How Nigeria can beat debt trap

The Managing Director and Chief Executive Officer of Financial Derivatives Company Limited, Bismarck Rewane, has outlined three ways Nigeria can beat the debt trap.

The three options include approaching the International Monetary Fund for a policy support instrument, debt conversion, and debt restructuring.

He said when implemented, the three options can help the country resolve the lingering debt burden.

Rewane, who is also a member of the Presidential Economic Advisory Council, outlined the options in the latest Financial Derivatives Monthly Economic Update.

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According to him, the PSI option permits the IMF to provide policy advice and support to Nigeria on expertise and guidance on economic policies.

“The PSI is intended to provide a flexible and tailored approach to policy support, with the goal of helping the country develop and implement sound economic policies and promote sustainable economic growth.

“The PSI will necessarily usher in the implementation of critical reform policies such as exchange rate reforms, subsidy and pricing reforms, and other market reforms aimed at removing production impediments and increasing public revenue.

“The PSI will help Nigeria meet the ‘conditionalities’ for a talk with its creditors. A sovereign debt restructuring can take several forms, depending on the severity of the country’s financial situation and the willingness of its creditors to negotiate. Some possible forms of debt restructuring include debt cancellation, debt restructuring, and debt conversion,” he said.

On the debt restructuring option, Rewane said, “This is not necessarily a separate option from the PSI, but remains feasible because sovereign default is a kiss of death and, thus, not an option”.

He added, “A sovereign debt restructuring can take several forms, depending on the severity of the country’s financial situation and the willingness of its creditors to negotiate. Some possible forms of debt restructuring, include debt cancellation, debt restructuring, and debt conversion,”

On fiscal consolidation as another option, he said, “Fiscal consolidation involves difficult choices that eventually have significant social and economic impacts.

“In the end, doing nothing is not an option. The new administration must make the hard choices to save the economy from collapse. Flagrant violations of the Fiscal Responsibility Act must be discontinued.”