Nigeria, Africa’s largest economy may be struggling as President Muhammadu Buhari has requested $3.5 billion in emergency loan from the World Bank and African Development Bank (AfDB) amid continuing low oil prices to fill a growing gap in its budget, according to The Financial Times.
The oil exporter is the largest economy in Africa, with a $15 billion budget deficit in the wake of the worldwide oil glut prices falling about 70% in the last year and a half, which has worsened financial problems throughout the nation. This request is intended to help fund the $15 billion deficit in a budget heavy on public spending as Nigeria attempts to stimulate a slowing economy and offset the impact of slumping oil revenues.
According to the Financial Times, Nigeria’s Finance Minister, Kemi Adeosun, disclosed on Sunday that the government plans to tie them to specific capital projects, though a formal request hasn’t yet been made to the World Bank for $2.5 billion and the AfDB for $1 billion respectively which would likely be priced at below-market rates.
Adeosun explained that these loans aren’t an “emergency” measure, but merely the cheapest way for the country to shore up its finances, and fund a “deficit budget.”
She said that she was planning Nigeria’s first return to bond markets since 2013. President Buhari has proposed boosting this year’s budget to a record 6.1 trillion naira ($30.7 billion). Adeosun said on Jan. 21 that authorities will borrow about $5 billion in external debt from multilateral agencies and the Eurobond market to plug record budget gap of 3 trillion naira.
Authorities will begin non-deal roadshow meetings with investors to sound out a potential sale of $1 billion of Eurobonds in February, she said. Nigeria has issued dollar bonds twice, most recently in 2013. Crude oil prices have dropped about 46 percent since June last year and were trading as low as $35.14 a barrel in London on Monday.
Nigeria is in the process of fiscal adjustment as fallen oil prices have led to significant shocks on government revenues. An International Monetary Fund (IMF) mission to Nigeria recently said the Nigerian economy grew 2.8-2.9 percent in 2015 and is expected to grow 3.25 percent this year, down from an average 6.8 percent growth over the last decade. Foreign reserves are down to $28 billion as the Central Bank of Nigeria (CBN) continues to impose restrictions in the foreign exchange market, while rejecting calls to devalue the naira.
The World Bank loan would come as part of its development policy lending, and would be at below-market rates. The loan is subject to an IMF endorsement of the Nigerian government’s economic policies. During a six-day visit to Nigeria and Cameroon earlier in January, IMF’s Managing Director, Christine Lagarde expressed satisfaction with the government’s determination to boost non-oil revenues and said she was not in the country to negotiate an IMF programme.
The African Development Bank has said it engaged with the Nigerian government last week during a high-level mission to Nigeria between Wednesday and Friday. The meeting was to ascertain the Nigerian government’s key development priorities and find opportunity to improve the business climate.
The AfDB loan is also subject to the approval of the bank’s board. The bank’s President, Akinwumi Adesina, is expected to visit President Muhammadu Buhari in the coming weeks to consolidate future partnerships, the AfDB said.
Nigeria produces about 1.8 million barrels of oil per day and 35% of its GDP comes from the oil and gas sector; 90% of Nigeria’s export revenue comes from the sale of petroleum.
Oil exports are projected to fall from 70 percent of Nigeria’s revenue to less than a third. Oversupply of oil, caused by exceptionally high production in the Middle East coupled with the shale boon in the U.S. has led to a glut. Reduced demand, particularly from emerging markets, has created an imbalance in supply and demand that has caused oil prices to tumble for nearly two years, hitting 12-year lows in early January.
According to a Bloomberg survey of economists, Nigeria’s economy probably grew 3.2 percent last year, the slowest pace since 1999.