IMF approves $3.4 billion loan for Nigeria to tackle COVID-19 and repay within 5 years

The International Monetary Fund (IMF) on Tuesday approved $3.4 billion loan for Nigeria to respond to COVID-19.

The loan, scheduled to be repaid in a maximum of five years, is the largest allocation yet by the IMF to an African country to assist with the coronavirus pandemic.

The loan was granted under the Rapid Financing Instrument (RFI), an IMF arrangement that offers funding without the strings of a full program.

Nigeria also requested $2.5 billion from the World Bank and $1 billion from the African Development Bank.

In all, the government is seeking $6.9 billion in multiple loans to tackle the coronavirus crisis – $3.4 billion from the International Monetary Fund, $2.5 billion from the World Bank and $1 billion from the African Development Bank.

President Muhammadu Buhari who will be leaving office in three years, long before the multiple loans are repaid, has embarked on a borrowing spree to fund government spending and balance payments. But many Nigerians have seen so much money stolen from public coffers, including billions of loans from financial institutions that may have become skeptical the funds would be well utilized.

IMF said the near-term economic impact of COVID-19 is expected to be severe in Nigeria, while already high downside risks have increased.  

“Even before the COVID-19 outbreak, Nigeria’s economy was facing headwinds from rising external vulnerabilities and falling per capita GDP levels. The pandemic—along with the sharp fall in oil prices—has magnified the vulnerabilities, leading to a historic decline in growth and large financing needs,” IMF said.

In a statement after board’s approval on Tuesday, Mr. Mitsuhiro Furusawa, Deputy Managing Director and IMF Acting Chair, said the emergency financing under the RFI will provide much needed liquidity support to respond to the urgent BOP needs.

Furusawa said: “The COVID-19 outbreak—magnified by the sharp fall in international oil prices and reduced global demand for oil products—is severely impacting economic activity in Nigeria. These shocks have created large external and financing needs for 2020. Additional declines in oil prices and more protracted containment measures would seriously affect the real and financial sectors and strain the country’s financing.

“The authorities’ immediate actions to respond to the crisis are welcome. The short-term focus on fiscal accommodation would allow for higher health spending and help alleviate the impact of the crisis on households and businesses. Steps taken toward a more unified and flexible exchange rate are also important and unification of the exchange rate should be expedited.

“Once the COVID-19 crisis passes, the focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending. Implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, remains crucial to boost growth over the medium term.

“The emergency financing under the RFI will provide much needed liquidity support to respond to the urgent BOP needs. Additional assistance from development partners will be required to support the government’s efforts and close the large financing gap. The implementation of proper governance arrangements—including through the publication and independent audit of crisis-mitigating spending and procurement processes—is crucial to ensure emergency funds are used for their intended purposes.”

The Managing Director of the IMF Ms. Kristalina Georgieva had announced on April 7 that the government “has requested financial assistance under the Fund’s Rapid Financing Instrument (RFI).”

Ms. Georgieva said the “emergency financing would allow the government to address additional and urgent balance of payments needs and support policies that would make it possible to direct funds for priority health expenditures and protect the most vulnerable people and firms”.

She said Nigeria’s economy was being threatened by the twin shocks of the COVID-19 pandemic and the associated sharp fall in international oil prices.

“We are working hard to respond to this request so that a proposal can be considered by the IMF’s Executive Board as soon as possible,” the IMF boss added.

Just over two weeks ago on April 13, the IMF approved the disbursement of $1 billion to Ghana to respond to coronavirus economic turbulence. The $1 billion would be drawn under the Rapid Credit Facility.

In a statement, IMF said the disbursement of $1 billion to Ghana where the president is seeking re-election in December, will help address the urgent fiscal and balance of payments needs that Ghana is facing, improve confidence, and catalyze support from other development partners.

Former President John Mahama would challenge incumbent Nana Akufo-Addo in this year’s election.

IN AFRICA

Last week, Ms. Georgieva said the IMF will mobilize more than $18 billion to respond to more than 40 African countries who have requested assistance to battle the pandemic.

NIGERIA WORLD BANK LOAN

When Nigeria secured $2.2 billion loan from the World Bank in mid-February, the bank said the money would be invested in six projects, including “improving immunization”, “enabling a stronger business environment for the private sector”, “expanding the digital economy to promote job creation”, and “increasing public and private sector capacity on governance and social and environmental safeguards”.

The World Bank money for the six projects will come from the International Development Association (IDA), the French Development Agency, the European Investment Bank and the federal government of Nigeria.

“Nigeria is central to the World Bank Group’s mission of tackling extreme poverty. The World Bank is carefully targeting its support on high impact projects as the country works to tackle corruption and lift 100 million of its people out of poverty,” said David Malpass, World Bank Group President.

According to Shubham Chaudhuri, World Bank Country Director for Nigeria “the projects focus squarely on delivering better services for Nigerians: ensuring that children are immunized and sleep under mosquito nets, building better roads especially in rural areas, and providing Nigeria’s poorest citizens with a unique identification that will make social safety nets and services more effective”.

Although the World Bank chiefs tried to focus on the projects rather than the debt and repayment conditions as well as the time it would take to pay back the billions of dollars being borrowed by the Buhari administration, the February loan pushed Nigeria’s domestic and foreign debt to over $80 billion, and came barely a year after the global bank disbursed about $2.4 billion to Nigeria.

NIGERIA DEBT BEFORE COVID-19

Nigeria’s reported domestic debt was already put at $55.6 billion and foreign loans at $25.6 billion or a total of over $80 billion.

President Muhammadu Buhari and his finance minister Zainab Ahmed have skyrocketed borrowing to finance government spending.

The Buhari administration believes to ease the debt burden, Nigeria has to borrow more with low interest and long repayment periods from many institutions including the World Bank and the African Development Bank.

WORLD BANK LOAN PROJECTS AND BUDGET

According to the World Bank, the approved program for the fiscal year 2020 comprises the following projects:

• Immunization Plus & Malaria Progress by Accelerating Coverage and Transforming Services will strengthen health systems to deliver effective primary health care and improve immunization, malaria control, and child and maternal health in selected states. Among key results, the project aims to broaden vaccination coverage, increase the percentage of children under five who sleep under insecticide-treated nets from 28 to 41%, and improve the percentage of women who receive post-natal check-ups from 47 to 55%. The project is financed under concessional terms through an International Development Association (IDA) credit of $650 million.
• Nigeria Rural Access and Agricultural Marketing Project will upgrade rural roads and improve connectivity and access to local markets and agrobusiness services in 13 states. Specifically, the project will upgrade about 1,600 kilometers of rural roads and improve 65 agro-logistics centers. These interventions are expected to boost the proportion of population who live within two kilometers of an all-season road by up to 10%. The project is co-financed through an IDA credit of $280 million, $230 million from the French Development Agency, and $65m from the Government of Nigeria.
• Nigeria Digital Identification for Development Project will support the National Identity Management Commission to increase the number of persons who have a national identification number (NIN) reaching about 150 million in the next three years. This will enable people in Nigeria, especially marginalized groups, to access welfare-enhancing services. The project will also enhance the ID system’s legal and technical safeguards to protect personal data and privacy. This is co-financed through an IDA credit of $115 million, $100 million from the French Development Agency, and $215 million from the European Investment Bank.
• Ogun State Economic Transformation Project will catalyze private investment in Ogun State by improving the business environment, strengthening the linkages between agricultural producers, suppliers and service providers, and providing training and apprenticeships for women and farmers. Among some of the key results, the project will facilitate collaboration between farmers and agribusinesses improve STEM teaching in up to 70% of public secondary schools. This is financed through an IDA credit of $250 million. 
• Innovation Development and Effectiveness in the Acquisition of Skills Project will strengthen the skills of 50,000 Nigerian students and enhance the capacity of technical teachers to better equip them for jobs in the formal and informal sectors. The project aims to increase the female enrollment rate from 13% to 23% in technical colleges and provide recognized skills and certification to 3,000 youth after they complete an informal apprenticeship. This is financed through an IDA credit of $200 million.
• Sustainable Procurement, Environmental and Social Standards Enhancement Project will strengthen capacity in managing procurement, environmental and social standards in the public and private sectors. The project will enhance the skills of over 21,000 people and help 4,000 professionals become certified in procurement, environment and social standards. It will also ensure that accredited degree programs meet International best practice and Good International Industry Practice in these areas. The project will help tackle corruption and the risk of environmental or social harm as investments are implemented. This is financed through an IDA credit of $80 million.