IMF warns Nigeria, others on impending vulnerabities from excessive borrowing
The International Monetary Fund (IMF) has warned that greater reliance on foreign borrowing by emerging markets and other low-income countries, including Nigeria could at some point become a vulnerability, especially if those resources are not put to good use.
External borrowing in emerging market economies, and low income countries has increased substantially and the IMF estimates that portfolio inflows to emerging economies, particularly are on track to reach $300billion in 2017, more than twice the totals over th past two years.
“This is broadly good news, supporting growth prospects in these countries,” said Tobias Adrian, financial counsellor at the IMF in his opening remarks during a press conference on the Global Financial Stability Report (GSFR) released on Wednesday in Washington at its ongoing Annual meerings cohosted by the World Bank.
“But this greater reliance on foreign borrowing may at some point become a vulnerabity, particularly for low-income countries, if those resources are not put to good use,” Adrian stated.
Since the IMF last report, global financial stability has continued to improve as economic recovery broadens and global markets are buoyant. “But while the waters seem calm, vulnerabilities are building under the surface.
“If left unattended, these could derail the global recovery,” the IMF noted in the GFSR title’s “putting growth at risk”.
Following substantial drop in incomes, Nigerian government is resorting to huge borrowing, and is refocusing on external sources to fund the record budget.
President Buhari’ government has beem struggling to implement an expanded N7.441 trillion budget for 2017 but officials confirm that the spending framework has been to difficult to implement due to huge funding challenge.
The government now plans to sell as much as $5.5billion of Eurobonds before the end of the year to fund capital projects and replace local-currency debt.
The new offers would bring the amount raised through Eurobond sales by the country this year to more than $7billion as the federal government tries to restructure its debt portfolio to almost double the portion of foreign borrowing in a bid to reduce financing costs.
$1 billion Eurobond was floated earlier in the year.
DMO Director-General Patience Oniha confirmed recently that the government wants to raise $2.5billion in October to help fund 2017’s 7.4 trillion-naira budget, and will sell the remaining $3 billion before the end of the year to replace naira-denominated debt.
But already the country’ debt profile had ballooned to above N19.16 trillion, in June, with up to N7.1 trillion debt incurred in the last two years, according to the figures from th Debt Management Office (DMO).
While N11.97 trillon was incurred as local debt, N8.51 trillion was borrowed from international sources.
The IMF projects that Nigeria’s indebtedness would climb to 24.1 per cent of the nation’s Gross Domestic Product by 2018 and is estimated to reach 23.3 per cent by the end of 2017 from 18.6 percent in 2016.
President Buhari on Tuesday asked the Senate to approve $5.5billion external loan.
The loan, accordibg to him is part of the 2016-2018 External Borrowing Plan of the Federal Government and is meant to finance capital projects in the 2017 budget and refinance maturing domestic debts.
While $2.5billion will be borrowed in the international capital market through Eurobonds for financing the deficit in the 2017 Appropriation Act, $3billion will be sourced externally for the refinancing of maturing domestic debt obligations.
“The Senate is requested to kindly approve the following external borrowings: Issuance of $2.5billion in International Capital Market through Eurobonds or a combination of Eurobonds and Diaspora bonds for the financing of the Federal Government of Nigeria 2017 Appropriation Act and Capital Expenditure Projects in the Act,” Buhari said in a letter to the Senate requesting approval for the proposed loan.
According to him, “Issuance of Eurobond in the ICM and/ or Loan Syndication by banks in the sum of $3 billion for re-financing of maturing domestic debts obligations of the Federal Government.
Onyinye Nwachukwu, Abuja
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