The challenges with Nigeria include the dual exchange rate, restrictive policy on export and huge subsidy payment
The World Bank says it will assess Nigeria’s debt sustainability plan before granting relief.
It, however, said the country is yet to request debt restructuring under the G20 common framework.
According to World Bank, the common framework requires private creditors to participate on comparable terms to overcome collective action challenges and ensure fair burden sharing. But so far, only a few countries in Africa — Chad, Ethiopia, and Zambia — have made debt relief requests under the policy.
David Malpass, World Bank president, said this on Thursday at a press conference on the sidelines of the IMF-World Bank annual meetings in Washington.
Nigeria’s minister of budget, finance and national planning, Zainab Ahmed, had on Wednesday, said the federal government has been engaging financial institutions to look into the country’s larger portfolio debts to stretch the debt service period to give more fiscal relief.
“Unfortunately, the cost of debt service is rising because of the rising interest rate globally, resulting in higher debt service costs. Our projection from the debt sustainability analysis is that Nigeria is able to cope with its debt service,” the minister had said.
But Malpass said the “government of Nigeria has not gone that route”.
He said while the option of debt restructuring would help Nigeria and other African nations, the World Bank and IMF will assess the debt sustainability of any country before accepting the request.
“On debt restructuring, the World Bank works very closely with the International Monetary Fund (IMF) on debt situation, Nigeria has not asked for the common framework under the G20 process,” he said.
“That process has been slow acting in Chad, Ethiopia and Zambia. There are some signs of movement in Zambia, but it’s still challenging.
“So Nigeria and Ghana did not ask for common framework treatment. Kristalina (IMF managing director) and I were talking yesterday with the group about it. If countries could have a situation where the common framework caused or allowed the country to have a standstill on their debt.
“That would help the countries choose their path forward on debt restructuring that would mean they would get a break on debt payments while they’re looking at a restructuring agreement with the World Bank, but Nigeria hasn’t gone that route.”
He said the challenges with Nigeria include the dual exchange rate, restrictive policy on export and huge subsidy payment.
“So what the challenge is for Nigeria is that the subsidies are so large, that they undermine the revenues coming to the government from the state-owned oil company. Nigeria is actually in a concerning situation because of the increase in oil prices that occurred earlier this year. It actually ended up hurting the finances of Nigeria because of that large subsidy that’s provided,” Malpass added.
“Some of the challenges with Nigeria also include dual exchange rate or the multiple exchange rates that are used that makes it very long flowing in an efficient way within the country.
“Also, the trade policies tend to be protective on the import side and restrictive on the export side. So we would work with the IMF and conduct an assessment of the debt sustainability of Nigeria, but then it would also be up to Nigeria itself to interact with the various creditors, including bondholders and others.”