A senior research analyst at FXTM, Lukman Otunuga, has said it is unclear where Nigeria will borrow the N5.2 trillion needed to fund the 2021 budget deficit.
It will be recalled that on Saturday, the National Bureau of Statistics announced that Nigeria slid into its worst economic recession in thirty three years, following a 3.62 percent contraction in the third quarter of 2020.
Following lessons from the last recession in 2016, the Buhari-led administration has employed expansionary policies to spend its way out of recession. However, that may not be feasible in 2020 as most Nigeria’s lenders are also battling recession as a result of COVID-19.
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Furthermore, it must be borne in mind that Nigeria recently pulled $3.4 billion, 100 percent of its quota, out of the International Monetary Fund (IMF) under the Rapid Financing Instrument (RFI), and therefore, getting money from the fund may be very difficult.
When he was asked where Nigeria would get N5.2 trillion in loans to fund the 2021 budget deficit, Otunuga responded that while there is a lot of speculation on that,there is still no clear direction yet.
He stated that the dollar debt will expose Nigeria and increase the country’s debt-to-GDP.
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“Nigeria is set to borrow [N5.2 trillion] in 2021. I think this is an ongoing question many people are asking. Is Nigeria going to issue Eurobonds, are they going to go to the World Bank, or are they going to IMF?” he said.
“Things are quite difficult right now, and honestly, these are all speculations. But what I can say is, the fact that Nigeria continues to borrow is going to increase the country’s GDP ratio. This remains a major risk because if the debt-to-GDP continues to rise, this is going to make it more difficult for Nigeria to borrow.
“It is going to make the repayments really expensive, and given how most of these loans are going to be in dollars, the high dollar-denominated debt is gonna expose Nigeria especially if the dollars continue to (appreciate) in 2021.
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“I think this is an ongoing question, is it going to be the IMF, World Bank or is it going to be from the issue of Eurobonds, this is mere speculation, we have to see how things play out in 2021.”
It will be recalled that the Minister of finance, budget and national planning, Zainab Ahmed, had told the house committee on finance that the federal government would be borrowing $1.2 billion from Brazil to fund a part of 2021 budget.
This in turn had received massive opposition from Nigerians, who countered the plan and said that if care is not taken, Nigeria may soon borrow from poorer countries like Niger Republic.
It has been over 140 years since the world last witnessed this type of mass recession across the globe, making it difficult for nations to secure funds from their bilateral partners who are also in a recession.