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FG to secure $2bn World Bank, AfDB loan to fund budget

By on March 27, 2015

The federal government has said it will source $2 billion from the World Bank and the African Development Bank (AfDB) under the 2012-2015 External Borrowing Plan to help in the implementation of the 2015 budget.

The loan is primarily targeted at addressing foreign exchange demand and strengthening of the naira, which has been devalued by the Central Bank of Nigeria (CBN) following the increasing pressure on the local currency largely precipitated by a fall in the price of oil.

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, who spoke in an interview in Abuja yesterday on efforts to address the foreign exchange challenges, the value of the naira and the 2015 budget, said: “We have entered negotiations with international financial institutions — that is specifically, the African Development Bank and World Bank.
“You know they have some resources for us already programmed, which is in the borrowing plan.
“We have asked them to turn these resources into budget support for us… We are negotiating for $2 billion that will come in foreign exchange.

“Remember that the terms of this loan from the ADB are quite reasonable (3 – 4) per cent compared to what you can get outside, and this is money that they had committed aside for us and we have decided to draw on it, and use it in the form of budget support.
“We will use it to get the naira equivalent given to us by the central bank. It will come in two tranches. It will bring in the needed foreign exchange that will help our private sector people to have access to foreign exchange, so it will alleviate the situation.
“It’s something that we are working on. We are communicating day and night with them. We have to address the needs of manufacturers and others. That is one more thing we are doing and I hope that will help to ameliorate the situation.”

On the tenor of the loan, the minister said: “We will probably have about five years’ grace before we have to repay.”
The minister however, said there was the need for Nigerians to adopt long-term measures that can boost the nation’s foreign reserves and help strengthen the naira.

“Let me take on the issue of the value of the currency that you raised. I know this is of concern to Nigerians—manufacturers looking for more foreign exchange; people paying their school fees abroad; even ordinary people.
“I also feel that with this strong base we have, if we sustain it and keep pace, the value of the naira will be strengthened because we have got the different sectors.

“There are two ways we have to do it, and I think this is what Nigerians want. Instead of just depending on oil, we have to look at what are the two ways you have to grow your reserves because that’s the way you strengthen the value of your currency?
“One is to reduce your demand for imports and that’s why I think it is very important to watch our demand for agricultural imports and reduce our demand for other goods.

“We have always encouraged Nigerians that even strengthening the value of the naira is not just government’s action alone. It’s in our hands. If we buy more of what is made locally in our own country and reduce the demand for things made outside, that means that we can increase our reserves.
“The central bank does not have to give out money for importing those goods that we don’t need.
“The second thing is for us to start exporting things to other countries, and that’s what I think we still encourage because we are laying the foundation,” she explained.

She also disclosed that of the 66,000 applicants for federal government’s new mortgage scheme under the Nigeria Mortgage Refinance Company (NMRC), 40,000 had scaled the hurdle to get financing, with 300 already receiving money to acquire homes.
Okonjo-Iweala stated that the NMRC was on the verge of refinancing primary mortgage institutions to the tune of N6 billion.
Speaking on measures being put in place by the government to ameliorate the impact of the economic difficulties on the common man, the minister regretted that there had been some attempts to make people feel that there is no hope and that the situation occasioned by the fall in oil prices was difficult and irredeemable.

She noted that at the outset of the oil revenue fall, she had unequivocally told Nigerians that difficult times were in the offing, but assured them that there was hope and light at the end of the tunnel.
“The reason is that we have worked so hard as a country under this administration to lay the foundation for us to exit this situation and get back on a good path.

“That is what gives me hope. Why did I say that? First of all, let’s come back to the fact that we now have in Nigeria what is the largest economy on the African continent.
“That is important— we have to continue stressing it because it means that since we’ve got the sectors, we have the base which will enable us carry out that diversification and be able to have a stronger economy in the long-term that creates the jobs, and give our young people hope.
“It is very important to note that we did not know the structure of the economy and all that before. So when you look at the structure of the economy now, you see that the growth—all the analysts have shown that all the growth from this economy have come from the non-oil sector.
“Agriculture has been doing rather well, for instance. That also comes to the present situation because agriculture has been doing well; we produce more food than ever before— 21 million metric tonnes of more food.
“We produced 1.4 million metric tonnes of paddy rice before, which is 1.6 metric tonnes now. What I am saying about rice is even dry season rice, not to talk of paddy. So we are on our way to really reducing our dependence on food imports.

“And because we got food production up, prices have been relatively stable and reasonable. You can go round markets; we’ve gone round from different places, and prices of foodstuff have remained reasonable, unlike other oil producing countries.
“That is helping us manage this situation for the average Nigerian, because it could have been otherwise. That also gives you hope that if we continue on this path by addressing agriculture as a business, getting fertiliser, we will continue to grow food. That’s the first point.
“The second one is that for small and medium businesses which employ the most people—they employ 68 per cent of the adult population and contribute 45 per cent of our national income.

“Accordingly, we have opened up several avenues to support them, not on an ad hoc basis. On this, there is what the Central Bank of Nigeria has done which was first to issue the N220 billion fund and then N300 billion that the president kicked off two days ago with the launch of a new development bank,” the minister said.
According to her, the development bank would bring fresh impetus for SMEs and revolutionise the real sector, culminating in a more sustainable and solid economic growth.

Speaking on the 2015 budget, the minister disclosed that the National Assembly is expected to pass it on March 31, adding that as part of sacrifices to overcome the revenue shortfall, political appointees at the federal level, including President Goodluck Jonathan had volunteered a 50 per cent cut in their basic salaries while permanent secretaries are giving up 30 per cent.
The minister also stated that the National Assembly would shed N30 billion of its annual N150 billion budget, while the State House budget has been slashed by 25 per cent.

On the surcharges being introduced on certain luxury consumer goods and services, the minister disclosed that government is expected to start generating revenue from the new levies by April.