Nigeria has asked the World Bank and African Development Bank for $3.5 billion in emergency loans to fill a growing gap in the 2016 budget, FT reports. The budget, which is currently being considered by the national assembly, was predicated on $38 per barrel of crude oil, but prices have already fallen to $30. The loan request is intended to help fund a $15 billion deficit in a budget heavy on public spending.
Nigeria has been hit hard by the fall in crude prices — oil revenues are expected to fall from 70 per cent of income to just a third this year, the FT report said. Finance minister Kemi Adeosun (pictured) told the FT recently that she was planning Nigeria’s first return to bond markets since 2013. Adeosun told the FT on Sunday that the loans were not an “emergency” measure but rather the “cheapest way possible” to fund a “deficit budget”. “I’m getting sub 3 per cent blended costs from the multilaterals and export credit banks. It’s my strategy for borrowing for capital projects.
If the World Bank is offering me sub 3 [per cent] to do the power, transport, road projects we need, why would I go to the Eurobond market to find that?” she said. But Nigeria’s likely borrowing costs have been rising alongside its budget deficit. A projected deficit of $11bn, or 2.2 per cent of GDP, had already risen to $15bn, or 3 per cent, as a result of the recent turmoil in oil markets.
The $2.5bn loan from the World Bank and a parallel $1bn loan from the ADB, which 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.
“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, told the FT. But he added that Nigeria was not in immediate need of an IMF programme. “We are not in that space at all,” he said. 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. 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.