Nigeria and other emerging economies with high foreign currency borrowings and external funding should prepare for possible turbulence, according to the International Monetary Fund.
The IMF disclosed this blog post titled ‘A Disrupted Global Recovery’ discussing its World Economic Outlook.
Nigeria spent a sum of $520.78 million on external debt servicing in the third quarter of 2021, rising by 74.2% compared to $298.9 million recorded in the preceding quarter (Q2 2021), according to Debt Management Office (DMO).
The rise in debt service is due to a large growth in the country’s debt profile. Nigeria’s external debt increased to $37.96 billion in the third quarter of 2021, up from $33.47 billion the previous quarter.
The 4 billion Eurobond raised from the international debt market to strengthen the country’s external reserve above $40 billion drove up the country’s foreign debt.
What the IMF is saying
IMF stated that the recent shift in monetary policy stance can affect emerging economies like Nigeria negatively. “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.”
IMF also added, “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 also stated that 60% low-income countries that are already in or at high risk of debt distress, will find it increasingly difficult to service their debts.
The IMF added that “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.”