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Beware of loans from China – IMF warns Nigeria and other developing countries

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The International Monetary Fund has cautioned Nigeria and other developing countries from taking loans from China due to unfavourable loan conditions.

 

The Financial Counsellor and Director of the Monetary and Capital Markets Department of the IMF, Tobias Adrian, said this on Wednesday during the launch of the Global Financial Stability Report for April 2019 at the IMF/World Bank meetings in Washington D.C.

“Capital flows, which includes capital flows from China, are, of course, important for development. On the other hand, what is very important in lending arrangements are the terms of the loans and we urge countries to make sure that when they borrow from abroad, the terms are favourable. In particular, we recommend that loans to countries should conform with Paris Club arrangements and that is not always the case of loans from China,” Adrian said.

On Nigeria’s rising debt levels, Adrian said that the IMF was not overly concerned, as it would allow the country to invest more in developing critical infrastructure.

 

“At the moment, funding conditions in economies such as Nigeria and other sub-Saharan African countries are very favourable but that may change at some point,” he said. The April 2019 Global Financial Stability Report finds that in spite of significant variability over the past two quarters, financial conditions remained accommodative.

 

As a result, financial vulnerabilities have continued to build in the sovereign, corporate, and non bank financial sectors in several systemically important countries, leading to elevated medium-term risks.  Also, the IMF in the April 2019 Fiscal Monitor Report urged Nigeria to increase Value Added Tax, increase and expand the coverage of excise duties.

 

The IMF commended the country’s latest Strategic Revenue Growth Initiative, which looks at a comprehensive approach to tax reform.

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