The International Monetary Fund (IMF) has warned that a significant reduction in foreign lending to Nigeria and other African countries is imminent, as the global economy continues to suffer further shocks and contractions.
The IMF Deputy Department Head, Wenjie Chen, served the notice in a keynote speech at the International Monetary Fund’s Regional Economic Review held in Lagos on Tuesday.
Chen noted that uncertainty about the global economic environment is causing a decline in loans from China and other developed economies to Africa.
“We see that practically all frontier markets have been cut off from the Eurobond markets since spring 2022. This means they cannot get funding from these international markets. The Eurobond market has been an important part of financing these countries.
Borrowing costs, high interest rates, and the rising value of the dollar continue to weigh on the economy of Nigeria and its sub-Saharan African counterparts.
The region’s public debt ratio has doubled over the past decade as high interest rates increase debt servicing costs for many African countries which must now prioritise key sectors that will drive growth of internally generated revenues.
The IMF’s Representative to Nigeria, Ari Aisen, said that given limited access to finance, it will be crucial for Nigeria to rely on domestically generated funds to grow its economy and encouraged good macroeconomic policies for the private sector to thrive.
“In Nigeria, we still believe that growth could be much higher, but due to the post-pandemic turmoil and the food price shock caused by the Russo-Ukrainian war, the economy has managed to grow by 3%. We expect 3.2 (this year).
“It could be higher. Services, which are the main growth driver on the supply side of the economy, contribute to this. Also the oil sector has not contributed as much as it should have, partly due to investment in the sector and partly due to pollution, particularly oil thefts,” he said.
Managing a decline in foreign loans requires a comprehensive and strategic approach that involves both short-term and long-term solutions.
It would require a combination of efforts from the government, private sector, and other stakeholders to address the underlying issues and create a more sustainable economic future for Nigeria.
Nigeria’s President-elect, Bola Ahmed Tinubu, expected to take over the helms of affairs on May 29, will, undoubtedly inherit a complex and challenging task of diversifying the economy, encouraging domestic investment, promoting fiscal discipline and negotiating favourable loan terms.