Nigeria to borrow N2.85 trln in external debt to fund 2021 budget
By Oludare Mayowa
Nigeria has released its borrowing plans for the 2021 fiscal year with a proposal to borrow N2.85 trillion from the external sources and N2.14 trillion from the domestic debt market.
According to a document from the ministry of finance and budget, the government has plans to borrow a total of N4.18 trillion to plug the N5.19 trillion budget deficit in the 2021 budget estimates.
The external loans will consist of N2.14 trillion and N709.69 billion multilateral and bilateral loan drawdowns in the course of the year.
Nigeria’s total public debt stood at N31 trillion as of June 2020, consist of N19.64 trillion domestic debt and N11.36 trillion external debt, according to data from the Debt Management Office (DMO).
However, Nigeria may face some challenges to raise the N2.14 trillion portion of the borrowing from the external sources as risk aversed foreign investors are not comfortable with the rating of Nigeria’s economic outlook.
Already, many offshore portfolio investors have exited the nation’s debt and equity markets due to the inability of the Central Bank of Nigeria (CBN) to manage the foreign exchange resources in accordance with international best practice.
In her briefing on the 2021 budget, finance minister Zainab Ahmed said the country’s foreign exchange market is under pressure due to the exit from the country’s market by foreign investors.
“Nigeria is exposed to spikes in risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors exit the Nigerian market,” Ahmed said.
Last month, the Nigerian Economic Summit Group (NESG) expressed its reservations on what it described as the lack of transparency in the Central Bank of Nigeria’s (CBN) management of the nation’s foreign exchange resources allocations and intervention funds.
“The Group expresses serious concerns about how the Central Bank of Nigeria (CBN) has carried on the business of foreign exchange transactions, loan disbursements (intervention funds) and price fixings without appropriate policy clarity.
“This can be subject to abuses, manipulations and significant market disruptions, reflective of a policy akin to crony capitalism. We therefore respectfully request the appropriate authorities to properly review this policy to restore credibility into our financial sector,” the NESG said in a statement in September.
Despite the attempt by the CBN to manipulate the convergence of the various exchange rates in the country, currently, the disparity between the naira rate at the parallel market and office continues to widen.
While the naira is exchanging at N380 to the dollar on the official CBN window, the local currency is going for N459 to the dollar on the parallel market and quoted at N385.83 per dollar on the Investors’ and Exporters’ (I&E) window.
The CBN currently rationing dollar sales on the domestic market in its bid to conserve foreign exchange reserves and reduce external pressure.
A chief executive of a multinational firm said forex end users are now instructed by the CBN to half their forex demand before submitting to their banks so as to reduce the volume of demand coming to the regulatory bank.
“We are asked to half our forex demand before submitting and in spite of this, we are not being given the full complement of what we demand from the market, leaving us short of the required forex for our imports,” the CEO told the Global Financial Digest.
The CEO said often, companies were allocated less than half of the 25 percent of their real forex demand because the CBN wants to manage the perception of dollar shortage in the country. “GFDNews