The International Monetary Fund has advised Nigeria to seek more loans from development partners in order to bridge its “large financing gap.”
IMF’s Deputy Managing Director and Acting Chair, Furusawa Mitsuhiro, made the declaration in a statement following its approval of $3.4 billion in emergency financial assistance under the Rapid Financing Instrument to support Nigeria’s efforts in addressing a huge decline in foreign reserves caused by the COVID-19 pandemic.
Nigeria currently owes about $33 trillion and its debt servicing obligations have been exerting a huge toll on its annual budgets in recent years.
Mitsuhiro said: “The COVID-19 outbreak—magnified by the sharp fall in international oil prices and reduced global demand for oil products—is severely impacting economic activity in Nigeria. These shocks have created large external and financing needs for 2020. Additional declines in oil prices and more protracted containment measures would seriously affect the real and financial sectors and strain the country’s financing.
“The authorities’ immediate actions to respond to the crisis are welcome. The short-term focus on fiscal accommodation would allow for higher health spending and help alleviate the impact of the crisis on households and businesses. Steps taken toward a more unified and flexible exchange rate are also important and unification of the exchange rate should be expedited.
“Once the COVID-19 crisis passes, the focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending. Implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, remains crucial to boost growth over the medium term.
“The emergency financing under the RFI will provide much needed liquidity support to respond to the urgent BOP needs. Additional assistance from development partners will be required to support the government’s efforts and close the large financing gap. The implementation of proper governance arrangements—including through the publication and independent audit of crisis-mitigating spending and procurement processes—is crucial to ensure emergency funds are used for their intended purposes.”