IMF Warns Nigeria, Other African Peers Of Rising Debts

Sub-Saharan African nations are at growing risk of debt distress because of heavy borrowing and gaping deficits, despite an overall uptick in economic growth, the International Monetary Fund said on Tuesday, 8th of May, 2018.

The sober assessment came as African countries continue to tap international debt markets and issue record levels of debt in foreign currencies, spurred on by insatiable investor demand for yields, according to Reuters.

The Director of the IMF’s African Department, Abebe Selassie, noted in a statement that “macroeconomic vulnerabilities are rising in many countries as the required fiscal adjustment keeps getting delayed. 15 of the region’s 35 low income countries are now rated to be in debt distress or at high risk of debt distress”.

In addition, he highlighted that “in some countries, higher debt levels have translated into a sharp increase in debt service, diverting resources from much needed spending in areas such as health, education, and infrastructure.” What really we’re concerned about is the pace of increase, rather than the average,” Selassie told Reuters at the launch of its economic outlook for the region in Accra.

“What we’re calling for right now is that those countries are going to need to go through fiscal consolidation,” he said, adding that oil producers and other resource-dependent economies were seeking the sharpest growth in their debt loads. Under President Muhammadu Buhari, Nigeria has grown its debt portfolio by N9.61Tn, statistics from the Debt Management Office have shown.

According to the DMO, Nigeria’s debt stood at N21.73Tn as of December 31, 2017, while the figure as of June 30, 2015 was N12.12Tn. This means that within a period of 30 months – July 2015 to December 2017 – the country’s debt rose by N9.61Tn, or 79.25 per cent. The DMO had said the composition of the debt stock as of the end of 2017 showed that external debt was 26.64 per cent of the portfolio, up from 20.04 per cent in 2016, while the domestic debt was 73.36 per cent, down from 79.96 per cent in 2016.

Further analysis showed that the domestic debt for the Federal Government was N12.59Tn, while the domestic debt of the States and the Federal Capital Territory was N3.35Tn. The external debt of the Federal Government, States and the FCT was N5.79Tn. This puts the total public debt as of December 31, 2017 at N21.73Tn.

According to the DMO, the restructuring of the country’s debt mix has led to an increase in foreign debt in order to minimize the high interest rates of local debts. The IMF projected that the rate of economic expansion in sub-Saharan Africa would rise to 3.4 per cent this year, up from 2.8 per cent in 2017, boosted by global growth and higher commodity prices.

Slower growth in South Africa and Nigeria – the continent’s two largest economies – weighed on the region-wide average, but the IMF expects growth to pick up in around two-thirds of African Nations. However, under current policies, that rate is expected to plateau below four per cent over the medium term.

Meanwhile, around 40 per cent of low-income countries in the region are now in debt distress or at high risk of it, the IMF report said, adding that refinancing that debt could soon become more costly.

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