Nigeria seeks to borrow $3.5bn from world bank to fund budget

Nigeria is holding talks with the World Bank to help it fund a forecast $11bn (£7.7bn) budget deficit. Africa’s biggest oil producer, needs $3.5bn (2.22 trillion naira) in help to plug a $15bn government deficit.

However, Finance Minister Kemi Adeosun said in a statement that it was not applying for an “emergency loan”.

Nigeria is believed to be looking to borrow $3.5bn from the World Bank and the African Development Bank.

Africa’s largest economy has been hit hard by the recent fall in oil prices, and the government needs to find new sources of income to fund its budget.

Last year’s government budget was largely financed by oil revenue.

The government is also pursuing several options to cover its estimated 2.22 trillion naira budget deficit as Abuja contends with low oil prices. Although Nigeria has been quick to say that it is not pursuing an “emergency” loan, Abuja nonetheless will have a difficult financial year in 2016.

Ms Adeosun said that “Nigeria, as a member of World Bank group is entitled to access available funds like every member-country,” but she is also looking at the domestic market as a means to get finance.

“No application for loans have been made. We are simply discussing options for funding [the] 2016 budget,” she added.

Oil prices are unlikely to recover and the Central Bank of Nigeria’s foreign reserves have fallen by 28 percent since Oct. 1, 2014, sinking to its current decades-low level of $28 billion. Without a near-term rise in oil prices, many of Nigeria’s policies are simply unsustainable. Until prices inch back up, which could happen in 2017, Abuja will be forced to make painful financial adjustments, some of which are already in the works — though at a very slow pace to avoid rattling public confidence.

An analysis by Lerato Mbele, BBC Africa Business Report states a major concern for Nigeria is that more than 55 years after independence, oil revenues are still being used to support the day-to-day activities of the government, rather than being used for investment.

President Muhammadu Buhari is trying to adjust the public finances and whether he achieves this will be one of the ways his term in office will be judged.

For now, the government will continue its consultations with the international partners, which started earlier this year with a visit by International Monetary Fund chief Christine Lagarde.

By their assessments, Nigeria’s economy will slow down in 2016 but growth may still come in at 3.2%, which is a positive in the face of global volatility.

So, in effect whilst the situation in Nigeria is clearly serious, some would say Nigeria is not yet in a crisis mode.

Because of that, nobody is using the word bailout which would suggest that the country is almost bankrupt.

Chief Africa economist for Standard Chartered bank Razia Khan told the BBC that going to the World Bank could be attractive as it may offer Nigeria better terms for a loan than it would get from the international money markets.

Nigeria is deliberately boosting spending on infrastructure development to try to boost the economy as it tries to deal with the oil price shock, she added.

The country is also under pressure to devalue the currency, the naira, as it tries to cope with the impact of the declining oil price.