The International Monetary Fund (IMF) has urged central banks in Africa (including Nigeria) to take some important actions to manage spillovers of high public debt, while the central responsibility for public debt management lies with the finance ministry.
Countries in Africa have experienced a pronounced rise in sovereign debt, with average debt increasing by almost 20 percentage points of GDP between 2013 and 2018.
Nigeria’s total public debt grew marginally by 2.30 percent to N24.947 trillion (US$81.274 billion) as at March 31, 2019, compared to N24.387 trillion (US$79.437 billion) as at December 31, 2018, according to the Debt Management Office (DMO).
“Public debt has increased in Africa, but also across the world. Public debt ratios are now significantly higher than before the global financial crisis in all country groups; and emerging market and developing economies face notably higher interest burdens,” said Abebe Aemro Selassie, director, Africa Department, IMF.
Selassie said this in his remark at the Association of African Central Banks 2019 Symposium ‘Rising African Sovereign Debt: Implications for Monetary Policy and Financial Stability’, last week in Kigali, Rwanda.
He advised the participants to continue to strengthen the monetary policy framework by reinforcing the operational and financial independence of central banks and creating better accountability mechanisms, such as an explicit interest target and inflation objective.
Ayodele Akinwunmi, head, research, FSDH Merchant Bank Limited, said the Central Bank of Nigeria (CBN), through its monetary policy and within the limit of monetary policy framework, has maintained low inflation rate and exchange rate stability, thereby ensuring low interest rate.
Low interest rate regime, he said, has helped to reduce the interest expenses on the Federal Government debt in the face of its low revenue.
The CBN in March 2019 cut its benchmark interest rate by 50 basis points to 13.5 percent from 14 percent since July 2016.
Selassie advised a step-up of communication on the role of the central banks, which means tailoring it to different audiences, making it simple, and expanding its reach to a broader understanding of policy decisions and trade-offs.
Selassie told African central banks to address the bank-sovereign nexus reducing incentives for banks to hold government securities, for example, through changes to tax deductibility and exemptions and by applying macro-prudential policies.
They are to improve debt data collection to feed central bank forecasting, monitoring, and modelling efforts. In particular, they should broaden the coverage of debt statistics beyond the central government to give a more complete picture of fiscal vulnerabilities.
“Of course, there is no silver bullet. All these actions cannot ensure that central banks will be fully protected against government influences,” he said.
South Africa is a good example of a country where the central bank has come under scrutiny despite or perhaps because of its sound institutional framework.
“It seems to me that in a world where central banks have more independence, they can also become more exposed to criticism, and must redouble their efforts to ringfence their policymaking role to meet financial and monetary objectives,” he added.
HOPE MOSES-ASHIKE
