IMF warns Nigeria against refinancing local debts with foreign loans

The International Monetary Fund (IMF) has warned the federal government any attempt to refinance local debts with low interest foreign facility will expose the economy to exchange rate risks.

Already, the economy has been suffering forex crisis since the last quarter of 2016 which has forced the Central Bank of Nigeria (CBN) to be on a momentary injection of forex.

The Minister of Finance, Mrs. Kemi Adeosun has been trying to convince Nigerian economist and industry stakeholders that the planned issue of $5.5bn debts by the end of the year, will go to refinancing existing domestic debts, especially Treasury bills.

Before the change in the use of the money, the Minister of Transportation, Mr. Rotimi Amaechi, had told Nigerian that whereas half of the facility will go into completing stranded power projects next year, the other will be used to complete ongoing railway schemes.

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But a twist emerged when Mrs. Adeosun changed the narrative, saying huge part of the expected facility will be used to service debts piled up during the last administration, thereby causing some levels of trust and confidence shocks.

The Director, African Department, IMF, Abebe Aemro Selassie had noted on Monday that “The IMF understands the authority’s need to rebalance its portfolio of domestic loan to foreign debt,” saying “Such a shift would, however, make the economy more vulnerable to exchange rate depreciation”.

Currently, the Federal Government is planning two issues, $2.5bn and $3bn, including a mix of Eurobonds and diaspora notes.

However, the country’s Eurobonds yielding an average of six per cent, almost nine percentage points less than pricing for naira bonds, the government expects to reduce its debt service costs, which the IMF sees almost tripling to about 62 per cent of revenue this year.