Stop Borrowing! World Bank Warns Nigeria
The World Bank has cautioned Nigeria and other African nations against excessive debts, urging a balance between massive spending for development on the one hand and moderation in borrowing on the other.
Chief Economist for African Region, Albert Zeufack, spoke on the latest update on the continent’s economy, Africa’s Pulse, via webcast from the bank’s headquarters in Washington DC, USA, yesterday.
“What is good for Nigeria is that debt to the GDP ratio is still low but the debt to revenue ratio is already high.
“The environment of weak economic growth comes at a time when the continent is in dire need of necessary reforms to boost investment and tackle poverty. Countries also have to undertake much-needed development spending while avoiding increasing debt to unsustainable levels. “Fiscal restructuring is going to be challenging and the government has to be careful in order to balance efforts to develop the country with a moderation in borrowing.”
Responding to questions from Nigeria, the Chief Economist admitted that the libralisation of the exchange rate, being advocated by some international organizations, could create inflationary pressures but that with tightening of monetary policies, inflation would reduce.
Zeufack stressed the need for continuous investments in the nation’s infrastructure and those of other African countries, noting the existing of very wide gaps.
“It is important we continue to invest and investment is possible to crowd in private sector if you create the right regulatory environment,” he said.
With massive investments in the region, the Chief Economist said, more jobs would be created and would enhance intra-regional trade which, in turn, would result in accelerating the growth of the economies of African countries.
According to him, after registering the worst decline in more than two decades in 2016, economic growth in Sub-Saharan Africa is rebounding and would hit a 2.6 per cent growth rate this year.
“The region is showing signs of recovery, and regional growth is projected to reach 2.6 per cent in 2017. However, the recovery remains weak, with growth expected to rise only slightly above population growth, a pace that hampers efforts to boost employment and reduce poverty.”
He, however, described it as “a weak growth” and that “the per capita income growth remained negative because the growth does not keep pace with the population growth rate.”
Despite impressive growth in seven countries across Africa, the World Bank has said Nigeria, South Africa and Angola, remained the largest economies on the continent.
“The region is showing signs of recovery, and regional growth is projected to reach 2.6% in 2017. However, the recovery remains weak, with growth expected to rise only slightly above population growth, a pace that hampers efforts to boost employment and reduce poverty,” World Bank said.
“Nigeria, South Africa, and Angola, the continent’s largest economies, are seeing a rebound from the sharp slowdown in 2016, but the recovery has been slow due to insufficient adjustment to low commodity prices and policy uncertainty.
World Bank Lead Economist and the author of the report Africa’s Pulse, Punam Chuhan-Pole, in her remarks, called for inclusive growth as a means of fighting poverty on the continent.
In her words: “With poverty rates still high, regaining the growth momentum is imperative. Growth needs to be more inclusive and will involve tackling the slowdown in investment and the high trade logistics that stand in the way of competitiveness.”
Meanwhile, the International Monetary Fund, IMF, has said 66 percent of Nigeria’s tax revenues is spent on servicing debts, calling on the country to raise taxes.
Speaking at the IMF Fiscal Monitor briefing in Washington, yesterday, Vitor Gaspar, director of the fund’s Fiscal Affairs department, said he was happy the Nigerian government now sees taxation as a path to development.
“I had the privilege of visiting Nigeria some months ago and I was very happy to understand that for the authorities in Nigeria, fiscal policies in general and tax policy in particular are part of the strategy for development,” he said.
“That is precisely how I believe fiscal policy should be thought in developing countries as part of the development strategy.”
Catherine Patillo, Assistant Director and Chief of Fiscal Policy and Surveillance Division of the IMF, said Nigeria needs strong fiscal consolidation and improved taxation, stating that revenue-to-interest ratio is on the increase.