Nigeria’s Debt-To-GDP Ratio Is Very Risky – IMF

The International Monetary Fund has revealed that Nigeria’s Debt-to-GDP ratio is decent but very risky and cannot be guaranteed as the days go by.

Debt-GDP ratio compares the size of a country’s debt to its economy with a view to determining the sustainability of the debt profile as well as the vulnerability of the economy to creditors and repayment obligations.

The ratio, formerly at 21.1 percent early last year was projected to reach 25 percent at full year 2018. But the Fund indicated that the range is already risky and cannot be guaranteed.

Tobias Adrian, Financial Counsellor & Director of Monetary & Capital Markets Development of IMF recently said, “Nigeria’s borrowing to GDP is still low but we cannot guarantee the risk going forward given the global economic downturn. The prudent use of the money borrowed is significant to improving the economy.”

“Policymakers should clearly communicate any reassessment of the monetary policy stance that reflects either changes in the economic outlook or risks surrounding the outlook. This will help avoid unnecessary swings in financial markets or unduly compressed market volatility.

“In countries with high or rising financial vulnerabilities, policymakers should proactively deploy prudential tools or expand their macro prudential toolkits where needed. These countries would benefit from activating or tightening broad-based macro prudential measures, such as countercyclical capital buffers, to increase the financial system’s resilience.

“Efforts should also focus on developing prudential tools to address rising corporate debt from nonbank financial intermediaries and maturity and liquidity mismatches in the nonbank sector.

“Regulators should also ensure that more comprehensive stress tests (that include macro-financial feedback effects) are conducted for banks and nonbank lenders. “Emerging market economies should ensure resilience against foreign portfolio outflows by reducing excessive external liabilities, cutting reliance on short-term debt, and maintaining adequate fiscal and foreign exchange reserve buffers.”