The International Monetary Fund (IMF) has approved Nigeria’s $3.4bn emergency loan request to assist the country tackle anticipated huge impact of the coronavirus pandemic, authorities familiar with the matter told BusinessDay on Tuesday.

Hit by crashing oil prices and the COVID-19-induced economic standstill, Nigeria requested the total of its existing holding with the IMF under the Rapid Financing Instrument to stabilise the economy.

The programme offers funding without the strings of a full programme.

Nigeria’s success in raising the IMF loan will ease some pressure on the foreign exchange market which has witnessed acute dollar shortages lately.

The parallel market rate weakened to as low as N450/$ Monday as dollar demand outpaced supply.
Analysts, however, say the IMF facility will only serve as a short-term relief for a dollar-thirsty Nigeria which may have bigger problems than $3.4 billion can solve.

The country’s balance of payment deficit for 2020 is estimated at around $9 billion, although the country expects another $3.5 billion in multilateral loans from the World Bank and Africa Development Bank.

“The IMF loan will improve FX liquidity in the interim but whether that is sustainable in the long term is another thing entirely,” said Omotola Abimbola, a fixed income analyst at investment bank, Chapel Hill Denham.

“Nigeria’s current account deficit is quite large and the IMF loan will not be able to finance it entirely which means it will not completely solve all the structural problems we have,” Abimbola added.

As at April 15, 2020, up to 100 countries had approached the IMF for similar support under its rapid financing instrument, as calls heighten on the Fund to ramp up crisis response for emerging markets and developing countries to enable them combat impact of coronavirus.

Announcing the request to IMF earlier in the month, Zainab Ahmed, minister of finance, budget and national planning, had insisted that Nigeria does not intend to negotiate any formal bailout programme with the IMF.

“This loan will not be tied to any conditionalities,” Ahmed had said.

Ahmed also confirmed then government was in talks with the World Bank for some support of up to $2.5bn, and had sent a similar request to the African Development Bank for up to $1bn as well as the Islamic Development Bank.

With the IMF approving the $3.5 billion, Nigeria has now shelved the external borrowing plans that were accounted for in the 2020 budget.

The Senate on Tuesday approved President Muhammadu Buhari’s request to raise a fresh loan of N850 billion from the domestic capital market to finance projects in the 2020 budget.

Buhari, in a letter which was read in plenary by Senate President Ahmad Lawan, explained that the loan was to replace the external borrowing provision and to ensure adequate funds to finance projects outlined in the 2020 budget.

The president said the change of tack had become necessary after the oil price downturn severed external borrowing conditions.

The 2020 Appropriation Act provided for N1.59 trillion of new domestic borrowing and N850 billion of new external borrowing which were to part finance the 2020 budget deficit of N2.2 trillion.

“The Senate may wish to note that external borrowing from the international capital market increases Nigeria’s external reserves, provides access to lower costs as well as avoids crowding out private sector borrowers who also wish to access the domestic capital market,” Buhari said in the letter.

“However, recent developments in the global economic environment as a result of the coronavirus pandemic and the decline in international oil prices have made it less attractive to borrow from the international capital markets at this time,” he said.

Buhari said it, however, remains the government’s intention to access the international capital market when conditions improve to refinance the N850 billion of new borrowing and epitomise the benefits inherent in external borrowing.

“Presently, 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,” he said.

In a note on Tuesday titled “Conversion of N850 billion New External Borrowing in the 2020 Appropriation Act to Domestic Borrowing”, the Debt Management Office (DMO) said the 2020 Appropriation Act approved a total of N1,594.99 billion as new borrowing to part-finance the deficit in the budget. This was made up of N794.99 billion domestic borrowing and N850 billion external borrowing.

“With the COVID-19 Pandemic and its attendant effect on the world economy and the International Capital Market, the Federal Government reappraised its borrowing plans and decided that it would be more expedient to raise the N850 billion, earlier approved as external borrowing, from domestic sources.

This conversion from external to domestic is to ensure that the implementation of the 2020 Appropriation Act is not jeopardised by lack of funds,” DMO said.

“Thus, the N850 billion is not new or incremental borrowing, rather it is an amendment of the source of borrowing from external to domestic. With this change, the total new domestic borrowing under the 2020 Appropriation becomes N1,594.99 billion which is the same as the total new borrowing in the 2020 Appropriation Act,” it said.

For compliance with the law, the DMO said President Buhari forwarded requests to the Senate and House of Representatives to convert the source for raising the N850 billion from external to domestic.

“The Senate approved the request on Tuesday, April 28, 2020, while the approval of the House of Representatives is expected. Upon approval of the request by the House of Representatives, the Debt Management Office will issue FGN Securities in the Domestic Market to raise the N850 billion, thereby providing high-quality investment opportunities for the investing public,” the DMO said.