IMF Cautions Nigeria on Debt Service

By Tony Obiechina, ABUJA                 The International Monetary Fund (IMF), has urged the Federal Government to take urgent steps to address Nigeria’s rising debt service/revenue ratio situation.

The IMF Senior Resident Representative in Nigeria, Mr. Amine Mati made the observation at the public  presentation of the “Regional Economic outlook: Sub-Saharan Africa, Capital Flows and the Future of Work”, in Abuja on Thursday.

He said, “Nigeria’s Debt /GDP ratio at between 20-25 percent is quite low but debt servicing which takes about 50 per cent of revenue is certainly high”.

Mr. Mati said that the regional average was worse than the Nigerian scenario with Debt/GDP across Sub-Saharan Africa ranging between 35-57 in the past five years.

Stressing that interest payment had become a major challenge for the affected countries, Mati said, “a lot more of the resources are going into paying interests and there is less to spend on capital expenditure.”

The IMF chief pointout that massive revenue mobilization remained the only way to address the challenge but that African nations, especially Nigeria was not doing enough in that regard.

Rather than mobilizing more revenue, he said the current strategy had been to cut expenditure, in an economy with a very poor rate of spending.

According to him, “Adjustment has relied on spending compression rather than revenue mobilization,” adding that the nation had huge revenue potentials which remained untapped.

On how to deal with financial flows, the Snr Resident Rep noted that portfolio inflows could be very volatile and more associated with consumption than investment in the real sectors of the economy.

In her remarks, the Director-General, Debt Management Office (DMO), Ms. Patience Oniha, disclosed that the organization was working towards focusing more on foreign exchange risks strategy, especially with the rising interests rates in the United States and other advanced economies.

She said, “Some people have raised concerns about the exchange rate risks on our external borrowing.  For instance they say if the exchange rate moves to N400/$1 in the next five years, how would we handle it?

“My answer is that before, the share of the external debt was small, oil prices were good, production was good so, really, there was no need to be worried.

“But now there is need to focus on that.  In the new Strategy Plan we have, there is huge focus on risks.  Portfolio risks, contingent liability risks, interests risks. Before we were not focused on risk management.  We have even asked for assistance from the IMF, from the US Treasury so they can assist us in designing and training us.”

Responding to concerns of low revenue in the country, Oniha said that the challenge of increasing revenue in Nigeria should not be left to the government alone.

She challenged the Nigerian media and other good spirited organizations and individuals to join the campaign to persuade all members of the public, individuals and corporate, to pay their taxes and other public obligations.

Deputy Governor, Economic Policies of the Central Bank of Nigeria (CBN), Dr Joseph Nnanna in his presentation, outlined the inherent risks in portfolio investments which he said were too volatile to be depended upon.

According to him, such inflows respond to external and internal shocks and could move away too quickly.

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