IMF: Increased Diversity of Creditors Raises Coordination Challenges for Nigeria, Others

Ndubuisi Francis in Abuja

The International Monetary Fund (IMF) has declared that increased diversity of creditors raises coordination challenges for Nigeria and other indebted poor countries.

With a total public debt of N39.566 trillion ($95.77 billion) as at December 2021, Nigeria is exposed to a significant number of local and external creditors.

In a blogpost captioned, “Restructuring Debt of Poorer Nations Requires More Efficient Coordination,” the IMF stated that low-income countries face fewer debt challenges today than they did 25 years ago, attributing this in particular to the Heavily Indebted Poor Countries’ (HIPCs) initiative, which slashed unmanageable debt burdens across sub-Saharan Africa and other regions.

It observed that although the ratios are lower than in the mid-1990s, debt has been creeping up for the past decade, adding that the changing composition of creditors will make restructuring more complex.

Of the about $39 billion external debt as at December 31, 2021, Nigeria is indebted to bilateral creditors such as China Eximbank, JICA (Japan), AFD of France, GIZ (Germany) and Eximbank of India.

On the multilateral side, Nigeria is indebted to the World Bank Group, including the International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD).

It also owes the African Development Bank (AfDB); Arab Bank for Economic Development in Africa, European Development Bank, Islamic Development Bank and the International Fund for Agricultural Development (IFAD).
The country’s external debt obligations also extend to Eurobonds and Diaspora Bond.

The IMF believes that the increasing diversity of creditors poses complex restructuring and more complex challenges for Nigeria and other heavily indebted countries.

In the blogpost, the global lender noted that an improved common framework for debt treatment could clear a path through an increasingly complex creditor landscape.

According to the IMF, in past decades, Debt Service Suspension Initiative (DSSI) countries borrowed mainly from Paris Club official creditor nations and private banks, alongside multilateral institutions, adding that today, China and private bondholders play a much larger lending role.

The IMF stated: “The share of DSSI countries’ external debt owed to Paris Club creditors fell from 28 per cent in 2006 to 11 per cent in 2020. Over the same period, the share owed to China rose from 2 per cent to 18 per cent and the share of Eurobonds sold to private creditors increased from three per cent to 11 per cent.

“The situation differs significantly across countries, however. Averages conceal a diversity of debt composition, from the shares of bilateral, multilateral and private creditors, to the composition of official bilateral creditors themselves.

“China is now the largest official bilateral creditor in more than half of DSSI countries, including when counting all 22 Paris Club creditors as a single pool. China would therefore play a key role in most DSSI countries’ debt restructurings that would involve official bilateral creditors.

 “While the diversity of creditor compositions calls for greater attention to country specificities, appropriate coordination mechanisms will be key in all cases.”

According to the IMF, putting in place mechanisms that ensure coordination and confidence among creditors and debtors has become urgent, adding that improvements to the G20 Common Framework could play an important role by ensuring broad participation of creditors with fairer burden sharing.

“Experience so far shows that greater clarity on restructuring steps, earlier engagement of official creditors with the debtor and with private creditors, a standstill in debt service payments during negotiations, and specifying the mechanics of comparability of treatment is still needed,” the multilateral institution said.

Although Nigeria is one of the 73 eligible countries under the DSSI mooted by the IMF and the World Bank for the G20 nations to defer the debt service obligations of poor countries in the wake of the COVID-19 pandemic, the country opted out of the initiative.

The World Bank had explained that although some countries were eligible for the DSSI, they had chosen not to participate for a number of reasons.

Some of the reasons included conveying wrong signals to bondholders and other private creditors, among others.
“Some DSSI-eligible countries have thus far elected not to participate. Currently, 27 DSSI-eligible countries, 37 per cent of eligible countries, are not participating in the initiative for a variety of reasons.

“Some fear participation may convey the wrong signal to bondholders and other private creditors while others note the amount of eligible bilateral debt service was negligible, and savings do not justify the administrative expenses incurred by the deferral,” the World Bank had stated.