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IMF: Nigeria’s Debt Sustainability at Risk, Cause for Concern

by Isiyaku Ahmed
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The International Monetary Fund (IMF) has said Nigeria’s debt sustainability is at risk and causes a great deal of concern and unease in the long term. IMF reiterated the need for the Nigerian government to implement timely fiscal reforms.

IMF’s Mission Chief for Nigeria, Ms. Jesmin Rahman, said this yesterday, during a virtual media briefing on Nigeria’s 2021 Article IV Consultation Staff Report.

Rahman noted that the increase in public debt had grown rapidly in 10 years and was approaching a time when the country would spend all its income on servicing debts. She stressed the need for urgent fiscal reforms.

Rahman explained, “But what we should remember here and the things that make Nigeria’s debt sustainability at risk are the following: we have seen a rapid rise in public debt in the last 10 years or so and this is being driven by fiscal deficits.

“So, the dynamics are not that great. And there are a couple of other points that we should remember; which is that Nigeria’s debt carrying capacity is very low. For us, revenue levels are low compared to a typical emerging market country that spends less than 10 percent of revenues on interest payments.

“In Nigeria’s case, that ratio, if you just take federal government, it’s over 80 percent of revenues, if you take the consolidated, it is around a third, but the federal government is responsible for paying this debt service. So that’s one point.

“The second point is on the access side. Market access for Nigeria, that is international market access, like Eurobond, etc., is highly dependent on what happens to oil prices, more so than some other commodity exporters and oil exporters. So that makes Nigeria quite vulnerable.”

Rahman said going forward, IMF projected for Nigeria a continuous increase in public debt.

“So, we are projecting you will see public debt to go up from 36 percent of GDP to close to 43 percent of GDP in the medium term,” she said. “And so, it is increasing and it is reaching that level where you should be concerned, everybody should be concerned,” she added.

According to her, “Nigeria has favourable dynamics in the sense that high inflation and low-interest rates are keeping these dynamics in favor of Nigeria, right. But if that were to change because growth rates are not high, you could see public debt growing up very fast.”

Responding to a THISDAY inquiry on the impact fuel subsidy removal and value-added tax (VAT) would have on the masses, Rahman explained that tax reforms were a necessity to boost the country’s revenue.

She also restated the need for the federal government to remove fuel subsidies, saying it is costly and regressive.

Rahman stated, “A country that has little fiscal space to have a subsidy that benefits mostly the rich doesn’t make sense. So, there are economic and social grounds for removing this subsidy.

“Of course, will it impact the poor because it’s a universal subsidy it affects the poor, too. So, removing subsidy would have an impact on poverty.”

The IMF official added, “And if you look at Nigeria’s past attempts to remove fuel subsidies, it has always been difficult. But it would be important that in addition to having social assistance, targeted social assistance for the vulnerable and the poor and it also will need strong political will and a well-designed public campaign to demonstrate the merits of this reform and full transparency in the use of resources. Without this important reform, there is the risk of reversal again.”


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