A race to save the Nigerian economy and keep the Naira in check gathered pace last week when the federal government asked the World Bank and African Development Bank (AfDB) for $3.5 billion in emergency loans to fill a growing gap in its budget.
Financial Times reports that the loan comprises $2.5 billion loan from the World Bank and a parallel $1 billion loan from the AfDB, h would enjoy below-market rates, must still be approved by both banks’ boards.
Under World Bank rules its loan would be subject to an IMF endorsement of the government’s economic policies and bank officials say they would have to be confident the Nigerian government was undertaking significant structural reforms.
But both loans would carry far fewer conditions than one from the IMF, which does not believe Nigeria needs a fully-fledged international bailout at this point, the Financial Times is reporting.
The request is intended to help fund a $15 billion deficit in a budget heavy on public spending as it attempts to stimulate a slowing economy and offset the impact of slumping oil revenues.
“I think we all agree that Nigeria is facing significant external and fiscal accounts challenges from the sharp fall in oil prices, as of course are all oil exporters,” Gene Leon, the IMF’s representative in Nigeria, said.
An IMF mission that visited the country in January as part of a regular review estimated that Nigeria’s economy grew 2.8-2.9 per cent in 2015 and predicted it would register 3.25 per cent growth this year, down from an average 6.8 per cent growth in the decade to 2014, Leon said.
The country’s financial buffers are also eroding. The central bank’s foreign exchange reserves have nearly halved to $28.2bn from a peak of almost $50bn just a few years ago. A rainy-day fund that had $22bn in it at the time of the 2008-09 global financial crisis now has a balance of $2.3bn, according to the FT.
The World Bank loan would come as part of its “development policy” lending, which the bank uses to lend help to countries facing short-term financing difficulties. Such loans, known as “development policy operations”, often come alongside formal IMF bailouts, but they can also be independent of the IMF.