The International Monetary Fund (IMF) has cautioned Nigeria and other developing countries from taking excessive loans from China to consider the terms of such facilities, especially, their compliance with the Paris Club arrangements.
The Rising corporate and government debt levels and the sharp increase in more risky lending could leave the global economy vulnerable to another severe downturn,
The IMF urged countries to take proactive steps, including limiting the amount of risky credit, boosting bank reserves and lowering government debt in the euro area, while China should continue to crack down on “shadow banking” by non-bank lenders.
Speaking on Wednesday at the ongoing IMF/World Bank Spring Meetings in United States of America, Director, IMF Monetary and Capital Markets Department, Tobias Andrian, said that there was nothing bad in borrowing from China, except that the terms of such loans are always questionable.
“Capital flows, which includes capital flows from China, are, of course, important for development. On the other hand, what is very important in lending arrangements are the terms of the loans and we urge countries to make sure that when they borrow from abroad, the terms are favourable. In particular, we recommend that loans to countries should conform with Paris Club arrangements and that is not always the case of loans from China,” Adrian said.
In particular, we recommend that loans to countries should conform with Paris Club arrangements and that is not always the case of loans from China,”
The funding conditions in economies such as Nigeria and other sub-Saharan African countries are very favourable but that may change at some point,” he said. The April 2019 Global Financial Stability Report finds that in spite of significant variability over the past two quarters, financial conditions remained accommodative.
As a result, financial vulnerabilities have continued to build in the sovereign, corporate, and non bank financial sectors in several systemically important countries, leading to elevated medium-term risks. Also, the IMF in the April 2019 Fiscal Monitor Report urged Nigeria to increase Value Added Tax, increase and expand the coverage of excise duties.
The IMF’s semi-annual Global Financial Stability Report found vulnerabilities are on the rise across advanced and emerging market economies, which could worsen if economies slow or if interest rates rise sharply, he said.
In the United States, the ratio of corporate debt to GDP is at record-high levels. In several European countries, banks are overloaded with government bonds,” Adrian said. The stock of lower-rated bonds — ranked BBB — have quadrupled over the past decade, while the amount of more risky debt, known as “speculative grade,” has doubled, according to the IMF report.