…Says facility may return Nigeria to SAP era
..Queries FG’s choice of RFI instead of RCF
…Loan contravenes Fiscal Act
By Michael Eboh
Respected economic analyst and Professor of Finance and Capital Markets, Mr. Uche Uwaleke, Wednesday, faulted the Federal Government’s decision to borrow $3.4 billion under the Rapid Financing Instrument (RFI) of the International Monetary Fund, IMF, warning that it might plunge the country into a debt trap and jeopardize economic recovery efforts post the COVID-19 pandemic.
In his reaction to the loan granted Nigeria by the IMF, Uwaleke, who an economist and also former Commissioner of Finance in Imo State, noted that the government’s effort at mustering every resource in the fight against the COVID-19 pandemic should be encouraged, noting, however, that the conditions associated with the facility could plunge the country into another debt crisis.
He said, “Regarding the COVID-19 credit facility from the IMF, the government should be as wise as a serpent. That the country’s external debt burden has not reached crisis point is apparently due to the fact that much of its $27.6 billion as of December 2019 has come from multilateral sources which are chiefly concessional in nature — long tenor with low interest rate.
“While an additional soft credit line of $3.5 billion which the government hopes to get from the World Bank ($2.5 billion) and the African Development Bank ($1 billion) to wage COVID-19 war stands to reason, the same cannot be said of another $3.4 billion loan from the IMF for obvious reasons.
“First, it is a non-concessional loan with commercial terms being disbursed under the IMFs Rapid Financing Instrument (RFI) which, in addition to a basic interest rate charge, attracts a commitment fee, service charge and a surcharge on outstanding credit.
“The facility is for a short period due within three and one quarter to five years, which means repayment will be done in eight quarterly instalments, starting third quarter 2023 assuming disbursement is made before end of second quarter 2022.”
RFI against RCF
Uwaleke, who is Professor of Finance and Capital Markets at the Nasarawa State University, Keffi, further queried the decision of the government to access the funds under the RFI, as against the Rapid Credit Facility (RCF), which according to him, has zero interest rate and longer maturity period.
According to him, the RFI of the IMF, under which we are taking the loan, is not designed to finance capital projects but only to address Balance of Payment (BOP) challenges which must be why the condition also states that any country receiving RFI loan is required to cooperate with the IMF in solving its BOP difficulties.
Return to SAP era
He said, “Against this backdrop and bearing in mind the country’s painful experience with the Fund during the Structural Adjustment Programme (SAP) era, the government is expected to make public the full cost implications beyond disclosing that a full-fledged program with the Fund won’t be necessary.
“It will also be interesting to know why Nigeria is not going through the IMF Rapid Credit Facility (RCF) window, just like Ghana that accessed $1 billion, considering that financing under RCF carries zero interest rate, has a grace period of five and half years and a maturity of 10 years.
“While the government is encouraged to muster every resource in the fight against the pandemic, entering into a debt trap will clearly jeopardize economic recovery effort post COVID-19.”
Loan contravenes Fiscal Responsibility Act
Uwaleke further stated that the loan currently contravenes Section 41 of the 2007 Fiscal Responsibility Act, which stipulates how such facility can be deployed.
He said, “Secondly, except the relevant section is amended by the National Assembly, the IMF loan, unlike the long tenored concessional facilities from the World Bank and African Development Bank, contravenes Section 41 of the 2007 Fiscal Responsibility Act which requires that the government can only go for long term concessional loans for capital expenditure.”
The board of the IMF, had on Tuesday, approved Nigeria’s request for $3.4 billion emergency support to address the severe impact of the COVID-19. The IMF, however, insisted that the Federal Government must be committed to medium-term macroeconomic stability to support economic recovery and ensure the country’s debt remains sustainable.
The $3.4 billion loans from IMF is part of $6.9 billion loans Nigeria is seeking from international lenders to enhance its efforts to tackle the impact of the COVID-19 pandemic on the government revenue and the economy in general.
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