Yemisi Izuora/Agency Report
Nigeria has asked the World Bank and African Development Bank for $3.5bn in emergency loans to fill a growing gap in its budget in the latest sign of the economic damage being wrought on oil-rich nations by tumbling crude prices.
The request from the eight-month-old government of President Muhammadu Buhari is intended to help fund a $15bn state deficit, which has been deepened by a hefty increase in public spending as the west African country attempts to stimulate a slowing economy, according Financial Times report.
It comes as concerns grow over the impact of low oil prices on petroleum exporting economies in the developing world.
Azerbaijan, which last month imposed capital controls to try and halt a slide in its currency, is in discussions with the World Bank and the International Monetary Fund about emergency assistance.
Meanwhile, the government’s response to the seeming economic crisis has been three-pronged. First, it is trying to stimulate the economy with a mildly expansionary budget. At the same time, it is trying to protect its dwindling hard-currency reserves by blocking imports.
The third, is governments move to suppress inflation by keeping the currency, the naira, pegged at 197-199 to the dollar.
The budget, which includes a plan to spend more on badly needed infrastructure, is a step in the right direction, reports The Economist .
Although government revenues are under pressure from the falling oil price,but president Muhammadu Buhari hopes to offset that by plugging “leakages” (a polite term for theft) and taxing people and businesses more.
At 7 percent, Nigeria’s tax-to-GDP ratio is pitifully low, but every percentage point increase could yield $5 billion of extra cash for the coffers, reckons Kayode Akindele of TIA Capital, an investment firm.
Buhari also plans to save some $5 billion-$7 billion a year by ending fuel subsidies-a crucial reform, if he sticks with it.
“Even so he will be left with a deficit of $15 billion (3% of GDP) that will have to be filled by domestic and foreign borrowing. Yet his policies on the currency seem likely to stymie that.
The central bank has frozen the naira at its current overvalued official rate for almost a year. The various import bans (on everything from soap to ballpoint pens) are supposed to reduce demand for dollars, but have little effect.
Businesses that have to import essential supplies to keep their factories running complain that they have been forced into the black market, where the naira currently trades at 300 or more to the dollar, The Economist reports.