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DMO refutes Nigeria’s debt assessment

Clara Nwachukwu

Nigeria’s Debt Management Office (DMO), has refuted a newspaper report on Wednesday, ranking the country among the top 10 highest debtors of the International Development Association (IDA), a member of the World Bank Group (WBG).

This comes as anxieties over Nigeria’s debt sustainability continue to rise regarding its ability to repay its foreign loans due to paucity of funds. The Debt Office had put the country’s exposure to the WBG at $11.51billion, comprising $11.10billion IDA loans, and $410.23million International Bank for Reconstruction and Development (IBRD) loans as of March 31. 

The DMO in a statement posted on its website, said: “The publication is not only false and misleading but also suggests an inadequate understanding of the essence of the World Bank Report. The World Bank’s report was an assessment of the performance of IDA and not the performance of the IDA loans or the debt repayment capacity of the beneficiaries of IDA loans.

“By way of explanation, the World Bank through IDA gives concessional loans to poor and developing countries to help them achieve improvements in growth, job creation, poverty reduction, governance, the environment, climate adaptation and resilience, human capital, infrastructure, and debt transparency.”       

It therefore reiterated that the World Bank’s Report was focused only on the composition of IDA’s Loan Portfolio and did not make any reference to the debt sustainability of the top 10 beneficiary countries of IDA Loans, which include India, Pakistan, Nigeria, Kenya and Ghana that was erroneously referred to as ‘high-debt risk nations.

The full year 2021 (FY21) IDA Statement, said: “As of June 30, 2021, the ten countries with the highest exposures accounted for 66% of IDA’s total exposure. IDA’s largest exposure to a single borrowing country, India, was $22 billion as of June 30, 2021.

“Monitoring these exposures relative to the single borrower limit (SBL), requires consideration of the repayment profiles of existing loans, as well as disbursement profiles and projected new loans and guarantees.”

The report had earlier explained that IDA produces credit risk ratings for all its borrowing countries, which reflect country economic, financial, and political circumstances, and also considers environmental, social and governance (ESG) risk factors.

IDA produces credit risk ratings for all its borrowing countries, which reflect country economic, financial, and political circumstances, and also considers environmental, social and governance (ESG) risk factors.

“Based on these risk ratings, to manage overall portfolio risk, the allocation outcomes of the performance-based allocation (PBA), and other mechanisms are reviewed to ensure that they are compatible with the Deployable Strategic Capital Framework and Single Borrower Limit,” it said.

The DMO further explained that IDA Loans are typically for Tenors of 30 – 40 years, with grace period (moratorium on principal repayment) of 7 – 10 years, and service Fee of only 0.75%. The highly concessional nature of IDA Loans satisfies the requirements of the provision of Section 41(1)(a) of the Fiscal Responsibility Act, 2007, which states that Government at all tiers shall only borrow on concessional terms with low interest rate and with a reasonably long amortization period. The cost of IDA Loans, which is the Service Fee of 0.75%, is considerably low thereby moderating the cost of debt service.

“The DMO wishes to state that Nigeria’s IDA’s Debt Stock as at June 30, 2021 was USD11.7 billion. IDA Loans represent one of the most favourable borrowing options for countries like Nigeria and is also consistent with the Medium Term Debt Management Strategy of the Federal Government,” the statement concludes.

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