Okonjo-Iweala, Yong, Lagarde Warn on Impact of US Fiscal Crisis on Nigeria, Others • May affect Nigeria’s $500m Eurobond

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, World Bank President, Mr. Jim Yong Kim, and Managing Director of the International Monetary Fund (IMF), Ms. Christine Lagarde, yesterday spoke in unison on the impact the  current fiscal crisis in the United States of America could have on Nigeria and the rest of the global economy.
They warned that the crisis in the world’s number one economy, could upset the rest of the world  and indeed have a telling effect on the global market.
While Kim appealed to the United States’ legislators to avert a default by resolving the shutdown and debt ceiling impasse, Lagarde declared that as the largest economy in the world, the current fiscal crisis could have serious negative consequences on the global economy.
The trio spoke at different sessions at the ongoing annual meetings of the  IMF and the World Bank in Washington D.C., United States of America.
Kim, who  spoke to emerging markets, warned that should  the US’ fiscal impasse linger beyond this weekend,  a major market reaction would  erupt.
“We have set in motion a several month impact and the markets will just fall. We are urging the US legislators  to think hard about how much that global impact is going to mean, not just to people here (in the US), not just to people in developing countries but for the future of the American economy.
“If you have this devastating impact on the developing world, it will come back and be felt right in the pocket books of Americans. All this is to say—please, please, resolve this quickly,” Kim said.
Lagarde, who spoke in the same vein during a press conference, said any negative consequences on the US’ economy impact the global economy negatively.
“If there is a negative consequence on the US’ economy, it will have negative consequences outside of the US economy. The IMF doesn’t take a stand or make recommendations as to how politically this matter can be resolved. This is not for the IMF to say; we don’t hold a political view. We only look at the economic consequences of measures decided anywhere in the world.
“When it affects the largest economy of the world, we are bound to not only look at the immediate domestic consequences but we also have to look at what happens elsewhere and we have to engage in a dialogue with our members to see how they can best prepare for that and anticipate what is coming.
“ I hope in a few weeks’ time, we will look back and say, what waste of time that was because it was unnecessary because it didn’t happen. But we have to look at potential risks, however improbable they are likely to materialise. And what I can tell you is that  the transmission channels elsewhere, including in Nigeria, would include the trade channels, because the US economy will have to balance its budget from the third quarter onwards.
“I can tell you the second channel, which is probably going to be much more active, is the financial channel, where,  as a result of the uncertainty and material, practical issues having to do with versus non-impaired securities, we are likely to see, if the matter is not resolved, we are likely to see volatility, uncertainty, and consequences on the rest of the world,” the IMF boss said
Asked to assess the possible impact of the US fiscal crisis, specifically  on Nigeria, Lagarde said: “As far as Nigeria is concerned, clearly we would like to look into how it would affect the price of oil, for instance, because Nigeria is an oil consuming and exporting country. We are, as I said, currently working on this and engaging in a dialogue with countries.”
Also speaking on the US crisis, Okonjo-Iweala said the present situation was  one of  uncertainty for people from developing and emerging market countries, adding that for this reason  a swift resolution was imperative.
The minister said the crisis was capable of affecting the yield on the recently issued $500 million Eurobond issued by Nigeria as well as the one issued about two years ago.
“If not resolved, it could upset the market, we could see higher interest rates, that will directly affect Nigeria’ s bonds. As you know, we have not only  the $500 million bond that we floated two years ago but also the highly successful Eurobond that we floated recently. We could see the price and yields of these bonds affected and that is why we need more certainty in the market,” she said.
Speaking generally on the global economy, the IMF boss said countries would need to adopt strong national policies and work together more closely to manage new transitions.
She highlighted two new transitions, including the pattern of economic growth, and another towards a different kind of financial sector.
“The transitions I am talking about today are different. They will likely play out over the rest of the decade, if not longer. And they will require not only active national policy management, but also active international policy collaboration. These new global transitions need a new global agenda.”
“With the right policies, these transitions can be managed. But of course, they can be derailed by the wrong policies,” she said.
Lagarde noted that although the global outlook remained subdued, there were “signs of hope” from advanced economies—the United States, the Euro Area, and Japan.
She  stressed the important role played by monetary policy, noting that any pending normalisation of monetary policy in the US needed to be managed carefully.

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