The International Monetary Fund (IMF) has warned Nigeria and other emerging market countries taking excessive loans from China to consider the terms of such facilities, especially their compliance with the Paris Club arrangements.
Tobias Adrian, Director, IMF Monetary and Capital Markets Department, in a chat with international journalists, argued that there was nothing bad in borrowing from China, except that the terms of such loans were always questionable.
He said: “Loans from China are good, but the countries should consider the terms of the loans. And we urge countries that, when they borrow from abroad, that the terms are favourable for the borrower, and should be conforming to the Paris Club arrangements.
“Let me reiterate that in many frontier markets, we see that the share of debt that is not conforming to the Paris Club standards is on the rise.
“And that means that if there is any debt restructuring down the road one day, that can be very unfavourable to those countries. So, the borrowing terms, the covenants, are extremely important. And we do see deterioration in that aspect.”
It would recalled that data from the Debt Management Office (DMO) recently showed that Nigeria’s total public debt rose to N24.39 trillion or $79.44 billion as at December 31, 2018, representing a year-on-year growth of 12.25 percent.
The 2018 debt stock is higher than the one recorded in 2017 by N2.662 billion.
The DMO held that as at June, 2018, loans obtained by the Federal Government from China represented about 8.5 percent of Nigeria’s external debt and that they were taken under concessionary terms. But Nigeria was last year seeking $6 billion from China to fund the construction of the Ibadan-Kano rail line project.
On Nigeria, Adrian argued that Nigeria had been borrowing from international markets, which gives the IMF some worries, saying, however, that such loans were good as it allowed the country to invest more, but expressed concerns over rollover or repayment risks going forward.
“At the moment, funding conditions in economies such as Nigeria and other sub-Saharan African countries are very favourable, but that might change at some point.
“And there is risk of rollovers and whether these need for refinancing can be met in the future,” the IMF director said, “advising that Nigeria should seek higher capital for its banks through recapitalisation and also tackle rising non-performing loans in the sector”.
Again, IMF advised Nigeria and other countries still subsidising fuel for domestic consumption to stop doing so.
The IMF said fuel subsidy removal would help boost revenue and improve on local infrastructure development.
The IMF President, Christine Lagarde, said this on Thursday in Washington DC at a news conference during the ongoing IMF/World Bank meeting.
Lagarde said subsidy payment had consumed about $5.2 trillion globally from 2015 till date.
She said such amount would have been used to improve education, health system, water and infrastructure for the majority poor people in most countries.
In particular, she said IMF wanted Nigeria to remove the subsidy due to paucity of funds to take care of its infrastructure, reforms, and other social services.
She said: “Nigeria is among the lowest Tax to GDP ratio which signifies low revenue mobilisation for the government and the only way to fill in the gap is to remove subsidy.
“We believe that removal of fossil fuel subsidies is the right way to go.
“If you look at our numbers since 2015, it is no less than $5.2 trillion that is spent on fuel subsidies and the consequences thereof.
“Our Fiscal Affairs Department actually identified how much would have been saved fiscally, but also in terms of human life if there has been the right price on carbon emission as of 2015.
“The numbers are quite staggering.”
On the global economy, the IMF chief said the global economy was currently quite uncertain.
“As I said a year ago, we are talking about synchronised growth, and 75 percent of the global economy is going through that phase.
“As you have heard a couple of days ago, we are now talking about a synchronised slowdown by 70 percent of the global economy,” she said.
Also, the World Bank President, David Malpass, in a separate news conference said nine in every 10 extremely poor people across the world would be Africans come 2030.
Malpass said the development would jeopardise the World Bank’s goal to end extreme poverty by that time.
He said extreme poverty was on the rise in sub-Saharan Africa despite a global drop from levels seen in the 1990s and 2000s.
“By 2030, nearly 9 in 10 extremely poor people will be Africans, and half of the world’s poor will be living in fragile and conflict-affected settings.
“This calls for urgent action by countries themselves and by the global community,” he said.