The World Bank’s $2.1billion loans for Nigerian projects, being cheaper than Eurobonds, is positive for the economy as greater portion should be channelled to power sector, analysts have said.
The World Bank has approved a total of $2.1 billion in concessionary loans to fund projects in Nigeria aimed at improving access to electricity and promoting governance, Reuters reports.
Nigeria’s energy output per capita is said to be one of the lowest in the world. The World Bank said more than half of the loans would be used to fund power and climate change projects and boost fiscal transparency. It also approved a $7 million grant for nutrition.
“The FGN cannot cover the huge infrastructural deficit on its own, hence the agreements with multilateral and other agencies. The power sector is clearly a priority”, said Gregory Kronsten, head macroeconomic research, FBNQuest.
As for the borrowing costs, he said these loans will attract sub-market concessional rates which are cheaper than the Eurobonds and naira bonds.
The projects approved by the International Development Association (IDA), the bank’s low-interest arm, are expected to support Nigeria’s economic growth plan.
The Federal Government of Nigeria has in March 7, 2017 released its Economic Recovery and Growth Plan (ERGP). The plan, which is a medium term plan for 2017 to 2020, builds on the Strategic Implementation Plan (SIP) which was developed for the 2016 budget.
After six success quarters of negative GDP growth, Nigeria turned the corner in second quarter of 2017. GDP growth is projected at 2.0 percent in 2018 by Rand Merchant Bank Nigeria’s research.
However, growth slowed again in the first quarter of 2018, as the country’s non-oil sector struggled. The government expects growth to rise to a pre-recession level of 7 percent by 2020.
“Investment in power sector will be very beneficial to the country”, said Johnson Chukwu, managing director/CEO, Cowry Asset Management Limited, who added that greater portion of the loan should be channelled to power sector of the economy.
Nigeria privatised most of its power sector in 2013 but retained control of its dilapidated monopoly transmission grid, often blamed for hobbling growth.
Africa’s largest oil producer plans to raise $2.8 billion Eurobond to help part-finance its 2018 budget and looks at exploring all options to lower costs.
Responding to the World Bank loans, Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited said “This is positive for the Nigerian economy and the electricity sector. World Bank, being a development institution, usually lends money to projects and countries at a rate that is lower than the market rate and the tenor is usually longer than what most countries can access from commercial banks”.
In addition, he said it provides technical supports to ensure that the projects it lends money to are implemented the way they are conceived.
The Debt Management Office (DMO) said it could tap capital markets or concessionary loans from the World Bank after the 2018 budget had been approved.
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