Shola Oyeyipo and Martins Ifijeh in Washington DC
Nigeria and other African countries taking loans from China must ensure that the terms of borrowing are strictly in conformity with the Paris Club arrangements, the International Monetary Fund (IMF) has said.
It also stated that the Nigerian government can borrow more money as the environment was favourable to market purpose.
Presenting the Global Financial Stability Report at the ongoing IMF/World Bank Spring Meeting in Washington DC Wednesday, the Financial Counselor and Director, Monetary and Capital Markets Department, IMF, Tobias Adrian, however regretted that such financial transactions between benefitting African countries and China lack such considerations.
He said while such funding was needed for development, putting it to productive use remains an essential factor.
He said: “Lending and capital flows from China are of course important for development; on the one hand, what is very important in those lending arrangements are the terms of the loans.
“And we urge countries to make sure that when they borrow from abroad, that the terms are favourable for borrowers. In particular, we tend to recommend that loans to countries should be conforming to Paris Club arrangements. And that is not always the case in the case of loans from China.”
Also commenting on probity in the management of such loans, which he said the IMF was very focused on, he said: “Good governance is very important in making sure that capital flows are channeled to productive sources.”
When commenting on the debate that the United States’ proposed modern monetary theory that suggests loading up debts for infrastructure, the IMF chief warned that “In our (IMF) view there is no free launch. We have seen again and again around the world and over time that unsustainable fiscal policies are problematic. They can incur; they can trigger crisis and countries are becoming more vulnerable when it is very high.
He said as a matter of fact, we are flagging the crisis of sovereign debt as one of the risk factors going forward.
He said: “So Nigeria has been borrowing in international markets, but we worry about roll over risks going forward. On the other hand this is very good because it allows the country to invest more.
“At the moment, funding conditions in economies such as Nigeria and other sub Saharan African countries are very favorable but that might change at some point. However, there is the risk of whether these needs for refinancing can be met in the future.”
Adriana said the GFS report provides an in-depth analysis of a number of specific vulnerabilities, adding that in advanced economies, corporate debt and financing risk taking have increased.
“The credit worthiness of borrowers has deteriorated. So called leveraged loans to highly indebted borrowers continue to be of particular concern. In the Euro area, fiscal challenges remain in countries that have worries about the sovereign financial sector nexus. If sovereign yields were to rise sharply, banks with large holdings of debts could face significant loses. Insurance companies could also face loses on their bond portfolios.”
He said the report shows that this was the time for decisive policy actions since vulnerabilities were increasing in a maturing credit cycle, adding that there was no more room for complacency.
“The intensification of trade tensions and a threat to disorderly practices have dented investors’ confidence. Policy makers should resist inward-looking policies, avoid policy missteps and resolve policy uncertainties.”