World Bank report misinterpreted – DMO, says Nigeria not a high-risk debt nation
Debt Management Office (DMO) has responded to the World Bank’s financial report for FY 2021 which ranked the country fifth among top 10 high-risk debt countries of the world, saying the position ‘misrepresented’ the International Development Association (IDA) Audited Financial Statement for the Fiscal Year 2021 (July 1, 2020 – June 30, 2021).
DMO, in a statement, said that the publications quoting the IDA’s audited financial statement for FY 2021 misinterpreted the World Bank report.
“The World Bank’s report was an assessment of the performance of IDA and not the performance of the IDA loans nor the debt repayment capacity of the beneficiaries of IDA loans.
“By way of explanation, the World Bank, through IDA, gives concessional loans to poor and developing countries to help them achieve improvements in growth, job creation, poverty reduction, governance, the environment, climate adaptation and resilience, human capital, infrastructure and debt transparency. Nigeria is a beneficiary of IDA loans.
“It is important to re-emphasize that the World Bank’s report, which was misrepresented, focused only on the composition of IDA’s Loan Portfolio and did not make any reference to the debt sustainability of the top 10 beneficiary countries of IDA loans, such as India, Pakistan, Nigeria, Kenya and Ghana,” a part of the statement from the DMO clarified.
DMO said the report was not only false and misleading but also suggests an inadequate understanding of the essence of the World Bank’s report.
It further stressed that the IDA loans are typically for tenors of 30 – 40 years, with a grace period (moratorium on principal repayment) of 7 – 10 years and a service fee of only 0.75 per cent.
“The highly concessional nature of IDA loans satisfies the requirements of the provision of Section 41(1)(a) of the Fiscal Responsibility Act, 2007, which states that government at all tiers shall only borrow on concessional terms with a low-interest rate and with a reasonably long amortization period.
“The cost of IDA loans, which is the service fee of 0.75 per cent, is considerably low, thereby moderating the cost of debt service.
“The DMO wishes to state that Nigeria’s IDA’s Debt Stock as of June 30, 2021, was $11.7 billion. IDA loans represent one of the most favourable borrowing options for countries like Nigeria and are also consistent with the Medium Term Debt Management Strategy of the federal government,” the agency added.
It would be recalled that the World Bank had ranked Nigeria 5th in a list of top 10 countries under high-debt risk exposure.
The bank stated this in the financial report for International Development Association (IDA), which was among the World Bank Year 2021 audited financial statements released, Monday.
“IDA faces two types of credit risk: country credit risk and counterparty credit risk.
“Country credit risk is the risk of loss due to a country not meeting its contractual obligations, and counterparty credit risk is the risk of loss attributable to a counterparty not honoring its contractual obligations.
“IDA is exposed to commercial as well as noncommercial counterparty credit risk,” read the financial statement.
The report said the list was capped by half-year ended, 2021.
“As of June 30, 2021, the 10 countries with the highest exposures accounted for 66 per cent of IDA’s total exposure,” the IDA report stated.
Nigeria was rated in fifth place with $11.7bn IDA debt stock, while India led the list with $22bn IDA debt stock, followed by Bangladesh with $18.1bn IDA debt stock, Pakistan with $16.4bn IDA debt stock, and Vietnam with $14.1bn IDA debt stock.
Other countries in the list in order of appearance include; Ethiopia with $11.2bn IDA debt stock, Kenya with $10.2bn IDA debt stock, Tanzania with $8.3bn IDA debt stock, Ghana with $5.6bn IDA debt stock, and Uganda with $4.4bn IDA debt stock.
It added that there was a Single Borrower Limit for IDA, which for FY22, had been set at $45bn (25 per cent of $180.9bn of equity as of June 30, 2021).
It was further discovered that Nigeria’s undisbursed balance with the World Bank is about $8.656bn as at June 30, 2021.
According to the financial statement for the International Bank for Reconstruction and Development (IBRD), Nigeria had a total of $589m undisbursed balance, consisting of $500m loans approved but not yet signed and $89m signed loan commitment.
The financial statement for IDA further revealed that the country had a total undisbursed balance of $8.07bn, consisting of $1.462bn loans approved but not yet signed and $6.61bn signed loan commitment.
The financial statement for IBRD said that although certain amount of loans has been agreed, ‘the loans are not effective and disbursements do not start until the borrowers and/or guarantors take certain actions and furnish documents’.
A total of $1bn loans were agreed between Nigeria and the World Bank’s IBRD, of which Nigeria’s outstanding loan is $411m.
For IDA, a total of $19.54bn loans were agreed upon, of which Nigeria’s outstanding loan is $11.47bn.
According to the Debt Management Office (DMO), Nigeria owes the World Bank a total of $11.51bn, consisting of $11.10bn IDA loans and $410.23m IBRD loans as of March 31.
Other financial statements released included the statements for International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency.
In a press statement titled; ‘World Bank Group Releases FY21 Audited Financial Statements’, the bank disclosed that the World Bank Group commitments rose to $84.3bn in the fiscal year 2021, 15 per cent higher than FY20.
