Does Nigeria need debt restructuring to borrow more?
In the early 1960s, Nigeria used to lend money to the International Monetary Fund (IMF), but the country has now become one of the highest indebted nations in the world in relation to its revenue earnings, Gross Domestic Product (GDP) and other financial parameters.
At a time when most Nigerians are complaining that the country’s debt profile has become a huge burden to the economy, the IMF has suggested ways to enable Nigeria to keep borrowing. In this analysis, JOHNMARK UKOKO wonders whether the country actually needs debt restructuring and fresh loans to survive.
During the era of former Military Head of State, General Yakubu Gowon, he was said to have made what became a popular saying to the effect that “Nigeria’s problem is not money, but how to spend it.” That was during the crude oil boom when the country earned plenty of dollars from oil sales. At that time, the naira was more valuable than the United States of America (USA) dollar, as it exchanged for 75k to $1 and in the 1970s up to the early 1980s the nation’s currency exchanged at par for N1 to $1.
Following the mismanagement of the country’s resources, economy, corruption and unbridled foreign loans have all combined to devalue the naira to an all time low.
For instance, in the last few months, the naira has exchanged for between N550 and N600 to the dollar at the official rate and much higher at the black market.
The Nigerian situation has been worsened by the fact that despite being one of the world’s top 15 most endowed countries in terms of crude oil and gas resources, its inability to refine its crude oil since the late 1980s till date has contributed to the constant erosion of the value of the naira.
Nigeria has also been riddled with massive crude oil theft by top government and military of- ficials, militants and foreigners in collaboration with their Nigerian accomplices, which have reduced the country’s crude oil exports, thereby affecting the country’s foreign reserves, put at $38 billion as of the first quarter of 2022.
The country has massive natural gas reserves, most of which is being wasted through flaring in the Niger Delta, while the price of Liquefied Natural Gas (LPG) continues to rise on a daily basis, as the country has to depend on imported gas for cooking and other commercial purposes.
President Muhammadu Buhari’s administration has been adjudged to have the penchant for highest borrowing most in the history of the country. As the country prepares for the 2023 general elections, some economists have argued that President Buhari’s successor will use most of the country’s earnings to service loans if the country’s revenue generation failed to improve drastically.
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They insisted that Nigeria has over borrowed, a situation they said, portrays great danger for the country’s economy. While most Nigerians at home and in the Diaspora have raised concerns over the country’s huge debt burden and have called on the president to exercise restraint in further borrowings, the IMF has suggested debt restructuring for Nigeria to qualify for additional fresh loans.
Director for Africa at IMF, Abebe Salasie, who stated this recently during a virtual press conference, said the bank was ready to assist Nigeria and other countries to diversify their economies to enable them to qualify for new credit facilities.
“IMF will help to facilitate economic diversification in the African region. We, therefore, advise the countries to be a little bit less dependent on their natural resources exports and more on the kind of labour-intensive economic sectors like manufacturing and other services that we can utilise,” he stated.
He disclosed that the bank recently created a Resilience and Sustainability Trust that will help the IMF to ensure that the country’s resources are used to provide required policy support for longer-term funding for many African countries. Speaking further, he said: “As a bank, we feel the needs to go further for example, by removing obstacles for quicker debt restructuring under the Common Framework. That should allow for swift and efficient debt restructuring.
The second policy challenge area is balancing the need to address inflation without undermining the ongoing recovery.” It is also common knowledge that in the last two years, the Central Bank of Nigeria (CBN) has struggled to manage the country’s foreign exchange, with the real sector and other sectors that require forex being unable to access it through the Import and Export (I&E) window.
The commercial banks that the CBN mandated to provide forex facilities have been largely unable to do so, as scarcity of dollars have forced real sector to rely on the parallel market for its forex needs. Moreover, the various measures the CBN initiated to tackle forex challenges and the consistent crash of the value of the naira had not yield the desired results.
Salasie noted that most countries in Africa were in Nigeria’s league as they have been unable to balance their acts between curbing inflation and supporting growth. According to the National Bureau of Statistics (NBS), the inflation rate for March 2022 stood at 16.3 per cent, even as efforts by the CBN to tackle the country’s inflation have not succeeded as the trend continued for over 12 months consistently.
While most European countries are lamenting that their inflation had risen to about eight per cent, which is still a single digit increase, Nigeria’s inflation has risen above 14 per cent for over 12 months, with no hope of reducing.
Salasie pointed out that the central banks of most countries face a difficult balancing act between curbing inflation and supporting growth. It would be recalled that late last year, the IMF predicted that Nigeria’s economy would grow by about 2.5 per cent and has not changed its position, as it announced recently that the country’s economy was growing at over three per cent.
A major challenge for CBN governor, Godwin Emefiele and his colleagues at the apex bank has been the issue of exchange rate, which remains one area in the many areas Emefiele and management of CBN had failed in the last two years.
Curiously too, the IMF admitted that Nigeria and many countries in Africa are struggling to tackle their exchange rate as Salasie tasked them on the need to address exchange rate pressures stemming from higher global interest rates and heightened global uncertainty. Speaking to The Trumpet recently, Chief Executive Officer (CEO) of the Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, decried the IMF for prompting Nigeria and other Africa countries that are already in huge debt burden to seek further credit facilities.
He said the loans from the IMF and World Bank have not helped African countries and charged Nigerians to reject further borrowing as the country currently use most of its revenue to service debts.
Yusuf charged managers of the Nigerian economy to work harder by tackling the country’s financial challenges without having to borrow from the global financial institutions. Respondents cautioned President Buhari and Nigeria’s economic team against falling prey to IMF’s bait insisting that most African countries that accessed IMF or the World Bank loans in the past have not recovered from them.
Citing Zambia, Zimbabwe and Togo that have not recovered from the credit facilities they accessed from IMF or the World Bank, they said the more loans they take from IMF and the World Bank, the poorer they become insisting that with the stringent conditions attached to such loans, the worse off the real sectors of such countries become.
They expressed concern that Nigeria was endowed enough to overcome its financial challenges if its leaders and managers of the economy to look inwards and appealed to the Federal Government not to go for fresh borrowings from the IMF and the World Bank.
They say despite the various foreign loans the President Buhari administration has sourced from the global financial institutions, not much progress has been made in the country. Nigerians also expressed reservations over IMF’s subtle invitation to African countries to seek fresh credit facilities, maintaining that it was a ploy to further enslave the continent and destroy the struggling African economies.
The days ahead will determine if African countries will fall for IMF’s ploy by approaching the global financial institutions to request fresh loans, but the sad reality remains that African countries have not been able to use the huge borrowings to turn around the fortunes of their countries.