Thursday, 8 September 2016

Nigeria: what price Fund finance?

Reports that Nigeria's economy shrank by 2% in the second quarter of the year and is officially in recession – its worst performance for 25 years – has fuelled speculation about negotiations between the government and the International Monetary Fund. Until now, President Muhammadu Buhari's government has insisted that while it will listen to policy advice from the IMF, it does not need to accept loans replete with a raft of macro-economic conditions.

In fact, by dropping fuel subsidies and floating the naira (which has depreciated to about N320=$1 on the foreign exchange market managed by the Central Bank), the government has met the two most onerous of the IMF's conditions. What would be the benefit of a loan? One is a massive and much needed cash injection. Egypt, whose economy is substantially smaller, has just secured a $12 billion loan from the Fund at well below commercial interest rates.

Nigeria seeks to raise almost a third of its 2016/17 budget – over $6 bn. – borrowing on the international and local money markets. It was planning to float a $1bn. eurobond in the coming weeks. Several banks are lining up to raise finance for what is still considered an under-borrowed economy. Discussions about pricing such a bond are well advanced. Almost certainly, Nigeria could get a better price and reduce its borrowing needs through an IMF deal. The big question is: is such a deal still politically unacceptable to the President and his top advisors?

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