IMF Warns Nigeria, Others on Rising Chinese Debt

• IMF Warns Nigeria, Others on Rising Chinese Debt

The International Monetary Fund (IMF) has warned Nigeria and other African nations taking loans from China to be careful.

The fund said non-Paris Club creditors, “create some instability or some vulnerabilities.” Therefore, African nations need to be cautious.

Tobias Adrian, the Financial Counsellor and Director, Monetary and Capital Market Department, IMF, who made the statement during a media briefing on Global Financial Stability Report in Washington Dc, said the ongoing trade dispute between the United States and China has helped lower monetary rate in developed economies, hence, presenting Nigeria and other low-income nations an opportunity to borrow at a lower cost.

He also noted that investment inflow to sub-Saharan Africa has been rising in recent years and expected to reach a record high in 2019.

He, however, called on governments in the region to ensure effective and efficient use of borrowed funds.

“Global financial conditions are favourable to countries such as Nigeria, at the moment. Issuing bonds in hard currency and the domestic currency is possible because of favourable global financial conditions. And of course, what is key is what countries such as Nigeria are doing with those borrowed funds. Undertaking structural reforms to develop the economy is also key at this point in time,” Adrian stated.

Speaking on external debt in Nigeria, Adrian said: “Both domestic and external debt markets are important for economic growth and development and both markets should be well developed; but of course, any borrowing has to be managed in a responsible manner. There are both costs and benefits.

“So, borrowing can be helpful for economic growth and investment, but it can also be dangerous when negative shocks arise. So, we have done a lot of work in the IMF on debt sustainability and debt management and we have a host of recommendations of how to manage debt in a responsible manner.”

Also, Mr Evan Papageorgiou, the Deputy Division Chief, Monetary and Capital Markets Department, IMF, advised the Nigerian government to ensure prudent debt management.

He said: “Nigeria has a large exposure to non-resident holders of domestic debt, particularly with central bank bills and then as we understand in the central bank bills, there are lots of higher redemptions or those that have to deal with more rollovers in the coming quarters, and so managing those risks, particularly with respect to local currency and the behaviour of non-resident investors is very important.”

Papageorgiou explained that non-Paris Club creditors, “creates some instability or some vulnerabilities.”

“Not that the debt itself creates problems. We examined some issues that debt has to be used for productive purposes, but usually debt that is given under non-Paris Club or multilateral types of agreements, more broadly in a lot of low-income countries, particularly a lot of African countries, the issue of debt vulnerabilities is becoming more prescient,” he added.