Nigeria and other developing economies may benefit from debt restructuring if discussions at the 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. It examined debt sustainability and debt restructuring challenges and ways to address them.
The meeting agreed on the importance of urgently improving information sharing, including macroeconomic projections and debt sustainability assessments at an early stage. The IMF and World Bank also said they will rapidly issue staff guidance on information sharing at each step of the restructuring process.
It also discussed the role of Multilateral Development Banks (MDBs) in restructuring through the provision of concessional finance. Grants to countries facing higher risks of debt distress were also welcomed.
NIGERIA SET TO BENEFIT FROM DEBT RESTRUCTURING
The IMF said to facilitate the process, it will 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 global concerns over growing debt levels, especially in 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 forty-six point two trillion nairas at twenty-three per cent of its GDP, within the forty per cent limit imposed by the country and fifty-five per cent recommended by the World Bank and IMF.
However, the debt service ratio has remained challenging, with the debt service to revenue ratio at seventy-three per cent. This position has been mainly due to dwindling revenue.
A debt restructuring will allow benefiting countries to renegotiate the terms of their loans with creditors and provide a reprieve in terms of repayment timelines.
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