In a move to address the severe dollar shortage contributing to the decline of the naira, Nigeria is actively seeking a $1.5bn aid package from the World Bank.
Finance Minister Wale Edun announced on Wednesday to Bloomberg the country’s intention to secure $1bn to $1.5bn from the World Bank for critical budgetary support.
Edun emphasized the importance of this financial infusion in the current economic climate and 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.”
He further mentioned that Nigeria might also consider issuing a Eurobond in late 2024, a strategic move denominated in foreign currencies to navigate the financial challenges.
Eurobonds, as a financial instrument, have been employed by Nigeria in the past to raise debt for infrastructure projects and economic stimulus.
In 2022, Nigeria ventured into the international debt markets with a $1.25bn Eurobond issuance, marking its eighth foray into this financial arena.
The subsequent year saw the redemption of a $500m Eurobond issued in July 2013 as part of a dual-tranche of $1bn, held for a tenor of ten years.
During a press conference in October 2023 at the World Bank/International Monetary Fund Annual meeting in Marrakech, Morocco, Minister Edun revealed that the anticipated $1.5bn World Bank loan would carry a zero-interest rate, a development that aligns with Nigeria’s ongoing efforts to manage its nearly N87tn debt.
The finance minister emphasized the intended use of the new loan, stating, “On the talks with the World Bank on $1.5bn budget support, that is correct.
The World Bank is the number one multilateral development bank helping developing countries or funding developing countries, projects programs, and sectors.
It has free money through the International Development Association.
It is for the poorer countries, and right now, I think we qualify as one of the countries that can borrow from the normal window of the World Bank funding, but also some concessionary IDA funding; and that means that effectively, the interest rate will be zero.”
Despite Nigeria grappling with a substantial budget deficit in the 2024 fiscal year, amounting to N9.18tn, the nation’s leadership, led by President Bola Tinubu, has outlined a multifaceted financing approach. This approach includes new borrowings totaling N7.83tn, N298.49bn sourced from privatization proceeds, and a N1.05tn drawdown on multilateral and bilateral loans earmarked for specific development projects.
Amid these economic challenges, Nigeria is also dealing with persistent dollar shortages, heightened demand for dollars, and speculative activities impacting the naira.
The shortage has widened the gap between the official exchange rate and the parallel market rate, leading to the naira’s devaluation.
On Wednesday, the naira fell to a record low of N1,320 per dollar on the parallel market, reflecting the impact of strong demand and speculative activities.
The Central Bank of Nigeria has taken steps to address the forex situation, recently disbursing $2bn to settle a backlog of outstanding foreign exchange forwards.
The commitment to enhancing liquidity and stability in the foreign exchange market remains a key focus in light of Nigeria’s ongoing economic challenges.
As the nation navigates these complexities, the pursuit of international aid and financial instruments becomes a critical component of its strategy to stabilize the economy and fortify the national currency.
