Due to the increase in public debt held by Nigeria and other emerging economies, the IMF has warned that the sovereign debt crisis could spread to banks, pension funds, households and others. segments of the national economy.

This was revealed by the International Monetary Fund in a report titled “SHEDDING LIGHT ON DEBT”

According to the report, persistent inflationary pressure will limit the ability of central banks to borrow money from governments in Nigeria and other emerging markets to finance their budgets.

What the IMF says

The IMF revealed that the authorities looked inwards to find sources of financing through national banks.

He stated, “Governments have turned to the domestic banking system to meet their funding needs as foreign investors retreated during the pandemic. The increase in public debt held by national banks in emerging markets means that sovereign over-indebtedness could spread to banks, pension funds, households and other parts of the national economy.

Report Highlights

* Debt risks are high and are expected to remain so for several years, as the pandemic has sustainably increased the gross financing needs of the public sector in emerging and developing countries.

* Many have exhausted their domestic sources of funding. And their ability to borrow from national central banks – something some countries have been doing intensively since the start of 2020 – will be more constrained if inflationary pressures persist.

* These developments may make emerging and developing economies more dependent on external financing and expose them to increased risks of a sudden stop in external financing.

*Last, but not least, financing needs – and debt – have a history of being higher than expected.

What you should know

According to data obtained from the CBN, bank credit to the public sector of the economy currently stands at N14.277 trillion as of January 2022.

* This figure indicates an increase of N1.973Trillion from the N12.304 held in January 2021.

*Bank credit to the private sector of the economy increased year-on-year (YoY) by 33.7% to 35.3 trillion naira in November 2021, from 26.4 trillion naira for the corresponding period of 2020.

* Bank credit to the private sector peaked in December 2021, reaching N35.73 trillion from N30.15 trillion recorded in December 2020, an increase of N5.58 trillion in one year

The growth in credit to private and public parastatals could be attributed to Central Bank policies aimed at stimulating the economy.