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IMF says Nigeria must manage her debt responsibly for survival

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Okey Onyenweaku, Washington D.C, USA

Nigeria must manage its debt and huge capital inflows more responsibly to expect rounded economic growth in the short and long terms, the International Monetary funds has said.

The Bretton Woods said it has done a lot of work in the IMF on debt sustainability and debt management as well as provided a host of recommendations of how to manage debt in a responsible manner.

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‘’Both domestic and external debt markets are important for economic growth and economic development, and both markets should be well developed; but, of course, any borrowing has to be managed in a responsible manner. There are both costs and benefits. So borrowing can be helpful for economic growth and investment, but it can also be dangerous when negative shocks hit. So we have done a lot of work at the Fund on debt sustainability and debt management, and we have a host of recommendations of how to manage debt in a responsible manner’’.

In his opening remarks,Tobias Adrian, Fiscal Councillor and Director of the Monetary and Capital Markets Department, said ‘’with rates staying lower for longer, financial conditions have encouraged investors to take more risks and support global growth, for now. But loose financial conditions have encouraged investors to take more risks in a quest to achieve their return targets’’.

Speaking on the present condition of Nigeria on domestic borrowing and its implications, Mr Evan Papageorgiou, Deputy Division Chief in the Monetary and Capital markets department, said ‘’ Local currency borrowing could be preferred in some cases, but it is not a panacea. The guiding principle, as Tobias mentioned, is also prudent debt management. Over the summer, local currency flows have been more volatile, and Nigeria was no exception to that.

Papageorgiou explained that, “ Nigeria has a large exposure to non-resident holders of domestic debt, particularly with central bank bills; and then as we understand the central bank bills, there is a lot of higher redemptions or has to deal with more rollovers of those in the coming quarters and so managing  those risks, particularly with respect to local currency debt and the behaviour of non-resident investors is very important’’.

IMF explained that easier financial conditions and stretched asset valuations have induced dreadful vulnerabilities in the globe, putting growth at risk in the medium term.

Bretton Woods also noted that rising debt all over the world has not only created increasing uncertainties but also pushed about $15 trillion government and corporate bond yields in many countries to negative yields. ‘’Moreover, markets expect about one fifth of government bonds will have negative yields for at least three years’’.

‘’This is similar to what we have seen at the height of global financial crisis. The search for yield among institutional investors, such as companies, asset managers, pension funds, has led them to take on riskier and less liquid securities. These exposures may act as amplifiers to shocks. In addition, corporations are taking on more debt, and their ability to service that debt is weakening’’.

Nigeria debt stock keeps rising  as the federal and state entities have borrowed so much money that debt service now consumes more than 70 percent of revenue, according to the finance ministry. While Nigeria total debt stock comprising the federal government, States and the federal capital territory stood at N24.947 trillion or $81.274billion as at March 31, 2019.

 

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