IMF Senior Country Director, Mr Amine Mati, on Wednesday in Abuja explained that the “$3.4 billion is a loan”
“It is a loan of five years, with one percent interest rate which is one twelfth of what international capital market charges right now and the repayment starts in three and a quarter year and to be completed after five years in eight quarterly disbursements,” he said.
Mati said the loan approved by IMF executive board on Tuesday will be disbursed within the week.
Reacting to the development, Uwaleke who is a professor of finance who hailed “an additional soft credit line of $3.5 billion which the government hopes to get from the World Bank and African Development Bank 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 tenored 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.
Although Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed said the loan was without normal IMF conditions, Deputy Managing Director and Acting Chair, Mr. Mitsuhiro Furusawa said on Tuesday mentioned some conditions attached.
According to him, Nigeria must take steps toward a more unified and flexible exchange rate while unification of the exchange rate should be expedited.
“Once the COVID-19 crisis passes, the focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending.
“Implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, remains crucial to boost growth over the medium term.
“The emergency financing under the RFI will provide much needed liquidity support to respond to the urgent BOP needs. Additional assistance from development partners will be required to support the government’s efforts and close the large financing gap.
“The implementation of proper governance arrangements—including through the publication and independent audit of crisis-mitigating spending and procurement processes—is crucial to ensure emergency funds are used for their intended purposes.”
