It will be far better for Nigeria to secure concessionary loans worth $3.5bn as it will be cheaper than borrowing from the open market, analysts have said.
Nigeria’s government says it is in talks for concessionary loan support from the World Bank and African Development Bank to help finance a planned record budget this year although Finance Minister Kemi Adeosun says no formal request has been made.
“A loan from multilateral lenders would be much cheaper than borrowing on the open market,” John Ashbourne, an Africa economist at Capital Economics Ltd. in London, said in a research note on Monday.
“Where a World Bank loan would really help Nigeria is by plugging part of its current-account shortfall. The country has traditionally run a current-account surplus, but low oil prices have slashed export earnings and pushed the country into deficit.”
Adeosun said while discussions are going on, a formal request hasn’t yet been made to the World Bank for $2.5 billion and the AfDB for $1 billion and the government plans to tie the loans to specific capital projects.
She also said request Nigeria hasn’t made any request for assistance from the International Monetary Fund.
The loan talks are “in anticipation of getting the budget approved” and are “not part of an IMF package,” Adeosun said.
President Muhammadu Buhari’s government is seeking to spend its way out of an economic crisis triggered by a collapse in oil prices. Nigeria is Africa’s biggest oil producer and relies on crude for almost all its exports and two-thirds of government revenue.
Lawmakers in Nigeria’s parliament will begin deliberations this week on the 2016 spending plan while the 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.
