The Nigerian government has said that unifying the exchange rate of Naira will not happen “overnight”.
Explaining its delay in securing a further $1.5 billion credit from the World Bank, the finance minister, Zainab Ahmed, said the government has taken steps to meet the lender’s requirements but said its insistence that the gap between the spot and the parallel market rates be closed will take time.
“Our point is that it’s not what you do overnight,” Mrs Ahmed told journalists on Thursday. “It’s not that you wake up and make a pronouncement and that happens. It’s something that you have to do overtime taking several measures and working systematically for it to happen.”
“So, we are still pushing our view with the World Bank and we hope to convince them that this requirement has been met and that they should now give us the approval to go ahead and release the $1.5 billion that we have been discussing with the World Bank. But having said that, the World Bank during 2020 has also given us approval for a number of facilities. One of them is the $500million for metering system for the distribution network, $750 million for the power sector recovery programme, and several other facilities that we have on the table with the World Bank that were approved during the course of the year 2020.”
She also spoke about other subjects such as the rise in the price of crude oil, the government’s debt, and the plan to present a supplementary budget.
Read her comments below:
Impact of crude oil rising price
The more revenue we realize out of the budget, the less we borrow. As we see the oil price rising and provides us more revenue, it provides us some reliefs. We will be able to reduce our borrowing so, it is a positive thing for us and also, we have a position in the 2021 budget for immunization. We already releasing money to the health authority to start operation in the first batch of vaccines that are going to arrive in the country in one week. But what we have in the budget is not enough, so we are working with the health authorities to provide a plan that will be taken to the President for approval and to be taken to the National Assembly as a supplementary budget specifically for COVID -19 vaccination.
There will be a supplementary budget, the first one will be in March relating to the COVID-19 pandemic but we will also have a mid-year review like we did last year of the budget and if at the time we do the review and there is a need to go back to do any amendment for a supplementary budget, at that time we will take that decision, if not, we will just report the review.
World Bank Support Facility
We closed 2020 by being able to realize $3.4billion from IMF, $600million from AfDB. We were not able to conclude our negotiation with the World Bank and also with the Islamic Development Bank. Even with Islamic Development Bank, we signed for the last tranches but for the World Bank, we started negotiation with the World Bank with the list of about 10 requirements that we needed to address and we had addressed those 10 requirements but, the World Bank position is that we have not sufficiently addressed the requirements relating to having a single exchange rate. Their view is that despite the fact that we have adjusted the official exchange rate from N305 to N360 and we further on moved to I&E or the Nafex window, and as we speak, federal government inflows and outflows are monetized at the Nafex window rate. So, we feel we have met that requirement but the World Bank is saying that we have to close that gap between the black market and Nafex window.
Our point is that is not what you do overnight. It’s not that you wake up and make a pronouncement and that happens. It’s something that you have to do overtime taking several measures and working systematically for it to happen. So, we are still pushing our view with the World Bank and we hope to convince them that this requirement has been met and that they should now give us the approval to go ahead and release the $1.5billion that we have been discussing with the World Bank. But having said that, the World Bank during 2020 has also given us approval for a number of facilities. One of them is the $500million for metering system for the Distribution network, $750million for the power sector recovery programme, and several other facilities that we have on the table with the World Bank that were approved during the course of the year 2020.
There is a lot of sensitivity in Nigeria about the level of borrowing by the government and it is not misplaced. And I said earlier that the level of borrowing is not unreasonable, it is not high. The problem we have is that of revenue. So, what we need to do is to increase revenue to be able to enhance our debt to GDP obligation capacity. If we say we will not borrow and therefore not build rials and major infrastructure until our revenue rises enough, then, we will regress as a country. We will be left behind, we won’t be able to improve our business environment and our economy will not grow. So, it is a decision that every government has to take. Our assessment is that we need to borrow to build our major infrastructure. We just need to make sure that when we borrow, we are applying the borrowing to specific major infrastructure that will enhance the business environment in this country. Again, we all have to work with not just the federal government but state governments to increase our revenue to enhance our debt service obligations. We also have to make sure that when we are choosing the projects, we are choosing carefully the ones that will enhance the business environment so that more revenue yields come into the treasuries of the country.
The total borrowing of the country as of 31 December is 21.6 per cent of the GDP. So, if we were not looking at adding the other category of loans that I mentioned, we don’t even need to increase that at this time As of 2019, the debt to GDP ratio was 19.2 per cent so only two per cent was added.