IMF Cautions Nigeria Against Misusing Borrowed Funds

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The logo of the International Monetary Fund (IMF) at the organization's headquarters in Washington, DC, May 16, 2011. The organization's director, Dominique Strauss-Kahn, faced arraignment in New York earlier Monday on allegations of sexual assault. AFP PHOTO / Saul LOEB

BY BAYO AMODU, MARK ITSIBOR, ABUJA and BUKOLA IDOWU, Lagos

The International Monetary Fund (IMF) yesterday cautioned Nigeria against misusing borrowed fund saying the growth being experienced in the country and others will be at risk if the funds borrowed are not used judiciously.

IMF while unveiling the Global Financial Stability report at its headquarters in Washington, yesterday said, “External borrowing in emerging markets and low-income countries have increased,” Tobias Adiran, financial counsellor and director of monetary and capital market of the organisation said.

He said: “Portfolio inflows to emerging markets economies are on track to reach $300 billion in 2017, more than twice the totals over the past two years. This is broadly good news, supporting growth prospects in these countries. But this greater reliance on foreign borrowing may at some point become a vulnerability, if these resources are not put to good use.”

He said it is relatively easy for Sub-Saharan African countries to get funding and debt issuance in these countries have been at high levels.

“Funding for Sub Saharan African countries have very favourable conditions in fact debt issuance in Sub Saharan Africa has been at very high levels. The key question is how are those funds used by those countries? Are countries using those funds in order to ensure financial stability and ensure sustainable outlook?” he asked.

Also, IMF Managing Director Christine Lagarde has urged global leaders not to reject international trade as policy shifts by Washington and London force resets on major global commercial treaties.

Lagarde admitted that the rapid lowering of trade barriers in recent decades had caused significant dislocation, including job losses, downward pressure on wages and higher inequality in both developing and advanced economies.

“The best policy response to all these challenges is not to turn our back on trade,” Lagarde told a conference on globalization in Washington.

“Instead, we need to redouble our efforts to create a more inclusive global trading system that works for all.”

Speaking ahead of the annual International Monetary Fund and World Bank meetings on the global economy, Lagarde did not single out the views of any specific countries or leaders on trade.

But her remarks followed a year in which Britain acted to withdraw from the European Union and US President Donald Trump killed the nascent Trans Pacific Partnership treaty and ended talks on the ambitious Transatlantic Trade and Investment Partnership that were initiated by his predecessor Barack Obama.

Trump has also forced a renegotiation of the North American Free Trade Association with partners Mexico and Canada. A new round of talks on redoing NAFTA began Wednesday, with Washington pressing its partners for more benefits for US workers from the treaty.

Lagarde said that with stronger global economic growth, governments now have an opportunity to secure the benefits of international trade.

Globalization “has fostered a sharp decline in global income inequality — that is inequality between countries,” she said.

“Living standards have been boosted in all countries, including in advanced economies, where consumers and businesses are benefiting from lower prices and a greater variety of goods.”

She conceded that there are “negative side-effects” with globalization, as local industries get hit from competition, with some social upheaval the result.

“Despite these challenges, citizens in emerging economies generally take a more favorable view of trade and its labor market impact,” Lagarde said.

“Why? Because their incomes have been growing, even in the bottom deciles of the income distribution.”

World Bank Projects 2.4% Economic Growth For Africa

Meanwhile, economic growth in Sub-Saharan Africa is recovering at a modest pace, and is projected to pick up to 2.4 per cent in 2017 from 1.3 per cent in 2016, according to the new Africa’s Pulse, a bi-annual analysis of the state of African economies conducted by the World Bank. This is below the April forecast of 2.6 per cent.

This rebound is led by the region’s largest economies: Nigeria and South Africa. The report said Nigeria’s pulling out of a five-quarter recession and South Africa emerged from two consecutive quarters of negative growth are major contributors to the rebound. World Bank said improving global conditions, including rising energy and metals prices and increased capital inflows, have helped support the recovery in regional growth.

However, the report warns that the pace of the recovery remains sluggish and will be insufficient to lift per capita income in 2017.

Growth continues to be multispeed across the region. In non-resource intensive countries such as Ethiopia and Senegal, growth remains broadly stable supported by infrastructure investments and increased crop production. In metal exporting countries, an increase in output and investment in the mining sector amid rising metals prices has enabled a rebound in activity.

“Most countries do not have significant wiggle room when it comes to having enough fiscal space to cope with economic volatility. It is imperative that countries adopt appropriate fiscal policies and structural measures now to strengthen economic resilience, boost productivity, increase investment, and promote economic diversification,” notes World Bank Chief Economist for Africa, Albert Zeufack yesterday.

Looking ahead, Sub-Saharan Africa is projected to see a moderate increase in economic activity, with growth rising to 3.2 per cent in 2018 and 3.5 per cent in 2019 as commodity prices firm and domestic demand gradually gains ground, helped by slowing inflation and monetary policy easing. However, growth prospects will remain weak in the Central African Economic and Monetary Community (CEMAC) countries as they struggle to adjust to low oil prices.

The economic expansion in West African Economic and Monetary Union (WAEMU) countries is expected to proceed at a strong pace on the back of solid public investment growth, led by Côte d’Ivoire and Senegal.

“The outlook for the region remains challenging as economic growth remains well below the pre-crisis average,” says World Bank Lead Economist and lead author of the report, Punam Chuhan-Pole. “Moreover, the moderate pace of growth will only yield slow gains in per capita income that will not be enough to harness broad-based prosperity and accelerate poverty reduction.”

Analysis by the group shows that rising capital accumulation has been accompanied by falling efficiency of investment spending in countries where economic growth has been less resilient to exogenous shocks. This suggests that the inefficiency of investment—which reflects insufficient skills and other capabilities for the adoption of new technologies, distortive policies, and resource misallocation, among other things—will need to be reduced if countries are to capture fully the benefits of higher investment.

As African countries seek new drivers of sustained inclusive growth, attention to skills building is growing. The Africa’s Pulse report dedicates a special section to analyzing how African countries, through smarter investments in foundational skills for children, youth, and adults, can leverage spending to achieve better learning outcomes that will simultaneously enhance productivity growth, inclusion, and the adaptability of Africa’s workers to the demands of today’s markets and those of the future.