Wow! Nigeria can borrow money at Zero interest rate? Is there any other catch to it? Apparently, Nigeria is among the low Income Countries (LICs) that is majorly why such pass is given.
According to The Sun, the Executive Board of the International Monetary Fund (IMF), has approved a modification in the mechanism governing interest rate, setting of Poverty Reduction and Growth Trust (PRGT) facilities and set the interest rates to zero on all its concessional loans under the PRGT for Nigeria and other Low Income Countries (LICs) over the next two years ending December 2018.
This means that Nigeria can now borrow at zero interest rate to support its social safety net and poverty alleviation programmes across various groups in the country.
Under the modified mechanism, rates will continue to be set at zero for as long as, and whenever global interest rates are low.
At a briefing by the Managing Director, Christine Lagarde in Washington DC, Thursday, the Fund said the zero interest will provide continued support to LICs amidst their current challenging global environment.
“The modification introduces an additional threshold for the Special Drawing Right (SDR) reference rate and sets the interest rates on the Standby Credit Facility (SCF) and the Extended Credit Facility (ECF) to zero if the SDR reference rate is lower than or equal to 0.75 percent.” The Executive Board also decided to waive interest rate charges on outstanding balances under the Exogenous Shocks Facility until the next review of the interest rate mechanism in 2018.
“The Board had previously endorsed temporary relief of interest payments on all outstanding concessional loans for PRGT-eligible members in 2009, waiving all interest payments on PRGT loans through December 2011. It had also agreed thrice to extend the exceptional interest rate waiver, first to end December 2012, 2014, and then again to end-2016, providing interest rate relief to many LICs at a time when they face considerable headwinds from the global economic environment. Continual waivers would no longer be needed as the modification makes zero rates an integral part of the interest rate mechanism in periods of very low global interest rates, as at present, thereby preserving the concessional nature of PRGT financing.
It also welcomed the opportunity to review the interest rate structure for loans under the Poverty Reduction and Growth Trust (PRGT) and the mechanism established in 2009, which differentiates interest rates among PRGT facilities and links them to developments in world interest rates.