IMF Assures Nigerians: Moderate Debt Risk Amid Economic Challenges

The IMF assured Nigerians that their debt levels are moderate and manageable, encouraging targeted government interventions to address economic challenges. Nigeria recently achieved a record electricity generation of 6,003 MW while facing a rise in public debt due to exchange rate devaluation. The need for improved domestic revenue and economic reforms was emphasized to maintain stability and growth in the economy.

The International Monetary Fund (IMF) has assuaged concerns regarding Nigeria potentially entering a debt trap, affirming that the nation’s debt level is classified as “moderate and not high risk”. Gita Gopinath, IMF’s First Deputy Managing Director, conveyed this message during an interview in Lagos. She recognized the economic challenges Nigeria is facing and emphasized the importance of focused social interventions by the federal government.

The Nigerian federal government recently reported achieving a peak power generation capacity of 6,003 megawatts (MW), marking a record high for the nation. However, as of September 30, 2024, Nigeria’s total public debt increased to N142.3 trillion, partly attributed to the devaluation of the exchange rate. The Debt Management Office indicated that external debt rose slightly in dollar terms.

A “moderate debt level” is considered manageable, ensuring that a country’s debt does not severely hinder its financial obligation capabilities. Gopinath indicated that the IMF evaluates a nation’s debt sustainability annually, pointing out that Nigeria’s sovereign stress risk is moderate rather than high. Yet, she warned against accumulating excessive new debt.

Gopinath highlighted that 75 percent of Nigeria’s revenues currently fund interest payments, limiting resources for social support or development spending. To maintain manageable debt levels, Gopinath recommended enhancing domestic revenue mobilization and undertaking macroeconomic adjustments to reduce inflation.

IMF officials urged Nigeria to redirect savings from terminating fuel subsidies back into government revenue for developmental projects. Gopinath suggested improving tax administration and investing in digital solutions to boost revenue collection. Enforcing security, improving infrastructure, and enhancing the business climate were also emphasized as important measures for investment and growth.

In addressing monetary policy, Gopinath advised that the Central Bank of Nigeria (CBN) should maintain a tight monetary strategy to stabilize the naira and lower inflation. She stressed the necessity of aligning fiscal policies with inflation control and warned against financing fiscal deficits through central bank interventions.

Regarding the timeline for the current monetary policy, Gopinath stated that maintaining high interest rates is crucial for managing inflation. She urged patience as inflation rates decline slowly and warned against the premature declaration of victory over inflation to avoid setbacks.

Moreover, Gopinath reiterated the importance of targeted social interventions to combat rising living costs. The Finance Minister, Wale Edun, outlined Nigeria’s commitment to social investments, expanding tax reforms, and enhancing transparency in public finances.

The federal government noted that crude oil production has risen significantly, thus enhancing national revenue. Progress in private sector investments and reforms in the electricity sector were also discussed, highlighting the aim to optimize Nigeria’s power infrastructure to meet energy demands.

Recent achievements in power generation were accentuated as crucial milestones, supported by strategic reforms and policies, which aim to drive further growth and stability within the sector. The government’s tariff reforms are intended to ensure liquidity in the power sector, thereby attracting private investments for ongoing improvements.

The Finance Minister stressed the need for continuous cooperation among stakeholders to sustain the recent achievements within the power sector and pledged to address existing obstacles in electricity supply. Furthermore, planning for the upcoming National Council on Power conference was mentioned as vital to address pressing issues faced by the sector, reiterating the government’s commitment to resolving these challenges effectively.

The IMF has expressed confidence in Nigeria’s moderate debt levels, necessitating vigilant fiscal management to maintain economic stability. The recent record achievement in power generation highlights the government’s progress in energy reforms, signalling potential for economic growth. Ensuring sustainable fiscal policies and domestic revenue mobilization is crucial for addressing current challenges, with emphasis on collaborations to enhance investment and development in the country.

Original Source: www.arise.tv