FG, IMF Disagree on Rising Debt

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The federal government and the International Monetary Fund (IMF) have expressed divergent views on the subject of rising debt and taking loans from foreign sources.


While the IMF says that rising government debt levels could make the global economy more vulnerable to another severe downturn, the federal government has allayed fears over the nation’s rising debt profile, insisting that the loans taken so far are sustainable.

Nigeria’s domestic and foreign debt had jumped from N12.12 trillion in 2015 to N24.38 trillion in 2018. This is just as the IMF has warned Nigeria and other nations against taking loans from China due their unfavourable conditions.
But speaking on the country’s rising debt, the minister of budget and national planning, Udo Udoma, told State House correspondents after the federal executive council (FEC) meeting, yesterday that there was nothing to worry about on the current N24.36 debt stock which had attracted criticisms from some quarters.

The minister said: “With regards to our debts, our debts are sustainable. We do have a revenue challenge and we are focusing on that. Once the revenues come up, it will be obvious that we don’t have a debt problem at all. We are working on a number of initiatives to increase our revenues.
“We are looking at initiatives to widening the tax base. We are looking at initiatives to increase efficiency in collections. We are looking at a single window, which will help to increase efficiency in Customs collections. We are looking at many different ways to improve revenues. “The debts are sustainable,. Every nation borrows. We are working on increasing our revenues. “ Speaking on the outcomes of the FEC meeting, Udoma disclosed that it approved two memos for contracts to be awarded under the N-Power Build Programme targeted at empowering no fewer than 750,000 young Nigerians between the ages of 18 and 35.
“The focus has so far been zone by zone. Today, the contract for the North East zone of Nigeria was awarded to Hitech Investment Ltd at the sum of N122,800,000 million. It covers all the states in the North East.

“The one for the North West zone was awarded to Noble Ventures Ltd in the sum of N145,106,107 and it covers all the states in the North West,” Udoma said.

On his part, the Minister of State for Aviation, Hadi Sirika disclosed that his ministry got FEC’s approval of N291,731,485 for the procurement of Memory Access Retrieval System to enhance safety in air travel.
He said the equipment was a requirement of International Civil Aviation Organisation (ICAO), adding that it would enhance accident investigation.

For his part, the FCT minister, Mohammed Bello, said two memos were approved for the FCT by FEC. The first was the award of N368 million contract for the Abuja Water Board while the second was the contract for the supply of 500 firemen suits for the FCT Fire Services at the cost of N226 million.
…Rising Debt Makes Economy More Vulnerable – IMF
However, the IMF has warned that rising corporate and government debt levels and the sharp increase in more risky lending could leave the global economy vulnerable to another severe downturn.

Tobias Adrian, head of the Monetary and Capital Markets Department, IMF, said the IMF’s semi-annual Global Financial Stability Report found vulnerabilities are on the rise across advanced and emerging market economies, which could worsen if economies slow or if interest rates rise sharply.

Adrian urged governments to take protective steps now and “resist the call to roll back reforms.”
The build-up of debt is apparent for governments and corporations, in advanced and developing nations, according to the report.

“In the United States, the ratio of corporate debt to GDP is at record-high levels. In several European countries, banks are overloaded with government bonds,” Adrian said.

The stock of lower-rated bonds — ranked BBB — have quadrupled over the past decade, while the amount of more risky debt, known as “speculative grade,” has doubled, according to the IMF report.
Fabio Natalucci, Adrian’s deputy, said there also are “signs of deteriorating credit quality and a deterioration is underwriting standards.”

So while debtors likely could withstand a moderate slowdown of the economy “without substantial problems,” a more severe slowing or sharper rise in interest rates would create more stress because of the high debt levels, he said.

The IMF urged countries to take proactive steps, including limiting the amount of risky credit, boosting bank reserves and lowering government debt in the euro area.
…Beware Of Loans From China, IMF Cautions Nigeria, Others
In the same vein, IMF has cautioned Nigeria and other developing countries against taking loans from China due to unfavourable loan conditions.

Financial counsellor and director, Monetary and Capital Markets Department, IMF, Tobias Adrian, gave this warning yesterday during the launch of the Global Financial Stability Report for April 2019 at the IMF/World Bank meetings in Washington D.C.

He said, “Capital flows, which include capital flows from China, are, of course, important for development.

“On the other hand, what is very important in lending arrangements are the terms of the loans and we urge countries to make sure that when they borrow from abroad, the terms are favourable.

“In particular, we recommend that loans to countries should conform with Paris Club arrangements, and that is not always the case of loans from China.”

On Nigeria’s rising debt levels, Adrian said that the IMF was not overly concerned, as it would allow the country to invest more in developing critical infrastructure.

“At the moment, funding conditions in economies such as Nigeria and other sub-Saharan African countries are very favourable but that may change at some point,” he said.

Also, the IMF in the April 2019 Fiscal Monitor Report urged Nigeria to increase Value Added Tax, and increase and expand the coverage of excise duties.