According to the International Monetary Fund (IMF), Nigeria overall public debt of N87.3 trillion ($113.4 billion) is sustainable and fails to present any immediate cause of concern to the country’s economy. Nigeria primary concern with regard to its debt position is the rising cost of debt servicing, according to Abebe Selassie, Director of the IMF African Department, who was speaking during the presentation of the Economic Outlook for Sub-Saharan Africa at the ongoing IMF/World Bank Annual Meetings in Marrakech, Morocco.
He emphasized how difficult it is for Nigeria to raise enough tax income to pay off its debt and make necessary infrastructure improvements. Also, he made it clear that the IMF was unaware of any debt negotiations, debt profiling, or debt restructuring that were taking place in Nigeria. According to him, the debt stock of Nigeria is manageable in general. He however said that it is the debt servicing that is much more difficult. The reason for this hampering is that the country is not generating enough non-oil tax revenues.
IMF representative comments on CBN ease of FX restrictions.
In his words, “I think that is by far the most important area of work and reform there is for any administration in Nigeria.” Further, he said that the most important cause of the pressures in the country is the fact that the government does not generate enough tax revenue for all the services it needs to provide. He noted that 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.
The representative of the IMF commented on the recent development by the Central Bank of Nigeria in easing FX restrictions on the previously prohibited 43 restricted Items, stating that the decision is encouraging as it is expected to strengthen international trade connections. As well, he stated that the FX reforms and the elimination of subsidies are progressing in the correct path and said that budgetary restraint is necessary to assist Nigerian efforts to achieve exchange rate stability.
African nations’ central banks warned against risky monetary policies.
Additionally, he said that what is needed is making the reforms holistic. He said that the exchange rate reforms that the government did were very welcome as it is trying to unify the rates. However, the fuel subsidy will not help or stick unless they tighten monetary policy. “Unless you are also doing something to mobilize more tax revenue,” Selassie said. “So, a holistic package of reforms is what is needed, and we must give a bit of time to the new administration also.”
Meanwhile, the World Bank has warned some African central banks against risky monetary initiatives. The global bank directed this to the apex banks of Nigeria, Ethiopia, and Uganda, cautioning them to avoid taking any unusual initiatives that may jeopardize their monetary policies. These initiatives include monetizing the fiscal deficit, direct lending interventions, untargeted subsidy programs, and foreign exchange controls. The World Bank highlighted the significant problem of inflation that monetary authorities in the area confront, especially in nations that are experiencing “underdeveloped financial systems, a substantial informal sector, and a lack of coordination between monetary and fiscal policies.”
World Bank emphasized possible consequences of not heeding warnings.
Importantly, the World Bank has emphasized that there are possible repercussions and said that if monetary and fiscal actions are not adequately coordinated to bring down inflation, the risk of de-anchoring inflation expectations would fuel further inflation, accelerate interest rate increases, and exacerbate the deceleration of economic activity. In its Africa’s Pulse report, it emphasized the ongoing inflationary concerns that most of the region’s nations confront. The World Bank Africa Region’s Office of the Chief Economist publishes Africa’s Pulse biennially. It examines the short-term economic prospects for the continent, the present development issues, and a particular development issue.
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