FG Should Be Careful On Ability To Pay Back Loans – Cardoso

The Central Bank of Nigeria (CBN) has issued a warning to Nigeria and other West African nations regarding the shifting trends in borrowing practices.

Traditionally, countries have relied on loans from the Paris Club, a group of creditor nations.

However, the CBN has observed a significant shift towards borrowing from non-Paris Club members and private lenders, such as banks and investors who buy government bonds.

The West African Institute for Financial and Economic Management (WAIFEM) has warned that Nigeria is at a high risk of falling into debt distress and has urged the federal government to look for ways to improve revenue generation.

In a recent event hosted by the Joint World Bank, IMF, and WAIFEM in Abuja, Governor of the CBN, Yemi Cardoso, emphasized that the way countries manage debt owed to the Paris Club may not be as effective for these new lenders.

He expressed concern that this new debt landscape could pose a threat to financial stability and economic recovery for many countries.

Dr. Mohammed Musa Tumala, Director of the Monetary Policy Department of the CBN, represented Governor Cardoso at the event and highlighted the increasing influence of significant debt servicing obligations to non-Paris Club members and private lenders.

While Nigeria is classified as having generally moderate debt risk, the country must remain cautious, particularly regarding potential liquidity risks stemming from weak revenue mobilization.

These risks, if not addressed effectively, could impact debt sustainability and economic stability.

Dr. Baba Yusuf Musa, Director General of WAIFEM, stated that while Nigeria’s overall debt risk is considered moderate, the country still needs to be careful about its ability to pay back its loans (liquidity risk).

This risk could become a problem if the government doesn’t collect enough revenue (money) in the future.

WAIFEM supports the federal government’s efforts to raise more revenue, as there is a window to do so.

Dr. Musa emphasized the need for people to support the government in diversifying the sources of revenue and generating more sources of revenue.

The Medium Term Debt Management Strategy (MTDS) is designed to smoothen debt service, minimize the cost, and manage the risks of future loans.

This strategy enables countries to consider their existing loan portfolio and redemption profile when making borrowing decisions.