Nigeria’s efforts to get funds from lenders outside it’s borders in order to lift the economy out of recession have suffered a major setback following the Federal Government’s failure to submit a comprehensive reform plan demanded by World Bank.
The government has been in loan talks with the World Bank for a year where promised to present its proposed reforms to make the economy more resilient and attractive to investment by the end of December, according to Western diplomats and a Nigerian official who preferred anonymity.
But this reform package has yet to be presented. However owing to delays, which the government has not explained, the Washington-based bank has not been able to consider its loan request loan yet, the sources said.
Nigeria’s Finance Minister, Kemi Adeosun, and the World Bank declined to comment on the latest development.
Meanwhile the African Development Bank (AfDB) has also said it is holding back the second tranche of a $1 billion loan for the country, AfDB president Akinwumi Adesina told Reuters on the sidelines of the World Economic Forum in Davos, Switzerland.
“We are waiting for the economic policy recovery programme and the policy framework for that,” said Adesina, without specifying when the AfDB had expected to receive the reform plans.
Nigeria is seeking to borrow $4 billion in total from the World Bank and other foreign institutions and $1 billion through Eurobonds to plug a yawning budget deficit and fund badly needed infrastructure projects.
It’s no news Nigeria relies on oil revenue for much of its income and this caused the country to be hit hard by the sharp fall in crude prices since 2014 and is struggling to pull its economy out of its first recession in 25 years.
It is unclear why the government has not submitted reform plans to the international lenders, but observers fear the funding deadlock could throw into doubt badly needed infrastructure projects planned for this year, including new roads and improvements to power infrastructure.
The failure to secure the funds, and to present a reform programme, could also deter some investors from Nigeria’s planned $1 billion Eurobonds sale in March.
A Nigerian financial source said the government was working with consultants on putting together a package of proposed reforms. Nigeria needs money to help plug a budget deficit of 2.2 trillion naira ($7 billion) for 2016 and fund a record budget of 7.3 trillion naira for 2017 which is aimed at stimulating the economy.
It has been holding talks with various institutions and China over the last year to borrow funds but apart from a $1 billion loan from the African Development Bank, at a rate of 1.2 percent, nothing has been made public.
The Abidjan-based AfDB has paid out an initial $600 million in November, but is awaiting the economic reform proposals also before it disburses the second tranche.
It is unclear how much money the government is seeking from the World Bank, or whether the lender was pushing for any specific economic reforms from the government.
The diplomatic sources, however, said the bank wanted to see how Nigeria planned to lower its dependence on oil revenues and boost investment, which has been hit by a high official exchange rate for the naira currency.
Nigeria’s central bank, backed by President Muhammadu Buhari, has kept the naira rate to the dollar at 40 percent above the unofficial – or parallel – market rate, which has dried up dollar supplies on official channels.
The policy has also made investors reluctant to commit new projects as they expect the central bank will have to devalue the naira eventually as oil production has been hit by an insurgency in the Niger Delta oil hub.
The central bank has also imposed hard currency curbs making impossible the import of almost 700 goods, which has forced dozens of plants to close running out of spare parts.
Adesina told Reuters on Tuesday that the currency rate problem needed to be addressed by the government in its reform programme, which he said the AfDB was coordinating with the World Bank.
“We are being clear that the quantitative restriction in terms of access to FX is what’s creating huge gap between parallel market rates and official rates,” he added.
($1 = 314.5000 naira) (Reporting by Paul Carsten and Ulf Laessing in Abuja and Sujata Rao in Davos, Switzerland; Additonal reporting by Chijioke Ohuocha in Lagos; Editing by Pravin Char).