IMF Chief Rejects Nigeria's Loan Request

January 15, 2016Nigeriaby EW News Desk Team

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International Monetary Fund Managing Director Christine Lagarde rejected Nigeria's loan application due to the country's potential for an economic rebound, according to AFP. In December, Nigeria announced such efforts as diversification and infrastructure investing—factors which bolstered the IMF's confidence in Nigeria. The organization will monitor the country's budget and finances going forward.

The jury is out on whether new president Muhammdu Buhari can turn around the economy, but Lagarde seems to have more faith in the economy than the actual government by ruling out a loan package for the time being. Buhari has the necessary experience going back to his tenure as leader of the country during the 1980s, and he wishes to undo the damage done by his predecessor Goodluck Jonathan, who never delivered on his campaign promises to end corruption and create a better future for Nigerians.

Buhari formed a stellar economic team to solve the country's major problems, but the time it took to form a coalition worried some investors, and the new president will need help from the business community when it comes to raising living standards. Nigeria is one of the most important emerging markets in Africa, but the country still suffers from a massive wealth gap and widespread poverty. Moreover, the government failed to use oil revenue to improve an insufficient electric grid that fails to produce enough power for such a large population.

The Oil Factor

Another main problem lies with the country's over-dependence on oil, and times were not exactly booming when oil prices were higher. Oil revenue is the sole reason why Nigeria is a crucial member of the world community, but with the oil market so low in value, the government cannot grow the economy further without diversification.

With its limited manufacturing capacity, Nigeria is unable to take cues from more prosperous countries like Germany by exporting a diverse array of goods to sustain growth. Up to 69 percent of Nigeria's exports derive from oil, and the nation is a heavy consumer of imports. Saudi Arabia has shown little concern for fellow OPEC nations like Nigeria by pumping excess oil to flood the energy market, and this will be a problem, as the crude market grows more turbulent.

Other Barriers

Nigeria's problems will continue regardless of oil prices because of rampant corruption and miss-allocation of money. This traces back to corruption and mismanagement at the state level, and experts note that these factors will hold back the West African country's true potential. Further, terrorist organization Boko Haram caused an enormous amount of violence and instability throughout the region, preventing further development while frightening away prospective investors.

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