Nigeria is seeking $1.5 billion in aid from the World Bank to tackle the severe dollar shortage contributing to the decline of the naira.

Jerrymusa.com reports that to bolster budgeting efforts, “we’re hoping to get $1 billion or $1.5 billion from the World Bank,” Finance Minister Wale Edun told Bloomberg on Wednesday.

The Country Deserve Support

The minister said that “with the present economic reforms, the country deserves support and that the largest economy in Africa can issue a Eurobond in late 2024.

“Foreign currency-denominated Eurobonds provide Nigeria with a means of navigating its financial environment in the face of difficult economic circumstances.

The minister stated, “We think we will get the support because we are continuing with our reforms, but it is a matter of discussion at the moment.”

Nigeria has Grown it’s Economy through Eurobonds in the past

“In the past, Nigeria has raised debt to finance infrastructure and grow its economy by issuing Eurobonds.

“In 2022, Nigeria entered the international debt markets with a $1.25 billion Eurobond issuance, marking its eighth venture into this financial arena, according to the Debt Management Office.

“Later that year, the nation redeemed a $500 million Eurobond that had been issued in July 2013 as part of a $1 billion dual-tranche that was held for ten years at a coupon rate of 6.375 percent annually.”

At a press conference held in October 2023 in Marrakech, Morocco, during the World Bank/International Monetary Fund Annual Meeting, the minister stated that “the $1.5 billion World Bank loan will have no interest.”

The International Monetary Fund stated that Nigeria’s debt of over N87 trillion was “manageable,” despite the fact that the interest payments were expensive for the nation.

The minister declared that “development would be financed using the new World Bank loan. Revealing that Nigeria would receive the facility very soon.

“That’s correct,” he replied, referring to the discussions with the World Bank on the $1.5 billion budget support.

“The World Bank is the leading multilateral development bank, supporting and assisting developing nations, sectors, projects, and programmes. Through the International Development Association, it is eligible for free funding.

“It is intended for the poorest nations, and as of right now, I believe we meet the requirements to borrow from both the regular World Bank funding window and some concessionary IDA money, which essentially translates to a zero interest rate.

“Investors are very concerned about Nigeria’s roughly $7 billion in matured foreign exchange futures, but the Central Bank of Nigeria has pledged to make the payment in order to increase trust in the foreign exchange market.

“However, in order to clear up a backlog of unpaid foreign exchange forwards, the apex bank recently paid out $2 billion, demonstrating its dedication to improving market stability and liquidity.

“Nigeria is struggling with a budget deficit as a result of rising fuel subsidy costs, onerous debt servicing, and constrained governmental spending in the face of growing economic difficulties.

“The budget for the 2024 fiscal year is a massive N28.7 trillion, with a N9.18 trillion deficit – or 3.88 percent of the country’s GDP – along with it.”

President Bola Tinubu underlined that “the current deficit, which amounts to 6.11 percent of GDP, is less than the N13.78 trillion reported in 2023. “In order to deal with the deficit, President Tinubu presented a comprehensive financial strategy.

“This comprises N7.83 trillion in fresh borrowings, N298.49 trillion from the profits of privatisation, and a N1.05 trillion drawdown on bilateral and multilateral loans designated for certain development projects.

Nigeria’s Current Economic Challenge

“The biggest economy in Africa is also dealing with ongoing currency shortages, rising dollar demand, and speculative activity that has put pressure on the naira and caused its devaluation.

The street value of the naira has been further impacted by the widening disparity between the official and parallel market exchange rates caused by the lack of dollars.

“Wednesday saw a record low of N1,320 for the naira against the dollar due to robust parallel market demand.

“By the end of business, the local currency had lost 4.72 percent of its value and was worth N878.57 compared to the US dollar data from NAFEM, where forex is officially traded.”

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