Nigeria’s Minister of Finance, Kemi Adeosun, gave further clarifications on the strategy for foreign loans being explored to fund the 2016 budget.
In a statement, by the spokesperson for the Minister, Mrs Adeosun said that the overall objective of the loan was to provide the lowest possible cost of funds to finance capital projects proposed under the government’s plan to stimulate the economy.
“These capital projects include power, transport, road, housing among others”, it read.
The Minister also explained that options with multi-lateral agencies including the World Bank and African Development Bank (AfDB) were being explored.
Multilateral agencies provide loans on concessional terms, which include low interest, moratorium before repayment and long tenure.
The second funding option being explored is Export Credit Agencies such as China Exim Bank.
These funds are also concessional and are tied to specific capital projects.
Mrs Adeosun said that the need to invest in infrastructure to stimulate the economy and the long-term payback period of capital projects demands that the lowest cost of funds be obtained.
The Minister of Finance stated that the balance of foreign borrowing required would be raised in the Eurobond market at commercial rates of interest.
She explained that by blending these different sources of funding, the overall cost of funds would be maintained at the lowest possible level.
“As far as possible, our foreign borrowing will be tied to specific capital projects. A number of these projects are revenue generating which would be used to fund the loan repayments.
“The strategy of pursuing increased foreign borrowing is designed to ensure that the Federal Government does not “crowd out” the private sector in the domestic market,” the Minister stated.
The Federal Government presented to the National Assembly a budget of 6.08 trillion Naira with a 2.2 trillion Naira deficit and a 1.8 trillion Naira borrowing requirement.
The budget is predicated on a $38 per barrel oil benchmark which is less than the current market price.