Nigeria’s N33.8trn private debt to slow economic recovery —IMF warns

The International Monetary Fund (IMF) has said rising private debt would slow economic recovery in Nigeria and across the world, stating vulnerable households and firms might struggle with repayment.

IMF disclosed that this would have an impact on economic production, recalling that various governments had offered credit facilities to households and companies, including small and medium enterprises to support the economy.

In Nigeria, the Central Bank had cut interest on loan from 9% to 5% in 2020 to increase loan demand, and this rate has remained till date. As of September 2021, private sector debt hit an all-time high of N33.8 trillion.

Although, Non-Performing Loans ratio (NPLs) has dropped to 4.84% from 4.9% as of February 2022, but this slight decline in NPLs might not be enough to prevent the debt from slowing down the economy recovery.

IMF, in a statement seen by Ripples Nigeria on Wednesday, said countries will experience the impact at various scale “In short, the recent surge in indebtedness of households and firms poses risks to the pace of recovery. Yet this risk is not equally distributed.

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“Careful, real-time monitoring of the balance sheets of low-income households and vulnerable firms is key to calibrating the unwinding of support measures. This could prevent sudden distress when financial conditions tighten.” IMF wrote.

It advised governments to consider out-of-court settlement in restructuring the loans and insolvency mechanisms, and reallocate the capital to most productive firms.

“if large household debts threaten recovery, governments should consider cost-effective debt restructuring programs aimed at transferring resources to relatively vulnerable individuals who are more likely to spend their income.” The global financial company said.

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