Nigeria
has asked the World Bank and African Development Bank for $3.5bn in
emergency loans to fill a growing gap in its budget in the latest sign
of the economic damage being wrought on oil-rich nations by tumbling
crude prices.
The request from the eight-month-old government of
President Muhammadu Buhari is intended to help fund a $15bn state
deficit, which has been deepened by a hefty increase in public spending
as the west African country attempts to stimulate a slowing economy.
It
comes as concerns grow over the impact of low oil prices on petroleum
exporting economies in the developing world. Azerbaijan, which last
month imposed capital controls to try and halt a slide in its currency,
is in discussions with the World Bank and the International Monetary
Fund about emergency assistance.
Nigeria’s economy is Africa’s
largest and 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.
Finance minister Kemi Adeosun told the Financial Times
recently that she was planning Nigeria’s first return to bond markets
since 2013. But Nigeria’s likely borrowing costs have been rising
alongside its budget deficit. A projected deficit of $11bn, or 2.2 per
cent of gross domestic product, 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.
Ms 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?”
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.”
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, Mr 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.
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