The International Monetary Fund (IMF) has said Nigeria’s N87.3 trillion ($113.4 billion) total public debt position is manageable and does not pose any urgent risks to the economy.
During the presentation of the Economic Outlook for Sub-Saharan Africa at the ongoing IMF/World Bank Annual Meetings in Marrakech, Morocco, Abebe Selassie, the Director of the IMF African Department, emphasized that Nigeria’s primary concern regarding its debt position is the escalating cost of debt servicing.
He pointed out that Nigeria struggles to generate sufficient tax revenue for debt servicing and essential infrastructure investments. Furthermore, he clarified that the IMF did not know about any ongoing debt discussions, debt profiling, or debt restructuring in Nigeria.
He argued that assessing debts should consider not just their nominal value, but also their relationship to various economic variables.
- “When we look at the debt in Nigeria, we sense that the stock is manageable in general, it is the debt servicing that is much more difficult and the debt service is hampered by the country, for not generating enough non-oil tax revenues. And I think that is by far the most important area of work and reform there is for any administration in Nigeria,
- “In Nigeria, the most important cause of the pressures is the fact that the government does not generate enough tax revenue for all the services it needs to provide. Interest payment as a share of revenue is very high and does not leave much room to spend on other issues that need to be worked on.
- “While there is not enough tax revenue, I think in the past reliance on oil when prices were high, and second is the subsidy regime which also implies and entails lots of government resources being directed where they should not be. These are all intertwined issues including causing some of the inflation that you see.
- “The debt stock is manageable; it’s the debt service that is the problem,” he stated.
IMF backs CBN’s Removal of 43 restricted Items
Commenting on the recent development by the Central Bank of Nigeria in lifting FX restrictions on the previously banned 43 restricted Items, the representative of IMF stated that the move is a positive one, as it is posed to boost international trade relations.
He also insisted that the FX reforms as well as subsidy removal are moving in the right direction, adding that fiscal discipline is needed to support Nigeria’s drive for exchange rate stability.
- “On the trade restrictions in Nigeria, our view has always been that many economies are so sophisticated and complex to allow such restrictions to work.
- “What is needed, we feel, is making the reforms holistic. So, the exchange rate reforms that the government did were very welcome as it is trying to unify the rates. Similarly, the fuel subsidy will not help or stick unless they tighten monetary policy. Unless you are also doing something to mobilize more tax revenue,
- “So, a holistic package of reforms is what is needed, and we must give a bit of time to the new administration also.
- “The CBN governor has just been appointed, and the minister of finance has only been appointed a few weeks. So, we are hopeful that they will move in the right direction, and we stand to provide every policy advice that the government needs,” Selassie said.
More Insights
Continuing, the IMF also proposed that Nigeria embrace tighter monetary and fiscal policy conditions to reduce inflation. He said this tightening approach is needed to complement the FX reforms by the CBN.
- “On the monetary policy coordination, I think when we pointed out that the adjustment and correction to the exchange rate gap were necessary but not sufficient unless you underpin it with tighter monetary policy conditions.
- “This is because if monetary policy conditions are loose, it creates a lot of liquidity, then it’s going to create inflation and then of course the exchange rate will inevitably move.
- “So, unless you are tightening monetary conditions, it would not be enough.
- “The fact that the government is absorbing a lot of the liquidity to finance the large deficit it has is causing monetary policy to be loose. So, that is the type of holistic and coordinated reform package Nigeria is going to need.
- “And Nigeria has incredible politicians and policymakers. It is something that can be done, and it is the political will and the decision to move in that direction that is needed,” he said.
