Nigeria and other developing economies may benefit from debt restructuring if discussions at the US-hosted Spring meeting of the IMF and World Bank are anything to go by.
This followed a meeting of the Global Sovereign Debt Roundtable (GSDR), which comprises the IMF, World Bank, G-20, official bilateral creditors like China, France and private sector representatives, which examined debt sustainability and debt restructuring challenges and ways to address them.
The meeting agreed on the dire need to urgently improve information sharing including on macroeconomic projections and debt sustainability assessments at an early stage of the process.
It also discussed the role of Multilateral Development Banks (MDBs) in the process for restructuring through the provision of concessional finance and grants to countries facing higher risks of debt distress.
The IMF said that in order to facilitate the process, it would provide clarity to key concepts, such as predictability and fairness of debt restructuring processes, how to assess and enforce comparability of treatment, principles regarding cut-off dates, formal debt service suspension, treatment of arrears, and volume of debt to be restructured, including with regards to domestic debt.
The IMF had raised concerns over growing debt levels globally, especially by the US and China. As part of policy measures to counter this, it suggested fiscal tightening, to allow monetary policy to lower inflation ‘without such sharp increases in interest rates.
Nigeria’s current debt level stands at N46.2 trillion at 23% of its GDP, and within the 40% limit imposed by the country and 55% recommended by the World Bank and IMF.
However, debt service ratio has remained a challenge with the debt service to revenue ration at 73%.
A debt restructuring will allow benefiting countries renegotiate the terms of their loans with creditors and provide a reprieve in terms of repayment timelines.
Writing by Biodun Dare; Editing by Oluwaseyi Ajibade and Tony Okerafor