Home Finance Nigeria in talk with World Bank, others to raise $6.5bn, gets $750m support for power sector

Nigeria in talk with World Bank, others to raise $6.5bn, gets $750m support for power sector

by Business News Report

Nigeria is continuing its discussions with the World Bank and other multilateral lenders to raise $6.5 billion, the finance ministry said. Meanwhile the power sector has gotten a $750 million support from the International Development Association an arm of the World Bank. The Multilateral Institution, in a statement in Abuja said that the target was to achieve financial and fiscal sustainability and enhance accountability in Nigeria’s power sector. It said that about 47 per cent of Nigerians did not have access to grid electricity and those who had access, faced regular power cuts. According to the bank, the economic cost of power shortages in Nigeria is estimated at around 28 billion dollars, which is equivalent to two per cent of its Gross Domestic Product (GDP).

It said that getting access to electricity was one of the major constraints for the private sector according to the Ease of Doing Business report adding that improving power sector performance, particularly in the non-oil sectors of manufacturing and services, would  be central to unlocking economic growth post COVID-19. The statement quoted Shubham Chaudhuri, World Bank Country Director for Nigeria, as saying “lack of reliable power has stifled economic activity and private investment and job creation. This is ultimately what is needed to lift 100 million Nigerians out of poverty. The objective of this operation is to help turn around the power sector and set it on a fiscally sustainable path. This is particularly urgent at a time when the government needs all the fiscal resources it can marshal to help protect lives and livelihoods amid the COVID-19 pandemic”.

The bank said that PSRO would provide results-based financing to support the implementation of the Government’s Power Sector Recovery Programme (PSRP). It further said that the PSRP was a comprehensive programme to restore the power sector’s financial viability, improve service delivery and reduce its fiscal burden. “The PSRO is expected to increase annual electricity supplied to the distribution grid, enhance power sector financial viability while reducing annual tariff shortfalls and protecting the poor from the impact of tariff adjustments.

“This will enable the turnaround of power sector while helping the Federal Government to redirect large fiscal resources from highly regressive tariff shortfall financing towards critical crisis-responsive and pro-poor expenditures. It will also increase public awareness about ongoing power sector reforms and performance. Specifically, the PSRO will ensure that 4,500 mwh/hour of electricity is supplied to the distribution grid by 2022 by strengthening the regulatory, policy and financing framework. It will also enhance the accountability and financial viability of the sector, helping the sector create a track record of sustainable operation necessary for unlocking much needed private investments in the future,” the Bank said.

Finance Minister Zainab Ahmed told an investor call that the World Bank will meet on the Nigerian funding request on August 6th and that the government was also in talks with regional lender Afrexim Bank for a new loan. In the presentation document, Ahmed said the government needed $6.5 billion, did not plan to issue a Eurobond this year, and would draw $150 million from its sovereign wealth fund to augment revenue disbursements. In April the International Monetary Fund (IMF) approved $3.4 billion in emergency financial assistance for Nigeria to support its response to the coronavirus pandemic. But Fitch Rating Agency has warned that a sharp rise in Nigeria’s sovereign debt and a ballooning financing gap could trigger a rating downgrade. The global ratings agency downgraded Nigeria to “B” in April with a negative outlook from “B+” citing aggravation of pressure on external finances.

Moody’s said in April it would likely downgrade the country if the government was unable to alleviate the damage to its revenue and balance sheet. S&P cut Nigeria’s rating in March on weakening external finances. Nigeria – also Africa’s top oil exporter – is under increasing pressure to stimulate growth and cut debt after its first quarter current account turned negative, overvaluing its Naira currency. The oil price slump has slashed government revenues. “We have two elements that could lead us to take a negative rating action/downgrade on Nigeria. Aggravation of external liquidity pressures and a sharp rise in government debt to revenues ratio,” Mahmoud Harb, sovereign ratings director at Fitch said. The debt to revenue ratio for Nigeria is set to worsen to 538% by the end of 2020, from 348% a year earlier, before improving slightly next year, Harb said. The medium debt ratio for “B” rated countries is 350%, he said. Nigeria will need $23 billion to meet its external financing needs this year, Fitch estimates, noting that the country only has few options, including running down its reserves, after shelving plans to issue Eurobonds.

Nigeria’s foreign currency reserves could fall to $23.3 billion this year if foreign exchange access is normalised, Harb said, from around $36 billion. Nigeria has been restricting access since the pandemic to boost the Naira, similar to a step it took when oil prices crashed in 2015, which worsened a 2016 recession. The central bank is yet to provide currency to investors that need to leave Nigeria, weakening sentiment. Analysts estimate that around $2 billion needs to exit Nigeria. Nigeria could avoid a ratings downgrade if it strengthens its finances, reforms its forex policy and shows a path to reducing its deficit by boosting non-oil revenues, Fitch’s Harb said. 

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