By Etuka Sunday
Nigeria’s first Capital Market Professor, Uche Uwaleke has advised the Federal Government to be wise as serpent with $3.4billion loan facility from the International Monetary Fund (IMF).
Recall, IMF Board approved the federal government’s $3.4billion Emergency loan to combat the dreaded Coronavirus (COVID-19) pandemic in the country.
IMF Managing Director, Kristalina Georgieva was quoted to have said, that the loan would support Nigeria’s efforts to limit the effect of the COVID-19 and the sharp fall of oil prices.
Meanwhile, Prof. Uwaleke said, “regarding the COVID-19 credit facility from the IMF, the government should be as wise as a serpent” saying that the fact the country’s external debt burden has not reached crisis point was 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.
He noted that: “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 perod due within three and one quarter to 5 years which means repayment will be done in eight quarterly instalments starting Q3 2023 assuming disbursement is made before end of Q2 2020.
“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 Dev 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,” he said.
The Capital Market Professor explained that, “the RFI of the IMF, under which we are taking the loan, is not designed to finance capital projects but only to address 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.
“Against this backdrop and bearing in mind the country’s painful experience with the Fund during the 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 5 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,” he said.