• Thursday, May 23, 2024
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BusinessDay

Nigeria secures $2.25bn loan from World Bank at 1% interest rate

Can the government point the way to the long term?

The Federal Government on Saturday announced that it has qualified for processing a loan, described as ‘virtually a grant’ of $2.25 billion from the World Bank at 1 percent interest rate.

Wale Edun, the finance minister, disclosed this during a joint press conference of the ministry of finance and the Central Bank of Nigeria (CBN) at the spring meetings of the International Monetary Fund (IMF) and the World Bank, in Washington D.C.

According to him, the package, approved by the Board of Directors of the World Bank, offers a 40-year term with a 10-year moratorium and a nominal 1 percent interest rate.

“If you look at the fact that we have qualified for the processing, just this week to the Board of Directors of the World Bank, of the total package of $2.25 billion of what you can call, I mean, if there is no such thing as a free lunch, but it is the closest you can get to free money. It is virtually a grant. It is for about 40 years, 10 years moratorium and about 1% interest. So that also is part of the flow you can count,” Edun said while responding to BusinessDay questions.

He said Nigeria is set to benefit from budgetary support and low-interest funding from the African Development Bank, adding that negotiations with foreign direct investors are also underway, with promising prospects for substantial investment flows into the country.

Responding to concerns about debt sustainability, Edun highlighted the pivotal role of revenue generation. Oil revenue stands as a primary source, with efforts aimed at maximising its potential for the benefit of Nigerians. He noted that President Bola Tinubu has set ambitious targets to ramp up oil production, aiming to reach 2 million barrels per day from the current 1.6 million.

The increase in oil production is expected to significantly boost liquidity and aid in debt sustainability efforts. However, there’s a parallel emphasis on diversifying revenue sources beyond oil. The government aims to increase tax revenue from 10 percent to 18 percent of GDP within a few years, while also doubling non-oil revenue to around 22 percent.

“These measures are crucial for enhancing our fiscal resilience and ensuring long-term economic stability,” the finance minister emphasised.

As Nigeria navigates economic challenges, securing substantial funding and focusing on revenue diversification emerge as key strategies to drive sustainable growth and mitigate debt risks.

To issue diaspora bond later this year

Nigeria is exploring innovative avenues to bolster its foreign exchange supply and attract investment, with a keen focus on remittances from its diaspora community.

Highlighting the potential of Nigerians abroad, the finance minister noted their substantial financial resources, which could contribute significantly to the Nigerian economy. “There are Nigerians abroad, they’re doing very, very well. They have significant funding,” Edun remarked.

To harness these resources effectively, the Nigerian government is considering the issuance of diaspora bonds, aiming to attract funds from Nigerians living abroad and foreign currency holdings. The proposed diaspora bonds are anticipated to serve as an attractive investment instrument, catering to the financial interests of both Nigerians abroad and foreign investors.

“The government is looking at attracting those funds and capturing those funds through a diaspora type of instrument, a diaspora bond. We think that would be a very attractive instrument for Nigerians abroad and for foreign holdings of foreign currency and we look to having a substantive, substantial and successful issue later in the year,” Edun discloed.

The government is optimistic about the prospects of a successful diaspora bond issuance, envisioning a substantive and substantial response from investors. Plans are underway to launch the bond later this year, with hopes of securing significant inflows of investment capital to fuel economic growth and development.

Speaking at the press conference, Olayemi Cardoso, governor of the CBN, said, “Besides our meetings with multilateral financial institutions, and foreign investor groups with a keen interest on developments in Nigeria, including a critical gathering at the US Chamber of Commerce, we had very productive discussions with leading International Money Transfer Operators (IMTOs), where we collectively committed to doubling remittance flows through formal channels into Nigeria in the immediate short to medium term. This target is both ambitious and achievable, and we’re wasting no time in setting up a collaborative task force, reporting to myself, to drive progress and address any bottlenecks that hinder flows through formal channels.”

Targets larger share of World Bank’s electricity for 300m more people on Africa

Nigeria targets the largest share of the World Bank’s planned provision of electricity to 300 million more people on the African continent between now and 2030.

“An exciting development from this week’s meetings is the commitment to provide electricity to an additional 300 million people across Africa by 2030. This initiative is the result of collaborative efforts between the World Bank and other development partners. Overall, the Nigerian delegation has received positive feedback from their participation at the 2024 World Bank and IMF Spring Meetings,” Edun said.