Nigeria’s minister of Finance, Budget and National Planning, Zainab Ahmed, clarified on Thursday that government was not planning to restructure the country’s debt, even though Africa’s largest economy is overburdened, with almost no fiscal room to maneuver.
Ahmed said is being considered instead is a possibility of renegotiating existing external loans to a more longer tenor to gain more time for repayment and avoid an imminent default.
Ahmed was speaking during a debate on the Global economy at the ongoing 2022 Annual Meetings of the International Monetary Fund (IMF) and the World Bank, which she participated alongside Kristalina Georgieva, IMF Managing Director; Mark Carney, former Governor of the Bank of England; Paschal Donohoe, Minister for Finance of Ireland, and the President of the Eurogroup; and Mohamed El-Erian, President, Queens’ College at Cambridge University.
Asked by CNN’s Richard Quest who anchored the debate whether she believes Nigeria is about to be punished by its high debt level, Ahmed admitted that the economy is currently in dire straits as government explore ways to navigate present global crisis.
“We are actually feeling the pressure, the market cost is too high for us. We cannot even explore the market in the near future, and this is also because inflation is going up and is going to stay up for longer,” she stated.
“Our debt service obligations in foreign currency are increasing. And what we have decided to do is not to wait for it to happen.
“We have to start looking at how do we better manage our liabilities.
“For example, for our domestic liabilities, we have been able to shift our loans from short tenors to medium and longer term terms.
“We have to do the same thing for our international borrowings as well – bilateral borrowings and even some of the concessional loans, so that the periods could be stretched to give us more fiscal room.”
“While we are working to increase revenue, to improve on our revenue to debt service, we still need to be able to renegotiate and stretch out repayment obligations, but we are not restructuring our loans,” she replied Quest who wondered whether her response wasn’t just “playing with language”.
The clarification which the debate afforded became necessary after Nigeria’s market took the heat over her comments the previous day that government plans to restructure its debt obligations.
The minister also reacted to concerns that as inflation remains elevated, interest rates will continue to go up particularly in the advanced economies and will likely stay higher for longer which will not only further raise Nigeria’s debt service obligations, but will also suck investment out from poor country.
“We are looking at options of how we can stretch out including buying back some of our bonds,” Ahmed stated.
“And that is why we have to be ready – even if it means retiring some of the debts that are nearing maturity, we’ll do that to reduce the fiscal burden. We just can’t stand still when we see the risks coming upon us.”
She also assured that Nigeria not only tracks its loans and has consistently met its debt service obligations, working with a carefully worked out repayment plan.
We keep doing these things on a continuous basis, monitoring our obligations,” she insisted.
In her comments, Kristalina Georgieva, IMF Managing Director said Nigeria’s current debt strategy is a template of what the Fund clearly recommends for countries to avoid default.
“Actually this is exactly what we are recommending to countries. When you see dark clouds of a default rising, don’t wait, look at ways in which you can extend maturities, you can improve the matching of currency obligations with what you’re earning yourself.
“In that sense what Nigeria is doing in the current environment is exactly what they should do,” the IMF chief commended.
“One very dire reality is that what is happening in terms of rates, currency appreciation, dollar appreciation, and capital flows is hitting emerging markets and developing countries hard, and this is where we see lessons from experience.
“Number one, build strong fundamentals, even if it’s late for the current situation, there will be another crisis to come. We are in a more shock-prone world.
“Number 2, don’t be shy to face and admit reality. Part of it is recognize that when growth goes down, and interest rates go up, there is an institution built to be counter cyclical, and it is called International Monetary Fund,” she advised.
Mark Carney, former Governor of the Bank of England was of the view that Nigerian government debt plan as “absolutely right in the market.
Read also: Is Nigeria about to default on its debt?
“What Nigeria is doing is saying the market has taken too pessimistic view and there’s an opportunity which creates room for the people of Nigeria by doing the steps that you are taking.”
Mohamed A. El-Erian, President of Queens’ College at Cambridge University, explained why the economic situation particularly in the poor and developing countries should be concerning.
His words: I’m just going to add that the complexity of what developing countries are facing is a multiple of just a linear combination of these things.
“It is not just higher for longer, but is higher for longer and faster. We are getting them much faster. So there is no time to adjust, it’s happening very quickly. And when it happens very quickly. It’s not just the price of credit that’s impacted, it’s access to credit that’s impacted.
He cited the case of UK where a quarter of the products in the mortgage market was taken off the marketplace.
“So when you have faster in addition to higher and longer, it makes the challenge facing the more fragile economies particularly difficult.
Asked how bad the situation can get by Quest, he expressed deep worry.
“I worry, I seriously worry. I think that we have limited policy space at the domestic level. If you make a mistake, and the UK did make a mistake, the reaction is such that it’s very difficult to go back to where you started from.
“So it’s a multiple equilibrium where things get worse. And we don’t have unfortunately until now and I hope that these meetings change that, the amount of global policy coordination that we would require when there’s a common problem.”
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