The Nigerian government is actively pursuing a $1.5 billion loan from the World Bank to address the severe dollar shortage that has been contributing to the depreciation of the naira.
Finance Minister Wale Edun disclosed the government’s intentions, stating that they are hoping to secure $1 billion to $1.5 billion from the World Bank for budgetary support. The minister highlighted the possibility of issuing a Eurobond in late 2024, emphasizing that Nigeria, with its ongoing economic reforms, is deserving of support.
Eurobonds, which are denominated in foreign currencies, provide Nigeria with a financial tool to navigate challenging economic conditions. Minister Edun expressed optimism about receiving support, citing the country’s commitment to ongoing reforms. He stated, “It is a matter of discussion at the moment, but we think we will get the support because we are continuing with our reforms.”
Nigeria has previously issued Eurobonds to raise debt for infrastructure projects and economic stimulus. In 2022, the country entered international debt markets with a $1.25 billion Eurobond issuance, marking its eighth venture into this financial arena. Additionally, in the following year, Nigeria redeemed a $500 million Eurobond issued in July 2013 as part of a dual-tranche of $1 billion, held for a tenor of ten years at a coupon of 6.375 percent per annum.
Minister Edun noted that the proposed $1.5 billion World Bank loan would come with zero interest, reinforcing the significance of the aid. Nigeria currently grapples with a substantial debt burden, amounting to about N87 trillion, which the International Monetary Fund considers manageable, albeit with high-interest payment obligations.
The Finance Minister outlined that the new World Bank loan would be directed towards financing development initiatives, emphasizing that the funds would be disbursed to Nigeria soon. The country faces economic challenges, including a budget deficit driven by factors such as rising fuel subsidy costs, substantial debt servicing, and constrained public spending.
The 2024 fiscal year budget stands at N28.7 trillion, with a deficit of N9.18 trillion, equivalent to 3.88 percent of the nation’s Gross Domestic Product (GDP). President Bola Tinubu highlighted that the current deficit is an improvement from the N13.78 trillion recorded in 2023, representing 6.11 percent of GDP.
To address the deficit, President Tinubu outlined a multifaceted financing approach, including new borrowings totaling N7.83 trillion, N298.49 billion from privatization proceeds, and a N1.05 trillion drawdown on multilateral and bilateral loans earmarked for specific development projects.
Nigeria also grapples with persistent dollar shortages, increased demand for dollars, and speculative activities that have placed pressure on the naira, leading to its devaluation. The shortage has widened the gap between the official exchange rate and the parallel market rate, impacting the street value of the naira. On Wednesday, the naira fell to a record low of N1,320 per dollar on the parallel market, reflecting the challenges faced in the foreign exchange market.
