Former World Bank President David Malpass warned that currency floating policies in nations like Nigeria and Ethiopia have deeply worsened poverty and transferred wealth to privileged groups. Meanwhile, Nigeria has pressed forward with opaque collateral-backed borrowings and a $5 billion derivatives deal, drawing caution from international financial institutions.
Economic vocabulary often sounds reassuring. Words like stabilization,
liberalization,
market confidence,
exchange-rate flexibility,
and fiscal discipline
suggest prudence and modernity. But former World Bank President David Malpass argues that the underlying policies—specifically floating exchange rate regimes—have carried enormous costs for ordinary citizens, deepening poverty while transferring wealth from low-income wage earners to privileged groups in countries like Ethiopia and Nigeria.
Currency Reforms and the Human Cost in Ethiopia
International financial institutions frequently point to encouraging macroeconomic results after a currency float, noting that foreign exchange markets function more freely, export receipts increase, and inflation moderates from previous peaks. Yet critics argue that measuring success strictly by the health of macroeconomic indicators ignores the condition of society.
Development involves expanding productive capacity, increasing worker productivity, and reducing external dependence rather than merely stabilizing economic indicators. In Ethiopia, the burden of adjustment falls overwhelmingly upon wage earners, small businesses, consumers, and farmers purchasing imported inputs, meaning those least able to absorb economic shocks become the principal financiers of macroeconomic stabilization. While proponents present these adjustments as temporary sacrifices, history shows such sacrifices often become permanent expectations.
Nigeria’s Opaque Debt Structures and Collateralized Borrowing
Beyond exchange rate policies, Malpass raised concerns over Nigeria’s growing use of collateral-backed borrowing. In a World Bank Policy Research Working Paper titled Public Debt and Central Banks—based on the Stanley Fischer Memorial Lecture delivered at the World Bank Group’s Annual Bank Conference on Development Economics—he warned that opaque debt structures could complicate future debt restructuring.
“Sophisticated new collateralized transactions – I saw ones in Angola, Nigeria, and Senegal – are creating a new race toward seniority in the capital structure.”
David Malpass, former World Bank President
Malpass noted that private sector transactions involving distressed or high-risk sovereigns have grown less transparent. He warned that such financing structures will make future debt restructurings more complex, adding that multilateral development bank guarantee products remain untested during sovereign debt crises. Furthermore, global debt reconciliation remains hampered by limited transparency, with experts still working in the dark
on many sovereign debt contracts involving Chinese lending programmes and commercial non-disclosure clauses.
Derivatives Financing and the Path Forward
Despite warnings from the International Monetary Fund over complex and opaque transactions, Nigeria accessed the first tranche of its $5 billion derivatives financing arrangement with First Abu Dhabi Bank (FAB). The Federal Government drew about $1.5 billion over a two-week period through a Total Return Swap transaction with the United Arab Emirates’ largest lender to refinance expensive debt and bridge its budget financing gap.
Nigeria’s per capita income stands at roughly $1,500, or about $4 per day, with median income sitting even lower as wealth remains concentrated among a small portion of the population. Malpass noted that during his tenure as World Bank president, discussions with Nigeria’s previous president, members of the cabinet and the World Bank’s Nigeria team identified currency stabilisation and exchange rate unification, oil sector reforms, tax reforms, and agricultural liberalisation as key ingredients for faster growth, comparing the potential transformation to China’s 1993 reforms.
Worth a look
