Guardian (NG): The World Bank, IMF Debt Reduction Plan

Concerted efforts variously embarked upon by international financial institutions to reduce the debt burden of poor countries, including Nigeria, must necessarily be applauded, given their potential to stabilise these struggling economies. But the expected gains may fizzle out even before they are concretised if the countries fail to leverage appropriately on the initiatives. The Nigerian government especially must be sensitive to the damaging prospect of its rising debt profile, which unfortunately, the authorities are wont to deny in an erroneous contextualisation that has consistently undermined her economic score sheet.

The alarm of an impending global debt crisis, particularly for low-income countries, was raised recently by the President of the World Bank Group, David Malpass. These poor countries, which are categorised under the World Bank’s International Development Association (IDA), an arm of the Bank that helps the poorest countries with finance for their development efforts, have had their economies devastated by the COVID-19 pandemic. This challenge was re-echoed by the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva at a separate media interaction as she appealed to IMF member countries to grant additional concessionary loans and low-interest financing to Africa to aid the continent in financing its deficits.

The intervention of these institutions in the amelioration of the debt crisis has been expressed copiously in their joint comprehensive approach to debt reduction which is largely designed to ensure that no poor country faces a debt burden it cannot manage. For example, the IDA has, over the years been complementing the World Bank’s original lending arm and providing loans and grants and significant levels of debt relief through both the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MRDI). These have helped to boost social spending, reduce debt service as well as improve public debt management in these countries.

While this alarm and a proposed interventionist action is being proposed by the World Bank / IMF arrangement, it is gladdening to note that the Group of 20 largest global economies (G-20) also proposed the suspension of debt servicing for six months effective January 2021 up to June 2021 or even December 2021, as may be applicable, in order to address the impeding global debt crisis, particularly among the poor and fragile economies, most of whom are in Africa.

In recent times, many developing countries, Nigeria inclusive, have been battling with a growing public debt burden even before the onset of the COVID-19 pandemic and this alert by the two major multilateral financial institutions is considered very timely. Most of these developing economies have over the years resorted to fiscal stimulus to sustain macroeconomic stability and economic growth and the prolonged state of the accompanying uncertainties and the accumulation of the deficits and public debt have limited the continuing usefulness of these fiscal stimuli. This has been part of the narrative for the accumulation of public debt by countries Sub Saharan Africa, in recent times.

Nigeria’s case has been quite unique. The Federal Government has found it difficult to admit that Nigeria has a debt crisis. The authorities, despite many warnings by various stakeholders, including this newspaper have always been justifying its regular resort to borrowing as a way out of its economic challenges. The government has always chosen to redefine the problem as that of revenue instead of debt with the assertion that the country’s debt to GDP ratio is comfortable given that it falls below IMF’s and African Monetary Cooperation Programme’s threshold for prudent debt levels of 60%. It is however refreshing to note that the clear alarm being sounded by the World Bank and the IMF clearly vindicates the entrenched position that the debt problem is real.

Nigeria cannot continue the way it is currently operating in the management of its macro economy, particularly as it concerns the management of its public debt portfolio. The current state of affairs, of a growing public debt profile in Nigeria is scary, particularly since 2015 when the Muhammadu Buhari administration came into power. According to the Debt Management Office (DMO), Nigeria’s total debt has increased by about 90% in almost three years from about N12.6 trillion in December 2015 to about N22.71 trillion as at March 2018. Currently official figures indicate that the public debt in Nigeria is over N31 trillion as at August 2020. A critical consideration in measuring debt sustainability is the debt service to revenue ratio which, for Nigeria is way above 50% making it very difficult for both the present and future generations.

According to the IMF, Africa’s case is dire compared to other developing economies since the GDP of these African economies is expected to fall and into subsequent years. In addition, over the next three years, there will be a financing gap of about $1.3 trillion for the African economies as a whole, and yet, not even a quarter of a trillion dollars is available to address the problem. Hence, efforts are on to assist African economies, they would need to help themselves by embarking on ambitious but meaningful reforms, enhancing their domestic resource capabilities, putting in place policies that attract domestic and foreign private capital to boost their economies. The affected countries are also expected to reduce the rate of growth of the public debt and create some meaningful breathing space for their respective economies. Overall, meaningful cost cutting measures should be embarked upon to minimise the level of indebtedness they undertake.

Nigeria needs to know that state of the global oil market is not very favourable and that even domestic resource mobilisation has its limits particularly when average incomes are very low and the economy is battling with other problems of insecurity, public unrests and growing unemployment particularly among the youths. It needs to come to terms with reality and seriously consider the restructuring of its governance structure such that true fiscal federalism will be adopted to return the engine of growth of the economy to the sub-national governments, as was the case in the First Republic. This World Bank/IMF proposal as well as the G-20 initiative should not be an incentive to continue to borrow recklessly. A stitch in time saves nine.

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