The Finance Minister, Mrs. Kemi Adeosun, will travel to China next week to negotiate a $2bn loan to help fund the record budget spending, financial and government, sources were yesterday quoted by News Agency Reuters.
Sources said Nigeria has shelved plans to meet investors about returning to commercial borrowing on the Eurobond market.
One Nigerian government official told Reuters that any loan agreed during Mrs Adeosun’s trip could be signed by President Muhammadu Buhari in Beijing next month.
“The finance minister, in the company of the Central Bank Governor Godwin Emefiele, is scheduled to be in China sometime next week to conclude negotiations on the $2 billion loan,” said the official, who asked not to be named.
The official acknowledged negotiations had been underway for some time and that the terms had yet to be agreed. However, he added: “Hopefully it may be sorted out during this meeting and the loan will be signed during President Buhari’s visit to China next month.”
The Central Bank could not confirm whether Emefiele would be joining Mrs Adeosun. No official of the Ministry of Finance contacted last night was willing to make any comment.
Nigeria wants to raise about $5 billion abroad to cover part of its 2016 budget deficit. This is projected to hit N3 trillion ($15 billion) due to heavy infrastructure spending at a time when the slump in global oil prices has slashed export revenues.
Buhari wants to turn around the economy by investing in power plants and transport.
The president asked China last December to fund rail and power projects and Mrs Adeosun, who already visited Beijing last week, has raised the possibility of seeking a loan from the Export-Import Bank of China.
Nigeria had wanted to raise $1 billion from Eurobond investors but has dropped plans to sound them out at a non-deal “road show” which the Finance ministry had tentatively planned for March, financial sources say.
“They will wait a bit with a road show as they wouldn’t be able to get a good deal,” said one source familiar with the ministry’s plans.
With world markets in turmoil, investors are wary of lending to anything but highly-rated rate emerging economies. Nigeria’s reluctance to devalue the naira, which has plunged on the black market, would further discourage investors, meaning the cost of commercial borrowing would be prohibitive.
That puts pressure on Africa’s biggest economy and top oil producer to borrow more from other sources, such as China. Nigeria had up to now planned to raise around $4 billion at concessionary interest rates from sources such as the World Bank.
While the government official foresaw a $2 billion China loan, a financial source put the amount at more than $1 billion.
The Finance ministry could not be immediately reached for comments.
Mrs Adeosun has said Abuja has held “explanatory talks” with the World Bank. It has also asked the African Development Bank for a $1 billion budget support loan.
A World Bank loan would probably be tied to specific goals with strings attached. As well as infrastructure projects, Nigeria also wants loans to refinance existing debt, one financial source said – an idea that would be hard to sell to the World Bank or other development-focused lenders.
The World Bank has confirmed talks have been held on “Development Policy Operation” funding, which typically aims to improve infrastructure and create jobs. The multilateral lender has been studying projects to fight poverty in the North.
If talks with China or multilateral agencies fail, Nigeria would struggle to find willing commercial lenders.
“It’s going to be difficult for issuers to come to market now unless they are at the high end of the credit quality spectrum,” said Zsolt Papp, client portfolio manager at JPMorgan Asset Management.
