World Bank has alleged that the African Development Bank (AfDB), Asian Development Bank, and the European Bank for Reconstruction and Development worsen the debt burden of Nigeria and other countries. This was disclosed by the President of the global lender, David Malpass, at a forum in Washington.
In some cases, he argued that the development banks hide terms of debt from citizens of these countries through non-disclosure of agreement.
Contributing to debt problem: Malpass said these international financial institutions were lending too fast, ignoring lending standards and transparency when offering loans to Nigeria, South Africa, Pakistan and other debt-ridden countries. It was learnt that the international financial institutions were using loans for infrastructure projects to further burden the countries.
He said, “We have a situation where other international financial institutions and to some extent development finance institutions as a whole, certainly the official export credit agencies, have a tendency to lend too quickly and to add to the debt problem of the countries.”
Nigeria’s debt problem: Meanwhile, the National Bureau of Statistics (NBS) reported that the nation’s total debt rose from N25.70 trillion in March 2019 to N26.14 trillion by the end of September 2019. Quarter on quarter, Nigeria’s total debt stock rose by 1.71% or N440 billion.
Despite the rise, the Finance Minister, Zainab Ahmed has continued to state that the debt increase isn’t the problem. This has led to the Nigerian government initiating a tax reform, increasing VAT from 5% to 7.5%, in order to mobilise revenue. To the Nigerian government, if the revenue problem is solved, financing debt won’t be a problem.
Malpass doesn’t see it that way: The World Bank chief said African Development Bank contributed to the debt problem by pushing billions into Nigeria and South Africa, while Asian Development Bank also ignored the risk by lending to fiscally-challenged Pakistan.
One of the instances was the approval of $1.3 billion, in December, by Asian Development Bank for Pakistan, which included $1 billion for budget support. The bank also approved $300 million for Pakistan to reform its energy sector. Reuters reported that Pakistan was heavily indebted to China, compelling the country to turn to the IMF for a $6 billion loan programme in 2019.
He added that, “And so we have a very real problem of the IFIs themselves adding to the debt burden and, and there’s pressure then I think on the IMF to sort through it and look at the best interest for the country.”
Countries hiding details from citizens: Malpass was worried about the non-disclosure of agreement that often accompanies these loans from international financial institutions. He said there’s need for transparency in order for citizens of each country to see the terms of the debt their government agreed to.
Malpass gave the example of Angola’s oil revenues associated with Chinese debt that were hidden by non-disclosure of agreements. He said this non-disclosure favours politicians and contractors.
“Let the people of the country see what the terms of the debt are as their government makes commitments,” Malpass said.
What needs to be done: Compared to the aforementioned international financial institutions, Malpass said the new Beijing-led Asian Infrastructure Investment Bank was not contributing to the debt problem, stating that it was willing to develop lending standards that were equal to those of the World Bank. He, however, said China was also seeking methods to level up its debt contracts with international norms.
He added that in the lending contract, international financial institutions need to improve transparency, eliminate non-disclosure clauses that have hidden liens and contingent liabilities that could hamper economic growth.
New set of lending rules coming: By July 1, the World Bank intends to introduce new lending rules as it plans to make about $85 billion in loans and grants available. The loan will be made available through World Bank’s fund for the poorest countries, the International Development Association. The new set of rules will ensure new standards for transparency and require coordination with other multilateral lenders working with the same country.
Source: Nairametrics
