IMF: Nigeria, Others Must Ensure Good Governance To Reduce Borrowing Costs

Economists astatine the International Monetary Fund (IMF) person said that anemic governance, mediocre macroeconomic management, and organization inefficiencies person raised borrowing costs for Nigeria and different sub-Saharan African countries.

They besides warned of the risks of syndicated loans, which person been connected the emergence successful the portion recently.
Speaking astatine an analytical league connected ‘A Panorama of the External Financing Landscape successful Sub-Saharan Africa’ astatine the ongoing 2025 World Bank/IMF yearly gathering successful Washington DC connected Tuesday, IMF economists, Can Sever and Thibault Lemarie from the Fund’s African Department said the rising outgo of indebtedness successful Sub-Saharan African (SSA)countries was self-inflicted chiefly driven by home risks alternatively than unfair attraction by the planetary fiscal system.

“On secondary markets, sovereign spreads person been higher successful Sub-Saharan African countries than successful different processing economies, peculiarly aft the COVID-19 pandemic and the warfare successful Ukraine. But erstwhile we relationship for fundamentals, macroeconomic and fiscal risks, arsenic good arsenic governance quality, the quality fundamentally disappears,” Lemarie explained.

The IMF economists argued that with elevated planetary involvement rates and shrinking entree to concessional financing, Sub-Saharan African countries, including Nigeria, indispensable anchor their fiscal strategies connected credibility and organization reform.

“Building well-developed section enslaved markets and improving governance takes time, but these are indispensable steps toward sustainable financing. By closing the governance spread with different processing regions, SSA countries tin trim borrowing costs and make fiscal abstraction for improvement spending,” Lemarie said.

The IMF economists dispelled the thought that African nations are unfairly penalised successful planetary superior markets. Instead, they argued that countries with stronger institutions, transparent fiscal systems, and credible macroeconomic policies bask little borrowing costs and easier entree to funds.

“When we power for home risks and governance, the information amusement nary systematic bias against Africa. Countries successful the portion are rated fundamentally the aforesaid arsenic different processing nations erstwhile fundamentals are similar. What this means is that governance matters, and it matters a lot,” Sever added.

The IMF economists noted that, betwixt 2020 and 2024, Sub-Saharan African governments raised astir $40 cardinal done Eurobond issuances, portion borrowing done cross-border syndicated loans totalled astir $170 cardinal implicit the past 2 decades. However, borrowing costs person soared, with the mean output connected caller Eurobond issues rising from 6.5 per cent to 9.5 per cent, a 300-basis-point summation wrong a fewer years.

They noted that the crisp leap was not a effect of planetary discrimination, but alternatively a reflection of home vulnerabilities, anemic fiscal frameworks, and governance gaps that elevate capitalist hazard perception.

According to the report, stronger governance frameworks, including regularisation of law, fiscal transparency, and anti-corruption measures, not lone little the outgo of borrowing but besides grow entree to superior markets.

“Governance is not conscionable morally right, it’s fiscally smart. Countries with dependable governance pull much investment, unafraid amended recognition ratings, and look less fiscal pressures”, helium stated.

Meanwhile, Lemarie noted that IMF investigation showed that African countries progressively crook to syndicated slope loans and section enslaved markets for financing. He explained that historically, syndicated loans person been easier to access, but they transportation transparency risks. Since the pandemic, syndicated lending successful SSA has doubled from an mean of $6 cardinal annually to astir $13 billion, outpacing Eurobond issuance.

Lemarie warned that the opacity of specified instruments poses governance risks. “Syndicated loans are often little transparent than Eurobonds, making it harder for citizens and adjacent parliaments to way nationalist indebtedness obligations. Good governance is truthful captious to guarantee these instruments bash not go fiscal traps,” helium said.

Similarly, home indebtedness issuance has much than doubled since 2019, arsenic governments look inward for financing amid constrained planetary liquidity. But the IMF cautioned that excessive home borrowing could assemblage retired backstage recognition and summation systemic risks.

“In countries wherever banks already clasp ample volumes of authorities debt, relying excessively heavy connected home borrowing tin backfire. It tin rise fiscal vulnerabilities and restrict recognition to the backstage sector,” Sever explained.