IMF flags Nigeria’s persistent borrowing despite high debt cost hurdles

Onome Amuge

The International Monetary Fund (IMF) has revealed that Nigeria and other frontier markets have remained heavily involved in the global debt market despite Nigeria’s rapidly escalating debt profile.

At the end of Q1/2024, the nation’s debt stood at $42.12 billion, according to the National Bureau of Statistics, yet the economy has continued to engage in vigorous debt market activity.

Tobias Adrian, the IMF’s financial counsellor and director of Monetary and Capital Markets, spoke on Nigeria’s and other frontier markets’ sustained participation in the global debt market during a press conference on the Global Financial Stability Report at the IMF/World Bank annual meetings in Washington DC.

Adrian disclosed that despite the surge in financing costs compared to pre-2021 levels, Nigeria and other frontier markets have continued to be active in the debt market throughout 2024.

“Frontier markets, including Nigeria, have been active in the debt market this year, and though access to financing is still more expensive than before, the overall issuance levels have been encouraging.

“On overall indebtedness, that is a challenge for some countries. As I mentioned earlier, frontier markets are developing economies with market access. And we have seen many frontier markets issue this year.

“The issuance levels are fairly high. And we think market access is there, though, of course, financing conditions have improved but are still more expensive than they were, say, in 2021, before the run‑up in inflation” he stated.

The IMF affirmed its backing for the recent monetary policy measures taken by the CBN, such as interest rate hikes and foreign exchange reforms, which have been introduced to stabilise the economy.

Adrian noted that the CBN’s shift towards inflation targeting and its endeavours to liberalise the exchange rate have proven vital in reining in inflation, which has remained stubbornly high at almost 30 percent.

Emphasising the importance of these measures, Adrian noted that, in the face of inflationary pressures exacerbated by natural disasters like the devastating floods, the CBN’s reforms have been essential for mitigating the negative impacts on the Nigerian economy and its people.

“For developing economies broadly, I would say that there are three priorities. In terms of financial stability, we are engaging with many countries in terms of building capacity on regulatory issues, so making sure that banks are well capitalized, that monetary policy frameworks are sound. And Nigeria is a good example, where the central bank has been moving toward an inflation‑targeting regime, has liberalized the exchange rate. And we welcome that direction,” he said.

The IMF believes that frontier market funding conditions are likely to improve in light of the recent trends in inflation and interest rates.

As Adrian noted, inflation has been showing signs of a slowdown, and interest rates are projected to return to more normal levels, which should lead to better financing conditions for frontier markets like Nigeria.