IMF Predicts 36.5% Debt-to-GDP Ratio for Nigeria in 2020

• Lauds exchange rate unification
• World Bank: 42% of Nigeria’s hospitality industry employees out of jobs

Ndubuisi Francis in Abuja and Nume Ekeghe in Lagos

The International Monetary Fund’s (IMF) Mission Chief and Senior Resident Representative for Nigeria, Ms. Jesmin Rahman, has projected that Nigeria’s debt-to-gross Domestic Product (GDP) ratio may rise to 36.5 per cent this year, up from the 29 per cent it was in 2019.
The Senior Financial Sector Specialist, World Bank, Mr. Ahmed Rostom, has also said about 42 per cent of staff working in the Nigerian hospitality and service industry before March have now lost their jobs due to the effects of the COVID-19 pandemic on the economy.

The IMF chief described the spike in government borrowing in the short-term as worrisome and should be closely monitored.
She, however, said as long as debt-to-GDP ratio stays below 45 per cent, it would still, be sustainable.

Rahman, during an interview hosted by Citibank Nigeria in collaboration with the American Business Council, yesterday, said: “Nigeria’s public debt was at 29 per cent of GDP in 2019 in our definition of all known liabilities like the Central Bank of Nigeria (CBN) financing of the budget, financing of the power sector, Asset Management Corporation of Nigeria (AMCON) debt and everything came to 29 per cent of GDP.

“We project this to increase to 36.5 per cent this year, which is a jump and then stay around 38 per cent of GDP in the medium term.
“However, we think the debt level is sustainable for a few reasons. Firstly, the debt levels have increased but the debt level itself is below the average for emerging and developing countries, which is around 50 per cent of GDP. And the reason is that debt levels do not worsen significantly when we put it under various stress scenarios as it stays below 45 per cent.

“Domestic financial conditions are very favourable so all in all, if you take into account all these, we would say the public debt is sustainable.

“However, it requires close watching because it has gone up quickly and this year it is going to go up even more. Perhaps more importantly, the very limited debt-servicing capacity is driven by low revenue. Debt servicing capacity is severely constrained and that requires a close watch.”

According to her, recent steps being taken to unify the forex windows are commendable.

“The authorities have started to move towards that direction and we welcome this move and having a clearer strategy on how to ensure FX availability to businesses and communicating that strategy to everyone is important,” she stated.

On his part, the Chief Economist Sub-saharan Africa, Citibank, Mr. David Cowan, said it was important to move various exchange rates to Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX), adding, however, that much of what would happen in the market would be determined by oil price this year.

He said the Nigerian government must think of immediate ways of fixing infrastructure, which according to him, is Nigeria’s real challenge.

He added: “Also, when we have got the NAFEX market gearing and functioning again, we then want to think of how we can look at the naira going forward into 2021. We need not get locked in the situation where we go back to pegging the rate and it becomes a flexible rate responding to demand and supply.”

World Bank: 42% of Nigeria’s Hospitality Industry Employees No Longer Working
The COVID-19 pandemic has exerted enormous economic challenges on Nigeria, with 42 per cent of people who were working before March 2020, especially those in the hospitality and service industry no longer working, the World Bank has said.

Rostom, who described the development as disturbing, said the drop in the workforce followed surveys carried out by the bank between March and April.

Rostom spoke during a webinar series of the Development Bank of Nigeria (DBN) with the theme, “Risk Sharing: A Key Driver for Increased Financial Access and Economic Development for MSMEs.”

Panellists at the event noted that the current realities in Nigeria, including the pandemic has brought to light the urgent need for additional support in alleviating the financial constraints faced by Micro, Small and Medium Scale Enterprises (MSMEs).

The panellists included the Chief Executive Officer of InfraCredit, Mr. Chinua Azubike; Group Head Emerging Business, Access Bank Plc, Mrs. Ayodele Olojode; Rostom and the Managing Director, JNC International, Mrs. Claire Omatseye.

They were unanimous on the need to increase awareness by key industry stakeholders in ensuring that the much-needed stimulus and alternative means of facilitating financing are discovered to stem the shock to Nigeria’s economic and financial system.

The panellists highlighted that credit guarantees schemes (CGS) are popular policy instruments created to help alleviate the credit constraints faced by MSMEs, adding that in Nigeria, however, there exist some challenges with risk-sharing in the local market as most MSMEs do not fully grasp the concepts of risk-sharing and credit guarantees.

They also stressed the need for key industry stakeholders, MSMEs, banks, and regulators to openly discuss alternative means of financing and the existence of risk-sharing.

Olojode explained that MSMEs do not have regular and sustained access to finance because of limitations like high interest rates, lack of tangible collateral and economic conditions.

The DBN webinar series is aimed at providing capacity building for MSMEs through digital platforms to ensure they are empowered to remain in business through this unprecedented period.

The DBN is a development finance institution, established by the federal government in collaboration with global development partners to address the major financing challenges facing the MSMEs in Nigeria.

The bank carries out this function by providing financial institutions, predominantly deposit money banks, microfinance banks and other financial institutions with funding facilities designed to meet the needs of MSMEs