The IMF Has Warned That It Will Become Harder For Nigeria To Procure External Loans, See Why

Follow Us On Social Media

IMFNigeria has been forewarned by the International Monetary Fund to prepare for a substantial decrease in foreign loans as the world economy continues to undergo fresh shocks and contractions.

This was expressed by Wenjie Chen, the IMF’s Deputy Divisional Chief, in a keynote address at the International Monetary Fund Regional Economic Outlook on Tuesday in Lagos. Chen claims that the economies of Sub-Saharan African countries like Nigeria have continued to be strained by high borrowing costs, high-interest rates, and the rising value of the dollar.

She pointed out that loans from China and other developed economies to Africa have decreased as a result of the unpredictability surrounding the world economy. Chen said that the region’s public debt ratio has risen over the previous ten years and warned that Nigeria and the rest of SSA’s debt vulnerabilities will continue to rise.

“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,” she said.

 “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,” she added.

According to Chen, the IMF’s policy guidance to Nigeria is based on four main policy priorities: fiscal policy, monetary policy, exchange rate policy, and structural reforms. These are meant to address the myriad problems the Nigerian economy is now facing.

She suggested that in order to alleviate the present liquidity crunch, more attention should be paid to improving debt management, domestic income mobilization, and decreasing extra-budgetary obligations (such as guarantees, extra-budgetary spending, and arrears).

Regarding difficulties with currency, Chen stated that significant exchange rate pressures during the previous year were mostly caused by changes in terms of trade and the normalization of monetary policy. The deputy divisional chief said Nigeria and its rivals will have to adapt to changing realities, noting that the scope of currency interventions is frequently constrained by low foreign reserves.

Ari Aisen, the IMF representative for Nigeria also raised concerns stating; “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 percent. We are forecasting 3.2 (this year).”

He added, “It could be higher. It’s helped by services which are 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 percent growth.”


Follow Us On Social Media