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Nigeria’s Federal Government is presently in talks with the African Development Bank (AfDB) for a $1 billion loan that would enable the country finance its record N6.06 trillion 2016 budget.
The 2016 budget performance so far at 35 percent is widely seen as reflective of the low revenue out turns.
Finance minister, Kemi Adeosun had confirmed that government would begin to engage international borrowings in this third quarter, as revenues shrink on account of low oil incomes.
Ousmane Dore, AfDB Country Director for Nigeria, told BusinessDay that the bank officials have advanced talks with Nigerian authorities on the proposed budget support, which he said would help the government push reforms in critical sectors, especially in revenue generation and spending.
“The African Development Bank has received a request for budget support operation in the amount of $1billion.
“Certainly, the money has yet to come but the last mission just concluded last Friday, and we have to proceed to the next step of the process which will probably be negotiation, before we can take the programme to the board for approval,” Dore told BusinessDay in an exclusive interview.
“So in a sense, we are pretty much towards the end of the process and we also have to look at the macroeconomic situation and there have been a number of reforms to help the economy get back on the path of recovery.
“So putting all these together, we should be able to propose something to our management and then proceed to our board for this operation to commence.”
Africa’s largest economy has planned an expansive fiscal spending directed at reflating the economy now in recession. Of the N6.06 trillion budget, the Federal Government had envisaged revenues of up to N3.855 trillion, leaving an expanded fiscal deficit to N2.2 trillion, about 2.14 percent of GDP.
The government plans to finance the deficit mainly through a restructured borrowing plan of up to N1.8 trillion, which favours more of external than domestic borrowing to check crowding out the private sector.
Explaining the conditions of the intended AfDB loan, Dore said it comes under their ADB window on a concessionary basis, with repayment period varying between 15-25 years. The grace period also varies from five to eight years and the interest rate is linked to the LIBOR to some extent.
Decline in oil prices since mid 2014, as well as the recent production shocks are increasing domestic and external vulnerabilities.
Nigeria’s GDP growth rate settled at -0.36 percent in the first quarter, indicating a worrying economic slow down. There are already projections that the Q2 growth rate may end up in negative, taking the country into a recession.
Official figures show total revenue inflow for the first half of the year fell short of the budget by over N1 trillion or 55.2 percent. Oil revenues fell significantly in the second quarter on account of increased pipeline vandalism and production shut ins.
Non-oil revenues also declined as against budget forecasts, due to slow-down in economic activities, and the acute FX shortage.
To augment the shortfall, the Federal Government has already made about N600 billion domestic borrowings, about 33 percent of approved N1.819 borrowing for the year.
Government says it has committed to fiscal reforms which center on fiscal discipline and expanding the non-oil revenue base. Sub-national governments have been encouraged to focus on their potentials for increased independent revenues.
Dore said the budget support is to assist the Federal Government pursue most of these reforms, which he signaled as a key consideration for the facility.
“Usually, we design this kind of operation to help push reform agenda because its really in the area of macro policy, governance and so on.
“The grant budget support is prompted by the macroeconomic shock that Nigeria has been under since 2014 with the collapse in the price of oil. So, it created a significant balance of payment and fiscal pressure which really led the government to the sincerest request for this type of operation.
“So it is important that a programme of this nature has a strong revenue mobilisation effort, where the government certainly can, like what is being done, pursue the enforcement of the fiscal responsibility law which would allow the agency to transmit all their revenue generated into the treasury account,” he noted.
Responding to when the Money will likely come in, Dore explained “Certainly as soon as we have concluded because even in the project finance, we do the due diligence evaluation. We do the negotiation and then we have an internal review mechanism and then the final step is when the document is finally approved by the board.
“We do expect to get there, certainly there has been some delay but our plan is to really move as fast as possible given the result that this ongoing mission with the government will yield,” the Country Director further explained.
Onyinye Nwachukwu
