IMF Warns Nigeria of Tempestuous Financial Market in 2022

The International Monetary Fund (IMF) has warned the Nigerian government as well as developing economies with immense foreign debt and extrinsic financing to expect instability in the financial market in 2022.

The IMF disclosed this in an online publication titled ‘A Disrupted Global Recovery’ while assessing the World Economic Outlook Update report.

The global financial institution revealed that Nigeria and other growing economies must examine and extend debt maturity dates to repress fluctuation in foreign exchange rate.

Words from the IMF: “As the monetary policy stance tightens more broadly this year, economies will need to adapt to a global environment of higher interest rates.

“Emerging markets and developing economies with large foreign currency borrowing and external financing needs should prepare for possible turbulence in financial markets by extending debt maturities as feasible and containing currency mismatches. Exchange rate flexibility can help with the needed macroeconomic adjustment.

“In some cases, foreign exchange intervention and temporary capital flow management measures may be needed to provide a monetary policy with the space to focus on domestic conditions. With interest rates rising, low-income countries, of which 60 per cent are already in or at high risk of debt distress, will find it increasingly difficult to service their debts.

“The G20 Common Framework needs to be revamped to deliver more quickly on debt restructuring, and G20 creditors and private creditors should suspend debt service while the restructurings are being negotiated.”

The IMF also explained that scope of economic policies declines in several economies as fiscal deficits are predicted to crunch globally.

“Less accommodative monetary policy in advanced economies will pose challenges for central banks and governments in emerging markets and developing economies.

“Higher returns elsewhere will incentivize capital to flow overseas, putting downward pressure on emerging markets and developing economy currencies and rising inflation. Without commensurate tightening, this will increase the burden on foreign-currency borrowers, both public and private. But the tighter policy also brings costs at home, as domestic borrowers will find credit harder to come by.

 “Overall, tighter policies will likely be appropriate in many emerging markets and developing economies to stave off the threat of persistently higher inflation.”

The IMF stated that while emerging markets were more resilient with higher reserves, financial vulnerabilities would remain, especially in countries that have lucrative public and private debt.