PRESIDENT Muhammadu Buhari has written to the National Assembly asking for its permission to borrow an extra $6.1bn from bilateral and multilateral financial organisations to fund the deficit in Nigeria’s 2021 budget.
Although spared the worst health excesses of the Covid-19 virus, Nigeria has been hit hard by the economic effects of the global pandemic. Apart from the fact that commerce has slowed, Nigeria has suffered from the effects of reduced oil purchases and a reduction in the export of primary commodities.
As a result, about one third of the 2020 budget was financed by loans from organisations like the World Bank, International Monetary Fund and African Development Bank. Nigeria’s 2021 budget is worth $33bn but with the economy still reeling from the effects of the pandemic, about a third of this is expected to be funded through loans.
Last Tuesday, President Buhari wrote to both chambers of the National Assembly, asking for their approval to take the fresh loans. Hon Idris Wase, the deputy speaker of the House of Representatives, read the letter from the president during the plenary, as did the senate president Senator Ahmad Lawan.
This new loan will amount to about N2.343trn and will be used to offset the deficit, which is estimated to total about N5.6trn. Already, the National Assembly has approved the borrowing of N4.6trn in the 2021 Appropriation Act.
President Buhari’s letter read: “The allocation of N2.343trn to new external borrowing in the 2021 Appropriation Act is consistent with Nigeria’s debt management strategy, which seeks amongst other objectives, to moderate debt service costs by accessing relatively cheaper external funds and to free-up space in the domestic market for other borrowers.”
In addition, President Buhari also said part of the loan will be sourced from International Capital Market (ICM) through the issuance of Eurobonds. He explained that Nigeria can now access the ICM, noting that the country is targeting raising a minimum of $3bn from there but not more than the entire $6.1bn.
President Buhari also said that in the case of Eurobonds, the final terms and conditions can only be determined at the point of issuance of the bonds in the ICM and will be subject to market conditions prevailing at that time. He, therefore, said the finance ministry and Debt Management Office will work with transaction advisers appointed by the federal government.