scholarly journals Rising External Debt Burden, Increase Financial Stability Risk; the Need for Fiscal Adjustment in Nigeria

2021 ◽  
pp. 33-43
Author(s):  
Adamgbo, Suka ◽  
Kenn-Ndubuisi, Juliet Ifechi* ◽  
Toby, J. Adolphus
Keyword(s):  
Low Income ◽  
Financial Stability ◽  
External Debt ◽  
Low Income Countries ◽  
Fiscal Responsibility ◽  
Debt Sustainability ◽  
Debt Burden ◽  
Fiscal Adjustment ◽  
Analysis Technique ◽  
The Imf

The study examines the rising external debt burden, increased financial stability risk; the need for fiscal adjustment. Given that economic sustainability is the prime desire of every economy and considering the continuous accumulation of external borrowings. Our main focus is to investigate the fiscal vulnerability and debt sustainability position of the Nigerian economy. To find out whether the country’s present fiscal position is sustainable? Has the substantial external borrowings in the last two decades of uninterrupted democratic rule significantly supported the growth path of the Nigeria economy? If not, there is need for fiscal adjustment. Our period of investigation spans from 1999 to 2019. Data estimated using the time series based from CBN, Federal Ministry of Finance, IMF/World Bank publications. In analyzing the country’s debt burden/vulnerability, we applied the IMF debt burden indicators under the debt sustainability framework (DSF) for low income countries. Using the descriptive statistic, the study also employed the regression analysis technique to exploits the cause and effect relationship between the nation’s present debt stock, debt servicing obligation and the nominal as well the real economic growth rate. Our findings revealed the following; (i) using the percentile analysis and comparing it with the major debt sustainability bench marks under the IMF/Work Bank specifications, the country’s debt sustainability position was very negligible. The Nigerian situation shows debt sustainability position that fell below the bench marks (ii) the results of our finding also indicates a negative statistically significant relationship that exists between debt stock, servicing payment and both the nominal and real GDP. Based on our results, we concluded that the present fiscal vulnerability position of the country if not checked or curtailed through fiscal adjustment would amount to increasing the financial stability risk capable of causing deterioration in the functioning of the economy. We therefore, suggest amongst other measures that all should be aimed at improving and or enhancing monetary restrains, debt contraction restrains as well evolving and improving existing rules toward achieving fiscal responsibility and discipline.

Review of the Debt Sustainability Framework for Low Income Countries

Policy Papers ◽  
2017 ◽  
Vol 17 ◽  
Author(s):  
Keyword(s):  
Low Income ◽  
Stress Test ◽  
External Debt ◽  
Low Income Countries ◽  
Debt Sustainability ◽  
Debt Burden ◽  
The Core ◽  
Sustainability Framework ◽  
Test Scenarios ◽  
Capacity Estimates

The Debt Sustainability Framework for Low-income Countries (LIC DSF) has been the cornerstone of assessments of risks to debt sustainability in LICs. The framework classifies countries based on their assessed debt-carrying capacity, estimates threshold levels for selected debt burden indicators, evaluates baseline projections and stress test scenarios relative to these thresholds, and then combines indicative rules and staff judgment to assign risk ratings of external debt distress. The framework has demonstrated its operational value since the last review was conducted in 2012, but there are areas where new features can be introduced to enhance its performance in assessing risks. Against the backdrop of the evolving nature of risks facing LICs, both staff analysis and stakeholder feedback suggest gaps in the framework to be addressed. Complexity and lack of transparency have also been highlighted as causes for concern. This paper proposes a set of reforms to enhance the value of the LIC DSF for all users. In developing these reforms, staff has been guided by two over-arching principles: a) the core architecture of the DSF—model-based results complemented by judgment—remains appropriate; and b) reforms should ensure that the DSF maintains an appropriate balance by providing countries with early warnings of potential debt distress without unnecessarily constraining their borrowing for development.

Borrowing for Growth: Big Pushes and Debt Sustainability in Low-Income Countries

2019 ◽  
Author(s):  
Luis-Felipe Zanna ◽  
Edward F Buffie ◽  
Rafael Portillo ◽  
Andrew Berg ◽  
Catherine Pattillo
Keyword(s):  
Low Income ◽  
Public Investment ◽  
Low Income Countries ◽  
Debt Contracts ◽  
Debt Sustainability ◽  
Fiscal Adjustment ◽  
Domestic Debt ◽  
Big Push ◽  
The Impact ◽  
New Framework

AbstractThe paper evaluates big push borrowing-and-investment programs in a new model-based framework of debt sustainability that is explicitly designed for policy analysis. The new framework is grounded in a fully-articulated, dynamic macroeconomic model. It allows for financing schemes that mix concessional, external commercial, and domestic debt, while taking into account the impact of public investment on growth and constraints on the speed and magnitude of fiscal adjustment. Supplementing concessional loans with nonconcessional borrowing in world capital markets is generally a high-risk, high-return strategy. It may greatly enhance the prospects for debt sustainability or lead to spectacular failure; much depends on the fine details governing debt contracts, the dynamics of growth, and the speed of fiscal adjustment.

A Review of Some Aspects of the Low-Income Country Debt Sustainability Framework

Policy Papers ◽  
2009 ◽  
Vol 09 ◽  
Author(s):  
Keyword(s):  
Low Income ◽  
Income Country ◽  
Low Income Countries ◽  
Preventive Action ◽  
Debt Sustainability ◽  
Low Income Country ◽  
Debt Burden ◽  
Development Goals ◽  
Lending Decisions ◽  
Sustainability Framework

The Bank-Fund Debt Sustainability Framework (DSF) is a standardized framework for analyzing debt-related vulnerabilities in low-income countries (LICs). It aims to help countries monitor their debt burden and take early preventive action, to provide guidance to creditors in ensuring their lending decisions are consistent with countries’ development goals, and to improve the Bank and Fund’s assessments and policy advice. The DSF was last reviewed in 2006, and a reconsideration of some aspects of the framework is timely.

Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries

Policy Papers ◽  
2013 ◽  
Vol 2013 (41) ◽  
Author(s):  
Keyword(s):  
International Development ◽  
World Bank ◽  
Low Income ◽  
External Debt ◽  
Low Income Countries ◽  
Debt Sustainability ◽  
Guidance Note ◽  
Bank Staff ◽  
Development Objectives ◽  
Sustainability Framework

Low-income countries (LICs) face significant challenges in meeting their development objectives while at the same time ensuring that their external debt remains sustainable. In April 2005, the Executive Boards of the International Monetary Fund (IMF) and the International Development Association (IDA) endorsed the Debt Sustainability Framework (DSF), a tool developed jointly by IMF and World Bank staff to conduct public and external debt sustainability analysis in low-income countries. The DSF aims to help guide the borrowing decisions of LICs, provide guidance for creditors’ lending and grant allocation decisions, and improve World Bank and IMF assessments and policy advice.

Revisiting the Debt Sustainability Framework for Low-Income Countries

Policy Papers ◽  
2012 ◽  
Vol 2012 (98) ◽  
Author(s):  
Keyword(s):  
World Bank ◽  
Low Income ◽  
External Debt ◽  
Low Income Countries ◽  
Bank Debt ◽  
Debt Sustainability ◽  
Analytical Work ◽  
Grant Allocation ◽  
Sustainability Framework ◽  
Allocation Decisions

Introduced in 2005, the joint IMF-World Bank Debt Sustainability Framework (DSF) is a standardized framework for conducting public and external debt sustainability analysis (DSA) in low-income countries (LICs). It aims to help guide the borrowing decisions of LICs, provide guidance for creditors‘ lending and grant allocation decisions, and improve World Bank and IMF assessments and policy advice. The framework was previously reviewed in 2006 and 2009. This paper provides a comprehensive review of the framework to assess whether it remains adequate in light of changing circumstances in LICs. It reviews the DSF‘s performance to date, presents the results of recent analytical work by IMF and World Banks staffs, and discusses a number of areas in which the framework could be improved.

Operational Framework for Debt Sustainability Assessments in Low-Income Countries - Further Considerations

Policy Papers ◽  
2005 ◽  
Vol 2005 (27) ◽  
Author(s):  
Keyword(s):  
Low Income ◽  
Low Income Countries ◽  
Debt Sustainability ◽  
Debt Burden ◽  
Original Proposal ◽  
Hipc Initiative ◽  
Sustainability Assessments ◽  
Evaluation Of Policies ◽  
Forward Looking

Building on initial discussions of the proposed framework in February/March 2004, and further considerations in September 2004, this paper responds to remaining concerns that need to be resolved to make the framework operational. These concerns relate to the indicative debt-burden thresholds (Section II); the interaction of the framework with the HIPC Initiative (Section III); and the modalities for Bank-Fund collaboration in deriving a common assessment of sustainability (Section IV). This note should be read in conjunction with the original proposal, which presented the wider issues on the use of the indicative thresholds, the evaluation of policies and institutions, and the need for discretion when assessing sustainability on a forward-looking basis.

Unification of Discount Rates Used in External Debt Analysis for Low-Income Countries

Policy Papers ◽  
2013 ◽  
Vol 2013 (26) ◽  
Author(s):  
Keyword(s):  
Discount Rate ◽  
Low Income ◽  
External Debt ◽  
Low Income Countries ◽  
Discount Rates ◽  
Present Value ◽  
Debt Sustainability ◽  
Joint Product

This paper proposes reforms to the discount rates used by the Bank and the Fund to (a) calculate the present value (PV) of the external debt of low-income countries (LICs) in debt sustainability analyses (DSAs) and (b) to calculate the grant element of individual loans. Consistent with the conclusions of the March 2013 review of the Fund’s debt limits policy, the paper proposes a single uniform discount rate to be used for these related operational purposes. It has been prepared as a joint product of Bank and Fund staff, with the exception of the decision, which is Fund-specific.

IMF activities as a provider of financial assistance to the countries affected by the COVID-19 pandemic

2021 ◽  
pp. 137-146
Author(s):  
М.Б. Медведева ◽  
Л.И. Хомякова ◽  
А.Д. Зверева
Keyword(s):  
Low Income ◽  
Debt Relief ◽  
Financial Assistance ◽  
Low Income Countries ◽  
Extensive Program ◽  
The Imf

В целях поддержки стран по преодолению экономических последствий пандемии COVID-19 МВФ выделил им финансовые ресурсы и предоставил инструменты облегчения обслуживания долга в рамках различных механизмов кредитования и финансирования. Программа действует с конца марта 2020 года. В статье отмечено, что МВФ быстро отреагировал на чрезвычайную ситуацию, вызванную пандемией, и развернул широкую программу помощи странам с низким уровнем дохода в целях преодоления ее последствий. The IMF provides financial assistance and debt relief under various lending and financing mechanisms to member countries facing the economic fallout from the COVID-19 pandemics. The article provides an overview of the assistance approved by the IMF since the end of March 2020. It was noted that the IMF quickly responded to the emergency caused by the pandemic and launched an extensive program of assistance to low-income countries in order to overcome its consequences.

scholarly journals Somalia

2020 ◽  
Vol 20 (86) ◽  
Author(s):  
Keyword(s):  
Low Income ◽  
Net Present Value ◽  
Debt Relief ◽  
Debt Management ◽  
Policy Framework ◽  
Low Income Countries ◽  
Debt Sustainability ◽  
Poor Countries ◽  
Heavily Indebted Poor Countries ◽  
Hipc Initiative

This paper presents an assessment of Somalia’s eligibility for assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The macroeconomic framework reflects the policy framework underlying the proposed three-year Fund-supported program. The debt relief analysis (DRA) remains largely unchanged, but some of the underlying debt data has been updated to reflect new information from creditors. In addition, this paper presents an assessment of debt management capacity in Somalia and a full Debt Sustainability Analysis under the Debt Sustainability Framework for Low-Income Countries. The DRA reveals that, after traditional debt relief mechanisms are applied, Somalia’s debt burden expressed as the net present value of debt-to-exports ratio is 344.2 percent at the end of December 2018—significantly above the HIPC Initiative threshold. Despite the challenging environment, progress on reform and policy implementation has been good and sustained reforms have translated into economic results. In addition to the coordinated support from the World Bank and the IMF, reforms have been supported by other development partners.

Sign in / Sign up

Export Citation Format

Share Document