Nigeria has requested for an emergency loan of $3.5 billion from the World Bank and African Development Bank. This is to fill a growing gap in the budget, due to the dropping crude oil prices. See Full 2016 Budget Details.
The request from President Muhammadu Buhari is intended to help fund a $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.
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.
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 program. “We are not in that space at all.”
It is unlikely President Buhari will accept to go into a full rescue programme with the IMF, but as global oil prices continue to plummet, other options besides the corruption fight and other internally generated fund schemes will be necessary to keep Nigeria afloat.