By Tony Obiechina, Abuja
A university lecturer and economic expert, Professor Uche Uwaleke has cautioned the Nigerian Government to be wary of the loan facility from the International Monetary Fund (IMF), aimed at supporting the country’s fight against the Coronavirus pandemic.
The IMF on Tuesday approved the sum of $3.4 billion to support Nigeria’s COVID-19 fight. The grant is the highest so far to support any member country.
The support called Rapid Financing Instrument (RFI), is granted to member countries that are not under any IMF programme.
But reacting to the development on Tuesday night, Uwaleke said government should apply wisdom in accepting the IMF credit facility.
In a statement made available to Prompt News in Abuja, Uwaleke, a former Head of Banking and Finance Department, Nasarawa State University, Keffi, stated why the country’s external debt burden has yet to reach a crisis point.
According to him, this is as a result of the fact that much of its $27.6 billion as of December 2019 has come from multilateral sources which are chiefly concessional in nature.
Prof Uche Uwaleke
Full text of the statement reads:
“Regarding the COVID-19 credit facility from the IMF, the government should be as wise as a serpent. That the country’s external debt burden has not reached crisis point is 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.
“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 period 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 tenured 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.
“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”.
