IMF loans to the FGN, no thanks!

The managing director of the IMF, Christine Lagarde, said at the annual meetings of the Fund and World Bank in Washington on Thursday that concessional loans are available at zero interest rates. Different accounts indicate that the offer was available for developing or low-income countries. In Nigeria’s predicament, such support on a large scale might be tempting.  For example, it could borrow 145% of its quota of SDR2.45bn (US$3.40bn) annually under a stand-by arrangement, or 435% cumulatively.
The FGN has signed IMF credit agreements in the past, the latest being a stand-by in August 2000, but never drawn upon them.

If it was to accept the latest offer and draw down funds, it would see an improvement in its relations with other official creditors. Negotiations with the World Bank and the African Development Bank (AfDB) over financing of the 2016 budget deficit would run more smoothly.

The FGN would also find it easier to sell its forthcoming Eurobond issue, and enjoy some marginal pricing advantages. That said, it can sell the issue without an IMF loan, given the global investor chase after yield in emerging and frontier markets. Ghana has an embedded twin deficit and an IMF programme that is in difficulties if not off-course, and still got its issue away.

Nonetheless, we do not think that this will be the first Nigerian government to borrow from the Fund. Resistance was ideological when structural adjustment was central to IMF policy in the 1980s and 1990s, but has become more an issue of purported sovereignty.

The conditionality attached to an IMF loan is seen as more onerous than that in a credit from other multilateral agencies.

Exchange-rate policy and retail pricing of fuel are two contentious areas. The FGN has this year devalued and raised the ceiling for petrol (gasoline) prices. It acted in both cases not out of conviction but because there was no longer an alternative.

It happens that the Fund advocated both measures, albeit not from the rooftops. From our perspective, sovereignty is three parts illusion. However, the FGN does not want to test the waters with the electorate and does not share the Fund’s “free market” solution to the exchange-rate impasse.

The FGN may feel that other official creditors are less demanding. It may have a point although our sense is that the deficit financing talks with the World Bank have dragged on longer than it had hoped.

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