said, would weaken the stranglehold that the dollar has continued to have on African countries.
Also speaking, a professor of Economics at Lagos Business School, Bongo Ali, said the government had been “very woeful” with regard to public spending, lamenting that the cost of delivering infrastructure in Nigeria had often cost far more than what it costs in other countries.
According to him, the Nigerian government’s frequent borrowing spree seldom has anything to do with public interest, but to serve its undeclared purposes.