Tuesday, May 14, 2013

IMF Increases Nigeria's Borrowing Threshold to 66 Percent

IMF increases Nigeria’s borrowing threshold to 66 per cent

MONDAY, 13 MAY 2013 20:34
FROM MATHIAS OKWE, ABUJA BUSINESS SERVICES
Nigerian Guardian

FROM a borrowing threshold of 40 per cent of Gross Domestic Product ( GDP), the International Monetary Fund ( IMF) says Nigeria can now borrow up to 56 per cent of her GDP.

However the Banks wants Nigeria to delink budget planning from oil prices but expresses worry over Nigeria’s growth without job opportunities for citizens.

The Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, made this announcement Monday at the opening of the 2013 Debt Sustainability Analysis workshop in Abuja.

The implication of this development is that Nigeria may further deepen her debt profile, which currently stands domestically at over N6 trillion with a foreign component of more than $6 billion.

The raise in the borrowing threshold followed the recent positive review of the Nigerian economy by both the World Bank and the IMF, which indicated a positive outlook.

Also, the World Bank has specifically promoted Nigeria to the IBRD borrowing window where lending is more costly than at the IDA window which the country is being faced out.

At the moment, Nigeria’s indebtedness stands at around 20 per cent of GDP below the 40 per cent hitherto allowed her.

But indication appeared yesterday that the country may be increasing the rate beyond 25 per cent if insinuations by, the DMO boss that the country has been under- borrowing is anything to go by and may even borrow up to 40 per cent of GDP.

He said Nigeria’s history of debt and direction of the economy made it imperative to rather under borrow than over borrow.

His words: “We rather under borrow than over borrow. That is our rule to be on the conservative side. Even though when countries were rated, our net present value to gross domestic product ratio has been reviewed to 56 percent, Nigeria advisedly will remain at 40 percent for practical purposes. But we will still continue noting that we belong to the group who has been allowed to borrow up to 56 percent of their Net present value of their GDP.”

According to him, “These ratios are fixed for all countries in that group. But each country has to look at its own peculiarities. That is why the case of Nigeria, in terms of our experience of debts in the past, we must not have that experience again. And if you look at our economy, you see that we are still over dependent on oil-over 80 percent dependent on oil.”

However, if the country goes on a wild borrowing spree, this will be against the grain of the effort by the Coordinating Minister for the Economy and Minister of Finance, Dr. ( Mrs.) Ngozi Okonjo Iweala, whose effort at curtailing borrowing has led to the establishment of a debt sinking fund where domestic liabilities that are due are settled instead of rolling them over. She has also declared that the country’s lending profile should be on the downward swing instead of going north.

Besides, the World Bank in another development yesterday advised the Nigerian Government to de link subsequent national Budget preparation from the price of oil at the international market because it was not reliable.

This advice is contained in the inaugural Nigeria Economic Reports, prepared by the World Bank Country Office in Nigeria, which previewed Nigeria’s economic indications and outlook.

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