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.
If the World Bank is offering me sub 3% to do the power, transport, road projects we need, why would I go to the Eurobond market to find that?
Mr Buhari won elections last year by promising to root out corruption and he has launched an aggressive crackdown since taking office, promising to recover “mind-boggling sums” he says were stolen under the watch of his predecessor, Goodluck Jonathan.
But the new government is also facing questions about its handling of the economy. Capital controls introduced last year have weighed on growth and the IMF has called for Mr Buhari to pursue alternatives.
The central bank introduced the first controls before Mr Buhari took office last May, but many new measures have been imposed since and the president has repeatedly voiced his support for them.
During a January visit Christine Lagarde, the IMF’s managing director, urged the government to allow the naira to trade more freely so that it could help absorb economic shocks. “It can also help avoid the need for costly foreign exchange restrictions, which we don’t really support," she said in an address to parliament.
Some see a growing case for outside help. Nigeria’s current economic troubles are “exactly the situation an IMF loan was created to deal with”, said John Ashbourne, economist at Capital Economics. Although Mr Buhari has promised reforms, they would take time to work and “getting money from abroad would help him do that”, he said.
But Mr Buhari and his government are likely to resist a full IMF rescue programme. The former military ruler butted heads with the IMF while leading the government in the 1980s and many observers believe he would be reluctant to invite the fund in again.
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.
During the 2008-09 crisis the World Bank used such loans to help developing countries, including Nigeria. And because of the growing problems facing many commodity-producing emerging economies, bank officials say they are seeing demand rising again.
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