Nigeria to seek China for $2 billion to cover budget deficit

LAGOS : Nigeria which is suffering its worst economic crisis for decades, plans to meet Chinese investors about returning to commercial borrowing on the Eurobond market.

Nigerian Finance Minister Kemi Adeosun plans to travel to China next week aiming to negotiate a loan of up to $2 billion to help fund record budget spending.

Loan agreed during Adeosun’s trip could be signed by President Muhammadu Buhari in Beijing next month.

“The finance minister of the central bank governor is scheduled to be in China sometime next week to conclude negotiations on the $2 billion loan.” official confirmed.

The official acknowledged negotiations had been underway for some time and that the terms had yet to be agreed. However hopefully it may be sorted out during this meeting and the loan will be signed during President Buhari’s visit to China in March this year.

With China largely closed for the Lunar New Holiday it is unclear how keen Beijing is on the idea or how tough a bargain it might demand.

The central bank could not confirm whether Governor Godwin Emefiel would be joining Adeosun.
Nigeria wants to raise about $5 billion abroad to cover part of its 2016 budget deficit. This is projected to hit 3 trillion naira ($15 billion) due to heavy infrastructure spending at a time when the slump in global oil prices has slashed it export revenues.

Nigeria had wanted to raise $1 billion from Eurobond investors but has dropped plans to sound them out at a non-deal “road show” which the finance ministry had tentatively planned for March, financial sources say.

That puts pressure on Africa’s biggest economy and top oil producer to borrow more from other sources such as China. Nigeria had up to now planned to raise around $4 billion at concessionary interest rates from sources such as the World Bank.

While the government official foresaw a $2 billion China loan, a financial source put the amount at more than $1 billion. The finance ministry could not be immediately reached for comment.

Adeosun has said Abuja has held “explanatory talks” with the World Bank. It has also asked the African Development Bank for a $1 billion budget support loan.

A World Bank loan would probably be tied to specific goals with strings attached. As well as infrastructure projects, Nigeria also wants loans to refinance existing debt, one financial source said – an idea that would be hard to sell to the World Bank or other development-focused lenders.

The World Bank has confirmed talks have been held on “Development Policy Operation” funding, which typically aims to improve infrastructure and create jobs. The multilateral lender has been studying projects to fight poverty in northern Nigeria, where the jihadist Boko Haram group is waging an insurgency.

If talks with China or multilateral agencies fail, Nigeria would struggle to find willing commercial lenders.

To excite buyers, Nigeria would have to devalue or float the naira. Investors believe its overvaluation is delaying economic recovery especially as other oil exporters from Russia and Angola to Colombia have devalued their currencies significantly in the past 12 to 18 months.

The Nigerian currency hit a new low this week on the black market where a dollar fetched 318 naira, compared with the official rate of 197.

“The policy response in Nigeria has been very slow with respect to the currency,” said Claudia Calich, head of emerging debt at M&G Investments in London. “If you look at Angola they have allowed the currency to devalue quite a bit so the rate of potential deterioration in Nigeria in future might be higher.”




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