Pushback on FG’s Loan Request over Economic Recovery Plan

•   $4bn loan request at risk as CBN gradually rebuilds foreign reserves

By Crusoe Osagie with agency report

Nigeria’s drive to secure funds from international lenders to meet budget shortfalls may be facing a pushback over the federal government’s delays in unveiling its comprehensive reform and economic recovery plans that was expected last December.

The federal government has been in  negotiations with international lenders including the World Bank and the African Development Bank, for a year, promising to present its proposed reforms to make the economy more resilient and attractive to investment by the end of December, diplomats told the Reuters news agency.

But this reform package has yet to be presented.

However, owing to delays, which the government has not explained, the Washington-based World Bank has not been able to consider its loan request yet, the agency reported.

The African Development Bank (AfDB) also said it was holding back the second tranche of a $1 billion loan for the country, according to AfDB president, Akinwumi Adesina who spoke at the sidelines of the World Economic Forum in Davos, Switzerland.

“We are waiting for the economic policy recovery programme and the policy framework for that,” Adesina said, without specifying when the AfDB had expected to receive the reform plans. However, Vice President Yemi Osinbajo who was also in Davos assured the international community the  Nigeria Economic Recovery Plan would be unveiled “soon”.

The government is seeking to borrow $4 billion in total from the World Bank and other foreign institutions and $1 billion through Eurobonds to plug a yawning budget deficit and fund badly needed infrastructure projects.

Unsustainably dependent on crude oil revenue for much of its income, the nation’s economy has been hit hard by the sharp fall in crude prices since 2014 and is struggling to pull out of its first recession in 25 years.

It is unclear why the government has not submitted reform plans to the international lenders, but observers fear the funding deadlock could throw into doubt badly needed infrastructure projects planned for this year, including new roads and improvements to power infrastructure.

The failure to secure the funds, and to present a reform programme, could also deter some investors from Nigeria’s planned $1 billion Eurobonds sale in March.

Efforts to get the Finance Minister, Kemi Adeosun, her Budget and National Planning counterpart, Udoma Udo Udoma and the World Bank to comment on the Reuters report was however unsuccessful.

According to diplomatic sources, the institutions are particularly interested in the non-oil revenue generating segments of the Nigerian economy, particularly the agricultural and solid minerals sectors, which are the key areas needed to drive economic diversification and create jobs for the teeming populace.

A Nigerian financial source said the government was working with consultants on putting together a package of proposed reforms. Nigeria needs money to help plug a budget deficit of 2.2 trillion naira ($7 billion) for 2016 and fund a record budget of 7.3 trillion naira for 2017 which is aimed at stimulating the economy.

It has been holding talks with various institutions and China over the last year to borrow funds but apart from a $1 billion loan from the AfDB, at a rate of 1.2 per cent, nothing has been made public.

The Abidjan-based AfDB has paid out an initial $600 million in November, but is awaiting the economic reform proposals also before it disburses the second tranche.

It is unclear how much money the government is seeking from the World Bank, or whether the lender was pushing for any specific economic reforms from the government.

The diplomatic sources, however, said the bank wanted to see how Nigeria planned to lower its dependence on oil revenues and boost investment, which has been hit by a high official exchange rate for the naira currency.

The Central Bank of Nigeria (CBN), backed by President Muhammadu Buhari, has kept the naira rate to the dollar at 40 per cent above the unofficial – or parallel – market rate, which has dried up dollar supplies on official channels.

The policy has also made investors reluctant to commit new projects as they expect the central bank will have to devalue the naira eventually as oil production has been hit by an insurgency in the Niger Delta oil hub.

The central bank has also imposed hard currency curbs making impossible the import of almost 700 goods, which has forced dozens of plants to close running out of spare parts.

Adesina had said the currency rate problem needed to be addressed by the government in its reform programme, which he said the AfDB was coordinating with the World Bank.

“We are being clear that the quantitative restriction in terms of access to FX is what’s creating huge gap between parallel market rates and official rates,” he added. But World Bank officials who spoke off-the-record to THISDAY may differ. They say they do not expect, or even support a sudden “float” or devaluation of the Nigerian currency as being conversed by many in the market, and would support a managed FX rate regime that gradually aligns official and parallel  markets. THISDAY checks reveal that the CBN may be quietly building back its foreign currency reserves, which climbed to almost $28billion last week, before any major FX reforms. Official at the CBN say they want to see reserves back at some $30billion so as to have the ammunition to fend off currency speculators before aligning the currency to market forces later this year.