Plans by the Nigerian government to borrow billions of dollars from the World Bank and other international lenders to plug its budget deficit have run into delays amid a stalemate over reforms, jeopardising the country’s ability to finance its budget.
Even as the World Bank said it was “continuing its discussions” with Nigeria “on a range of critical reforms for restoring macroeconomic resilience” and “would determine, with the government, the most appropriate instrument to support the reform programme”. It did not give a timeline for those discussions, which are expected to continue on the sidelines of the World Bank and IMF meetings in Washington.
“Although recent measures, including the adjustment of fuel prices and the move toward more flexibility in the foreign exchange market, are welcome, more are needed to ensure sustained economic benefits,” Gene Leon, the IMF’s mission chief for Nigeria, said in a statement to the Financial Times.
Nigeria needs to “reduce domestic and external imbalances” and provide “greater clarity” on its macroeconomic policy direction, he added.
They added that the World Bank had said it would not be able to disburse any loans until 2017 at the earliest because it “has not yet received the macroeconomic framework” needed for the discussions to progress, though the finance ministry disputes that.
Nigeria’s plight is emblematic of the growing problems facing commodity-exporting countries in the developing world in the wake of the collapse in oil and other commodity prices in recent years, a subject that will be heavily discussed at this week’s annual meetings of the International Monetary Fund and World Bank in Washington.
Mongolia on Friday became the latest example of those woes when it lodged a formal request for a bailout from the IMF, joining countries such as Angola and Suriname that have been driven to seek help this year.
Nigeria is heading towards its first full-year economic contraction in a quarter of a century, due in part to the slow and widely criticised response to the oil price collapse by the administration of President Muhammadu Buhari. Meanwhile, militant attacks in the oil-producing Delta have slashed foreign earnings further, stoking severe foreign exchange shortages.
The naira has lost 40 per cent of its value since June, when the central bank abandoned a currency peg at the behest of the IMF and other lenders concerned at the pace at which the government was burning through foreign exchange reserves.
But Abuja is now facing calls from the IMF and World Bank to push through further reforms. These discussions have held up any agreement on a loan from the bank, said people briefed on the talks.
Mr Buhari was elected last year on a promise to tackle corruption but has struggled to manage Africa’s largest economy and stave off the deep fiscal crisis. Underlying that has been his deep aversion to the IMF, with which he clashed in the 1980s when he ran the country as a military ruler before he was toppled in a coup amid a public outcry over conditions set by the fund in a bailout.
Mr Buhari said in a speech at the weekend that the government had spent 720.5bn naira ($2.3bn) on capital projects this year to get the economy moving again.
Finance minister Kemi Adeosun told the FT in April that Nigeria planned to secure external financing for a shortfall now estimated at 1.8tn naira by the end of the third quarter. She said last week that discussions with the bank were ongoing.
There have been some signs of progress. Akinwumi Adesina, president of the African Development Bank, last week said he would go to the lender’s board in October to seek approval for a $1bn loan to help cover Nigeria’s deficit.
Meanwhile, senior politicians and businesspeople, including Aliko Dangote, Africa’s richest man, have said Nigeria has no choice but to sell state-owned assets to raise capital and avoid a prolonged fiscal crisis.