IMF Views Nigeria’s N87.3 Trillion Debt as Manageable

The International Monetary Fund (IMF) has provided an assessment of Nigeria’s total public debt, which stands at N87.3 trillion ($113.4 billion), suggesting that it is manageable and does not pose immediate risks to the country’s economy.

This statement was made by Abebe Selassie, the Director of the IMF African Department, during the presentation of the Economic Outlook for Sub-Saharan Africa at the ongoing IMF/World Bank Annual Meetings in Marrakech, Morocco. Selassie emphasized that Nigeria’s primary concern regarding its debt position is the rising cost of servicing this debt.

Selassie pointed out that Nigeria faces significant challenges in generating enough tax revenue to cover debt servicing and essential infrastructure investments. Furthermore, he clarified that the IMF was not aware of any ongoing debt discussions, debt profiling, or debt restructuring in Nigeria.

The critical aspect of Nigeria’s debt, as highlighted by Selassie, is the debt servicing component. He stressed that while the stock of debt may be manageable in general, the real challenge lies in servicing this debt. The IMF director acknowledged that Nigeria’s government struggles to generate sufficient non-oil tax revenues, which are essential for servicing the debt and funding critical infrastructure projects. He underlined that the high share of revenue allocated to interest payments leaves limited room for addressing other pressing issues.

Selassie elaborated on the factors contributing to this financial pressure in Nigeria. He noted that the primary issue stems from the government’s inability to generate adequate tax revenue for its essential services. Additionally, he highlighted the historical reliance on oil when oil prices were high and the subsidy regime as intertwined issues, impacting government resources allocation and contributing to inflation.

He stated, “The debt stock is manageable; it’s the debt service that is the problem.” In essence, the nominal value of the debt may not be the primary issue, but rather, it’s the cost of servicing this debt that poses a challenge.

The IMF’s viewpoint on the recent decision by the Central Bank of Nigeria to lift foreign exchange (FX) restrictions on 43 previously banned items is positive. Selassie sees this move as beneficial for boosting international trade relations. Moreover, he expressed support for the FX reforms and subsidy removal, indicating that they are steps in the right direction. He emphasized the importance of fiscal discipline in supporting Nigeria’s efforts to stabilize the exchange rate.

Regarding trade restrictions, Selassie maintained that in complex and sophisticated economies, such measures are often ineffective. He stressed the need for a holistic approach to reforms, commending the government for its efforts to unify exchange rates. Additionally, he suggested that fuel subsidy removal should be accompanied by tighter monetary policy to be successful. In his view, a comprehensive package of reforms is essential, and he acknowledged the recent appointments of the CBN governor and the minister of finance, expressing hope that they will steer the country in the right direction.

The IMF’s recommendations for Nigeria extend to embracing tighter monetary and fiscal policy conditions to combat inflation. Selassie stressed that this tightening approach complements the FX reforms initiated by the Central Bank of Nigeria. Loose monetary policy conditions, if left unchecked, can lead to increased liquidity, inflation, and exchange rate fluctuations. To address this, Selassie emphasized the need for tighter monetary conditions. He also highlighted the government’s role in absorbing liquidity to finance its deficit, which, when excessive, can contribute to loose monetary policy. Therefore, he called for a holistic and coordinated reform package, indicating that Nigeria has the potential to implement these necessary changes, provided there is political will and a commitment to move in this direction.

In summary, the IMF’s assessment of Nigeria’s public debt position emphasizes the manageability of the debt stock but underscores the pressing challenge of debt servicing, primarily due to inadequate non-oil tax revenue. The IMF supports the recent FX reforms and subsidy removal and suggests that a comprehensive and coordinated approach is needed to address the country’s economic challenges, including tighter monetary and fiscal policies to combat inflation.