To Boost the Budget, FG Seeks $1.5 Billion in Loan to Shore Up Naira

To address the acute shortage of dollars that is causing the value of the naira to drop,  Federal Government is requesting $1.5 billion in help from the World Bank.

Finance Minister Wale Edun told Bloomberg on Wednesday, 17th January 2024 “We’re hoping to get $1 billion or $1.5 billion from the World Bank” for fiscal help.

The Minister stated that the country should receive help because of the ongoing economic reforms and that the largest economy in Africa may issue an Eurobond in late 2024.

Nigeria may traverse its financial landscape with Eurobonds, which are denominated in foreign currencies, even in the face of difficult economic circumstances.

“We think we will get the support because we are continuing with our reforms,” the Minister stated, adding that it was still up for debate.

To generate debt to finance infrastructure and strengthen its economy, Nigeria has previously issued Eurobonds.

In 2022, Nigeria entered the foreign debt markets with a $1.25bn Eurobond sale, marking its seventh excursion into this financial arena, according to the Debt Management Office.

The nation subsequently redeemed a $500 million Eurobond that was part of a $1 billion dual-tranche that was issued in July 2013 and held for 10 years at a coupon rate of 6.375 percent annually in the subsequent year.

The Minister stated that there would be no interest charged on the $1.5 billion World Bank loan at a news conference held in October 2023 at the World Bank/International Monetary Fund Annual Meeting in Marrakech, Morocco.

Nigeria is now grappling with a debt of over N87 trillion, which the International Monetary Fund declared to be “manageable,” even though the interest rate was excessive for the nation.

Declaring that the facility will be given to Nigeria very soon, the minister added that the new World Bank credit would be utilized to support development.

He stated: “That is accurate on the discussions with the World Bank over the $1.5 billion budget help. The World Bank is the top International Development Bank when it comes to funding and assisting developing nations, projects, programs, and industries.

“Through the International Development Association, it is eligible for free funding. We meet the requirements to borrow from both the regular World Bank financing window and some concessionary IDA money, which essentially means we can access zero-interest rate loans.

Investors are quite concerned about Nigeria’s roughly $7 billion in matured foreign exchange forwards, but the Central Bank of Nigeria has assured them that payment would be made to restore faith in the foreign exchange market.

However, the Apex Bank has demonstrated its commitment to improving liquidity and stability in the foreign currency market by recently disbursing $2 billion to clear a backlog of outstanding foreign exchange futures.

Nigeria is struggling with a budget deficit as a result of rising fuel subsidy costs, onerous debt payments, and constrained governmental spending in the face of growing economic difficulties.

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The budget for the 2024 fiscal year is a massive N28.7 trillion, with a N9.18 trillion deficit—or 3.88 percent of the country’s GDP—along with it.

President Bola Tinubu emphasized that compared to the N13.78 trillion reported in 2023—or 6.11 percent of GDP—the current deficit represents an improvement.

President Tinubu presented a comprehensive funding strategy to address the deficit. This consists of N7.83 trillion in fresh borrowings, N298.49 trillion from the profits of privatization and a N1.05 trillion drawdown on bilateral and multilateral loans designated for certain development projects.

The largest economy in Africa is also dealing with ongoing currency shortages, rising dollar demand, and speculative activity that has put pressure on the naira and caused its depreciation.

The street value of the naira has been further impacted by the widening difference between the official and parallel market exchange rates caused by the lack of dollars.

Wednesday saw a record low of N1,320 for the naira against the dollar because of robust parallel market demand.

The official forex market, NAFEM, reports that the value of the native currency closed at N878.57 to the dollar at the conclusion of business, down 4.72%.