By Hamilton Nwosa(Head, The New Diplomat’s Business and data tracking desk)
Contrary to the expectations of many who had hoped that it was a conditionality-free $3.4 billion loan that was being handed over to Nigeria by the International Monetary Fund(IMF), the global financial institution on Wednesday detailed the conditions upon which the emergency loan was extended to Nigeria as a repayable lending.
The IMF’s Senior Resident Representative and Head of Mission in Nigeria, Amine Mati was quoted as saying it is a repayable loan with conditions premised on some conditions.The New Diplomat’s findings show that the loan of $3.4billion which is estimated to be about N1.3 trillion( when converted to Nigerian currency using Universal Currency Converter application) is coming with conditionalities attached. First, one of the conditions is that it is a repayable credit within five- year duration. Two, it has an interest rate of one per cent component.
Recall that in April this year when Nigeria’s Minister of Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, unveiled the Federal government’s decision to seek the financial help of the IMF she was quite categorical that there were no lending conditions attached to the requested IMF loan. In fact, there has been clarity of position that the IMF was coming up with a loan for Nigeria that is not tied to any specific lending terms as it was premised on helping Nigeria navigate herself out of the ravaging impact of covid-19.
In short, at a press briefing in Abuja, Mrs Ahmed was quoted by an Abuja digital newspaper as saying clearly that the loan from the IMF was not premised on any established or stated conditions.
She was quoted as saying: “The Federal Ministry of Finance is also reaching out to multilateral organisations where we have borrowed externally, either for the Federal Government itself, or on behalf of the States, to also negotiate a debt deferment or debt suspension.As a matter of fact, last week, we had a virtual meeting with all the African Ministers of Finance and agreed to collectively ask for the suspension of debt service obligations for 2020 and 2021. The World Bank and IMF that were in the meeting indicated to us that this is possible. We will be negotiating with them on the terms of those deferment.Nigeria has a contribution of $3.4 billion with the IMF, and we are entitled to draw up to the whole of that amount, no less. We have in the first instance applied for that maximum amount from the International Monetary Fund’s COVID-19 Rapid Credit Facility to draw from our existing holdings with the World Bank Group / International Monetary Fund. This loan will not be tied to any conditionalities.”
To some financial analysts, this is financial upset for Nigeria because the loan has now been predicated on certain conditionalities, a development that runs sharply in contrast with the thinking of the Federal government that “the loan will not be tied to any conditionalities.” Ayodele Rotimi, a financial and data analyst with one of the leading banks in Lagos said it is shocking that the IMF and the Federal government had a parallel line of thoughts on whether $3.4billion IMF loan is tied to conditions or not.
He said: “ Under normal circumstance, these ought to be well spelt out when you are negotiating for the loan. It is surprising that you have to pay back within five years and it is tied to one per cent interest rate. I think the Federal government should speak out on this because the Minister said in clear terms that there were no conditions attached to the loan. Perhaps that might have even formed the basis upon which the parliament or National Assembly might have approved of the request for loan because you need the approval of parliament as a Sovereign to take such a foreign loan or any foreign financial instrument at that. So the question is: What did the content of this request for this loan to the Senate say in precise terms? If it didn’t capture the details as provided for in the loan, i foresee a situation where some legal experts might take on the Federal Ministry of Finance and Budget to come clean, and establish to Nigerians that there hasn’t been any gafe here. Because it sounds absurd for the Finance Minister to say no conditions attached yet it then becomes evident that there are conditions.”
Recall that on account of the terrific effects of Covid-19 on the international economy especially as it affects developing countries, the IMF had approved an emergency loan for Nigeria. The credit facility is predicated on a number of dynamics including a rapid financing instrument to support the Federal Governments’s efforts in addressing the severe economic impact of the COVID-19 shock and the sharp fall in oil prices.
However, the dynamics indicate that once the impact of the COVID-19 shocks elapse, the authorities’ commitment to medium-term macroeconomic stability should remain crucial to support recovery and ensure that debt remains sustainable; and ensure that the Implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, remain crucial to boost growth over the medium term.; and as evident Buhari’s approval of the implementation of the Steve Oronsanye Committee report on rationalization of federal government agencies, is in alignment with the IMF governance requirements and metrics.
Other metrics indicate that steps should be taken towards a more unified and flexible exchange rate as they are crucial just as a unification of the exchange rate should be a subject matter of priority as indicated in the IMF report.
