Nigeria’s and other emerging markets’s rising foreign debts ,pose a big risk to financial stability.

This was the verdict given by IMF’s Financial Counselor and Director of the Monetary and Capital Markets Department, Tobias Adrian , today , during the Global Financial Stability report presentation at ongoing IMF/World Bank Spring Meetings in Washington D.C, United States.

Nigeria’s foreign(external) debt is currently at $18.91billion,about N5.78trillion.(using N305 official rate).

Adrian however offered that the IMF was ready to provide sound debt management assistance to Nigeria and other emerging market countries, in line with its debt sustainability framework for low income countries and emerging market economies. According to him, short-term risks to financial stability have increased, and medium term risks remain high while vulnerabilities in global markets may make the roads ahead bumpy, and put growth at risk.

Quote: “Rising foreign debts remains a big risk to financial stability. The debts that are accumulated quickly are deteriorating and could pose financial stability crisis in the future in emerging markets,” he disclosed. The fund has continued to track debt issuance programmes in emerging markets which Nigeria belongs and bank-dollar liquidity mismatches also remain a concern. The international US-dollar balance sheets of non-US banks rely on short-term or wholesale sources for about 70 per cent of their funding, a practice that could leave banks exposed to dollar funding problems in the event of strains in markets.’’

He therefore advised policy makers to ensure that the post-crisis regulatory reform agenda is implemented, and should resist calls for rolling back reforms.

Further quote: “Our growth risk analysis which links financial conditions to the distribution of future global growth indicates that, under a severely adverse scenario, growth could be negative three years from now. Stretched valuations across many asset classes, borrowing by emerging markets and low income countries and bank-dollar liquidity mismatches remain vulnerabilities. Issuance of riskier bonds has surged, debt sustainability in emerging markets and low income countries has deteriorated, and a more complex creditor composition poses challenges for any future debt restructurings.’’

The Director at the IMF’s Fiscal Affairs Department, Victor Gasper, in his own speech, declared that public debts are at historic high in emerging markets, and have been associated with fiscal crises. He added that debt servicing is also rising in countries with high inflation rates. He said there was no room for complacency, and that countries should strengthen their tax capabilities and deploy the resources in funding health, education and public infrastructure.

Gasper opined, at the Fiscal Monitor session, that countries will be better placed to tackle looming risks if they build strong public finances in good times. He said that in emerging market economies, debt at almost 50 per cent of Gross Domestic Product (GDP) on average is at levels that in the past have been associated with fiscal crises adding that average debt was only higher during the 1980s.Quote:’’In the last 10 years, emerging market economies have been responsible for most of the increase in the $164 trillion global debt. We urge policy makers to avoid pro-cyclical policy actions that provide unnecessary stimulus when economic activity is already pacing up. Instead, most countries should deliver on their fiscal plans and put deficits and debt firmly on a downward path”.

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