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Coronavirus: Nigeria goes home for funds out of fear on COVID-19 impact

In depth
This article is part of the dossier: Corona Chronicles: 27 April – 30 April

By Ruth Olurounbi, in Lagos
Posted on Wednesday, 29 April 2020 18:29

A man walks past a closed shopping centre, as authorities race to contain the spread of the coronavirus disease (COVID-19) in Abuja, Nigeria 28 April 2020. REUTERS/Afolabi Sotunde

The impact of the coronavirus has reversed Nigeria’s plan to borrow from the external market this year, forcing the country of nearly 200 million to seek funding from its domestic markets, on the approval from the country’s senate.

Nigeria’s oil-dependent economy is being knocked-back by the coronavirus outbreak and the drop in global crude prices that it has caused. A recession is likely, and the economy could shrink by 3.4% this year.

READ MORE: Coronavirus: recession in Nigeria likely, despite measures in place

Raising funds

The government urgently needs more money to plug its budget gap and to spend on priority programmes. Nigeria’s senate, during its Tuesday 28 April plenary, approved  President Muhammadu Buhari’s request to raise N850bn ($2.2bn) from the domestic markets, replacing an earlier plan to issue eurobonds this year.

All the news that day was not bad, and the International Monetary Fund announced a $3.4bn aid package to help the Abuja government to deal with the coronavirus pandemic.

Change of plans

Nigeria had planned to borrow N744.9bn from the domestic market and another N850bn from the external market this year, according to details from the country’s 2020 budget and the Debt Management Office. The country is now unable to borrow from the international debt market due to unfavourable conditions from the coronavirus pandemic, according to the President.

READ MORE: Coronavirus: ECOWAS appoints Buhari as pandemic response ‘champion’

“The conditions in the domestic capital market are favourable in terms of availability of funds and relatively low-interest rates. This cause of action is deemed prudent given our current realities,” President Buhari said in a letter sent to senate president Ahmad Lawan requesting the approval to raise funds from the capital market.

International sourcing

“To ensure that there are adequate funds to finance critical projects and programmes in the 2020 budget I hereby seek the senate’s approval by resolution to raise the N850bn of new external borrowing in naira from the domestic capital market instead of from the international capital market,” the letter read.

Nigeria plans to refinance the N850bn debt through new borrowing from the international capital market, according to the President.

Refinancing on the cards

“It remains our intention to access the international capital market when conditions improve to refinance this N850 billion of new borrowing and epitomise the benefits inherent in external borrowing,” the President wrote.

Senate president Ahmad Lawan said finance and appropriation committees will work with the finance minister to draw up the details of the borrowing plan, minutes after the approval was given during Tuesday’s plenary session.

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