IMF: Debt Service Becoming Burden to Nigeria, Others

Obinna Chima
The International Monetary Fund (IMF) has stated that debt servicing costs are becoming a burden, especially in oil-producing countries such as Nigeria, Angola and Gabon in Africa.
This, according to the multilateral institution, was expected to absorb more than 60 per cent of government revenues in the aforementioned countries in 2017.

The fund stated this in its Regional Economic Outlook titled: ‘The Quest for Recovery,’ posted on its website on Monday.
Also, the fund noted that fiscal risks had started to materialise in several fast-growing non-resource intensive countries, partly reflecting security developments and a decline in cocoa prices (Côte d’Ivoire) and fiscal slippages during an election year (Ghana, Kenya).
According to the IMF, the broad-based slowdown in sub-Saharan Africa was easing, while the underlying situation remains difficult.

Growth in the region was expected to pick up from 1.4 per cent in 2016 to 2.6 per cent in 2017, reflecting one-off factors—particularly, the rebound in Nigeria’s oil and agricultural production, the easing of drought condition that impacted much of eastern and southern Africa in 2016 and early 2017—and a more supportive external environment.

The report stated that while 15 out of 45 countries continue to grow at five per cent or faster, growth in the region was projected to barely surpass the rate of population growth.
“And in 12 countries, comprising over 40 per cent of sub-Saharan Africa’s population, income per capita is expected to decline in 2017.

“A further pickup in growth to 3.4 per cent is expected in 2018, but momentum is weak, and growth will likely remain well below past trends in 2019.
“Ongoing policy uncertainty in Nigeria and South Africa continues to restrain growth in the continent two largest economies. Excluding these two economies, the average growth rate in the region is expected to be 4.4 per cent in 2017, rising to 5.1 per cent in 2018–2019. “But even where growth remains strong, in many cases, it continues to rely on public sector spending, often at the cost of rising debt and crowding out of the private sector,” the report added.

According to IMF, key downside risks to the region’s growth outlook emanated from the larger economies, where elevated political uncertainty could delay needed policy adjustments and dampen investor and consumer confidence.

It, however, noted that some progress had however been made to address the policy inertia in the Central African Economic and Monetary Community (CEMAC) as most hard-hit oil exporters have embarked on adjustment programs to facilitate economic recovery, while discussions with the remaining two CEMAC members were underway.

Furthermore, it reiterated that growing exposure to the sovereign and the accumulation of domestic arrears have magnified pressures in the financial sector, as evidenced in higher non-performing loans (Angola, Ghana, Nigeria), a sharp decrease in the growth of credit to the private sector (CEMAC, Zambia), and bank under-capitalisation (Nigeria).

“While current account deficits have started to narrow and exchange market pressures appear to have abated, as part of response to much needed monetary tightening, international reserves have fallen below adequacy levels in many countries, especially those with fixed exchange rate regimes.

“In this context, addressing fiscal vulnerabilities emerges as a key policy priority in many countries, which needs to go hand in hand with renewed efforts to tackle constraints on growth.

“Consolidation needs are largest and most pressing in the oil-exporting countries, which must adjust to oil revenues now less than half their 2013 level and expected to decrease further, as a percentage of GDP, in the near term.
“Sub-Saharan African countries can also seize opportunities to enhance growth above current projections through structural transformation and export diversification.

“Strengthening macroeconomic stability in itself carries a large premium, but beyond that, many countries could also strengthen their growth prospects by improving access to credit, infrastructure and the regulatory environment, and building a skilled workforce,” the fund added.