FG gets $3.4bn COVID-19 support from IMF, seeks N850bn domestic borrowing on 2020 budget financing

Federal Government has turned to the Nigerian domestic market to source the sum of N850 million to finance the 2020 budget just as Nigeria’s request for $3.4 billion from the International Monetary Fund to fight the devastating effect of the COVID-19 has been approved.

The loan which has a maximum repayment period of five years was approved by the Fund’s board Tuesday. The government has thus shelve its initial plans to borrow N850 billion, $2.36 billion from international markets and instead tap domestic markets to finance its 2020 budget.

 The new turn of event was disclosed in a statement issued by the Debt Management Office which reads in part “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.

 “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. For compliance with the law, His Excellency, President Muhammadu 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. In total, the government had planned to borrow $3.3 billion from international markets this year to finance its 2020 budget and to refinance a $500 million eurobond due in January.

The Senate had previously approved N744.9 billion in domestic borrowings for 2020 and another N850 billion from offshore sources.

 Buhari said he preferred to tap local markets in Naira to ensure adequate funds for the budget. He said the money is needed to replace previously approved external loans, as conditions on offshore markets are “not conducive” to borrowing. The government would refinance the new Naira loan into U.S. dollars once conditions improve, Buhari said.

Nigeria, Africa’s largest crude oil producer, has cut nearly $5 billion from its 2020 budget as oil prices collapsed. The revised version uses a benchmark of $30 per barrel oil, though Brent crude was trading at just under $20 on Tuesday. President Buhari sent a request to the Senate to approve the Naira borrowings, a letter read out in the Senate on Tuesday said.

The move signals a policy shift for a government that has touted private sector investment and pushed for low interest rates to channel funds into the development of rail and road infrastructure. The central bank has kept liquidity tight to lure foreign investors into high-yielding government securities to support the Naira currency, which has hit new lows on the black market in recent weeks.

Lockdowns caused by the new coronavirus pandemic have crushed global economic growth and reduced oil consumption by roughly a third. The Senate, the upper house of parliament, had approved foreign borrowings of $22.7 billion for infrastructure projects before the coronavirus outbreak forced countries around the world, including Nigeria, into lockdown.

Nigeria is also seeking almost $7 billion in emergency loans from multilateral institutions, including the International Monetary Fund, the World Bank and the African Development Bank. Tuesday is the first day that lawmakers have conducted a full session since late March, when the capital Abuja went into lockdown.

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