Nigeria will borrow $9.1 billion to shore up deficit in its $30.6 billion 2016 budget, which will increase to N3 trillion ($15.1 billion) from N2.2 trillion, as the country looks for a way out of its economic crisis caused by the slump in oil prices. The country depends on oil for over 80 percent of its revenue and 95 percent of foreign exchange earnings.
“We hope to raise approximately $4.5 – 5 billion from multiple external sources. This includes multilateral agencies, export credit agencies and we are also planning to tap the Eurobond market,” wrote Finance Minister Kemi Adeosun in an article by her, entitled Nigeria’s Economy: The Road to Recovery.
“Our total borrowing expectations are now at 1.8 trillion naira ($9.1 billion),” she wrote.
The parliament, this week, began debating the 2016 budget which was last month presented by President Muhammadu Buhari.
Suleiman Adokwe, a member of the Senate from the main opposition party in the country, People’s Democratic Party (PDP) criticized the borrowing proposal as contained in the budget, “which is almost 50 per cent of the expected revenue to fund the budget.”
Another senator, Eyinnaya Abaribe said the budget was “dead on arrival” as it was predicated on $38 per barrel of crude oil which fell to $28 during the week.
However, Adeosun, in her article, expressed the government’s commitment to its plans. She said infrastructure investments would not be reduced for any reason, stressing that although the budget was based on an oil price of $38 per barrel, there was enough flexibility for prices to be lower. If prices fall further, the minister said Nigeria would “bridge the revenue shortfall by sale of non-strategic assets and increasing the participation of the private sector in delivery of key projects”.
The fall in the prices of oil, Nigeria’s top foreign exchange earner saw the currency drop to a record low of N305 to a dollar on the parallel market. It had since gained and closed at N295 to a dollar on Thursday, while the official rate remained at N197.
With the naira continuing to depreciate in value, speculations have become rife that the currency may have to be formally devalued soon.
“The contentious issue of the exchange rate policy that will complement the fiscal policy of this administration will be a product of determining the real equilibrium exchange rate path of the naira,” wrote Adeosun.
“The finance ministry expects that the monetary policy authorities will be in a position to determine the steps required to put the currency in equilibrium after considering a number of variables,” she added.
The Monetary Policy Committee (MPC) will meet from Jan. 25 – 26.