The International Monetary Fund (IMF) has asked Nigeria and many other emerging markets whose economies were hit by the Covid-19 pandemic to take more loans for quicker recovery.
In a report posted on the IMF website titled: Exiting the pandemic with minimal scarring will require policy action on several fronts. IMF Director of Research, Gita Gopinath, said more than 150 economies are expected to have per capita incomes below their 2019 levels in 2021 due to the impact of the pandemic.
The National Bureau of Statistics (NBS) data showed that Nigerian economy plunged into its second recession in the third quarter of 2020 following the adverse impact of the pandemic. It however exited recession in the fourth quarter of 2020 following 0.11 per cent marginal Gross Domestic Product (GDP) growth.
Gopinath said more than half of the emerging market and developing economies, which includes Nigeria, whose per capita incomes had been converging toward those of advanced economies over the past decade are expected to diverge over the next few years.
Some of policy actions to be taken, Gopinath said, include accessing more loans especially now that the interests on the loans have drastically reduced.
Averting the divergences in growth prospects and exiting the pandemic with minimal scarring will require policy actions on several fronts,” she said.
According to Debt Management Office (DMO) data, Nigeria’s total external debts stood at $33.34 billion as at December 31, 2020.
A breakdown of the debt statistics showed that Nigeria owes International Development Association $11.12 billion; Eurobonds, $10. 8 billion; IMF $3.53 billion; Exim Bank of China, $3.26 billion, among others.
Gopinath said many countries can ramp up spending by borrowing and still maintain debt at sustainable levels because of historically low borrowing costs that are expected to stay low for the foreseeable future.
She however advised that in countries with limited fiscal space, spending should be prioritized for health and transfers to the poor.
“International organizations and bilateral donors must ensure that these countries have adequate access to concessional financing and grants to support critical spending. Expanding the IMF’s Special Drawing Rights (SDRs), an instrument that was designed precisely for a global crisis like the one we are living through, should also be considered,” she said.
Continuing, Gopinath said that for the hardest-hit countries—especially those that entered the crisis with high levels of debt distress—globally coordinated measures to provide debt relief, and in some cases outright debt restructuring under the new Common Framework agreed to by the G20 countries, may be inevitable.
Also, nearly 90 million people are expected to fall into extreme poverty during 2020 and 2021, reversing the trend of the past two decades.
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The pandemic has not just inflicted short-term economic damage, it has left potentially long-lasting scars that can further exacerbate divergence.
She said that while the remarkable success in developing vaccines provides hope of conquering the pandemic, fresh waves of the disease and a mutating virus portend uncertain times and risky prospects for 2021.
On the medical front, she said advanced economies and some emerging market and developing economies have secured substantial doses of vaccine and initiated large vaccination drives that hold out hope for faster easing of containment measures and stronger recoveries.
The crisis has had not only health consequences, it has wreaked havoc on many livelihoods. While advanced economies have the fiscal space to extend widespread measures to support economically devastated households, other countries, especially those with scarce fiscal space, will face difficult trade-offs.
“To avert an even greater divergence in economic prospects, all countries must continue to support livelihoods and keep viable firms afloat until they are certifiably past the crisis. A chief concern is school closures, which threaten the livelihoods of a generation of children. These disruptions have been particularly costly in emerging market and developing economies, where remote learning is practically infeasible. Left unaddressed, this diminution of skills and educational attainment can have lifelong implications—exacerbating inequality and precipitating social unrest,” she said.
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