IMF cautions FG on mounting debt service

The International Monetary Fund (IMF) has cautioned the Federal Government to be mindful of the country’s rising debt service to revenue ratio and take steps to mitigate the situation. IMF Senior Resident Representative in Nigeria Mr. Amine Mati gave the caution in Abuja at the public presentation of the “Regional Economic outlook: Sub-Saharan Africa, Capital Flows and the Future of Work.” He predicted that Nigeria’s economy will grow by 1.9 per cent this year, up from 0.8 per cent in 2017 due to fewer disruptions in oil production.

Mati attributed the expected growth to some pick-up in the non-oil. According to him, “the recovery is expected to contribute about 0.7 percentage points to the region’s average growth in 2018 and lift activity in Nigeria’s trading partners through stronger remittances, financial spillovers and import demand.” He lamented that public debt was diverting more resources towards interests payments, and cautioned that though Nigeria’s debt to GDP was quite low, over 50 per cent of the country’s revenue went into interest payments. He suggested that increase in revenue was very important to bridge the gap in order to ensure that revenue to GDP was sufficient enough to pay up and service the debt profitably.

According to Mati, “Nigeria’s Debt /GDP ratio at between 20-25 per cent is quite low but debt servicing which takes about 50 per cent of revenue is certainly high”. With regards to Sub-Sahara Africa, Mati said that the regional average was worse than the Nigerian scenario with Debt/GDP across Sub-Saharan Africa ranging between 35-57 in the past five years. He noted that “a lot more of the resources are going into paying interests and there is less to spend on capital expenditure.” Going forward, the solution the IMF chief said was for massive revenue to be mobilised to address the challenge but African nations especially Nigeria were not doing enough in that regard. Sub-Sahara’s strategy he queried has been to cut expenditure, rather than mobilising more revenue.

According to him though Nigeria has immense revenue potentials many of which have remained untapped, “adjustment has relied on spending compression rather than revenue mobilisation.” The IMF Senior Resident Representative noted that as the magnitude of capital flows to the region increased, so also the volatility increased. According to him, “portfolio inflows could be very volatile and more associated with consumption than investment in the real sectors of the economy.”