Says Eurobonds shouldn’t be main source of financing

In order to effectively absorb the impact of their slowest growth in more than two decades, Nigeria and other African exporters of oil and commodities should remove subsidies and boost taxes, the International Monetary Fund (IMF) said yesterday.

The Fund has also stated that African nations needed to balance commercial debt, such as Eurobonds, with other cheaper forms of financing from development institutions.

According to Reuters, the Director of IMF’s African Department, Abebe Selassie, said growth could start to recover next year to three per cent, but only if the battered economies carry out fiscal reforms. The news agency quoted Selassie as saying: “Should they fail to do that, vulnerabilities will heighten and the crisis of the weak economic performance we have seen so far will get even more difficult.”

The IMF cut its 2016 growth forecast for Sub-Saharan Africa to 1.4 per cent, from 3 per cent in May, as the drop in commodity prices impacted countries such as Nigeria and Zambia.

African economic growth was more than 5 per cent in the decade leading up to the commodity price slump, but it is now being dragged lower by 23 resource-dependent nations like Nigeria, South Africa and Angola.

While average growth was 3 per cent last year, countries that are more diversified like Rwan da and Senegal will continue to grow at more than 5 per cent. Nigeria, which is in its first recession for more than 20 years, has been seeking to widen its tax base, to offset lower revenues caused by the slump in oil prices.

Selassie said Nigeria’s low debt was a source of strength, adding officials needed to offer more certainty through a “coherent and consistent policy package”.

He noted: “Fuel subsidies take out huge amounts of government resources and generally also they tend to be very regressive.” Selassie said African nations needed to balance commercial debt like Eurobonds, with other cheaper forms of financing from development institutions.

Eurobonds “cannot be the main source of financing for countries. It can complement other forms of financing and importantly, you want to minimize the deficit financing,” he stated.

The Minister of Finance, Mrs. Kemi Adeosun, said last week that the Federal Government was optimistic of selling a Eurobond worth around $1billion before the end of the year and was in the process of appointing managers for the transaction.

The Eurobond is part of the country’s plans to borrow a total of N1.8trillion ($5.8billion) from abroad and locally to fund an expected budget deficit of N2.2trillion this year.