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Home Business News

How AfDB’s loan cancellation could affect the 2018 budget

Chacha Wabara by Chacha Wabara
October 31, 2017
in Business News
Here’s why African Development Bank called off proposed loans to Nigeria

Akinwumi Adesina, President of the African Development Bank

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The FG’s task of finding funds required to finance its record 2018 budget just got harder with the announcement by the African Development Bank (AfDB) that it will not be following up on the second tranche of the $1 billion loan it had promised to give Nigeria. The loan cancellation announcement was made by the Vice-President for Power, Energy, Climate Change and Green Growth, AfDB, Amadou Hott.

This loan cancellation could deal a significant blow to the country’s 2017 and very likely, 2018 budget implementation. Already, due to dropping oil prices and a stagnating economy, the FG is seriously finding implementation of the 2017 budget extremely hard considering the shortfall of revenue.

As a result, it has had to embark on a massive borrowing spree that has many analysts and finance experts worried. Despite this, the implementation of the 2017 budget remains low.

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The decision of the AfDB’s loan cancellation of the remaining $400 million of the $1 billion could also signal more trouble for the FG’s 2018 plans in an indirect sense. Regarding why the bank had to cancel, Hott said Nigeria refused to meet the terms of the bank, which include reforms such as allowing the free float of the Naira.

Why this could be disturbing for the FG is that the AfDB’s loan cancellation could be a signal of what is to come from its requests from other international lenders for funds to fill the record deficit budget that it is about to pass to the National Assembly for approval. For example, the country is still negotiating with the World Bank for a $1.6bn loan, which will help plug part of an expected $7.5bn deficit for 2017.

The AfDB’s loan cancellation could trigger similar refusals from other international lenders, hurting Nigeria’s chances of sourcing funds for its budget implementation. With the country focusing more on external debts, which are cheaper than Naira debts, these refusals could hurt not only current negotiations but also future plans of the FG to source external debts.

But the story is not all bad for Nigeria, as the AfDB has said that the refusal to release the $400 million does not mean a total withdrawal from Nigeria. Rather, according to Hott, AfDB’s loans will be more targeted.

“It’s hundreds of millions of dollars, just in one go, that we were supposed to provide in budget support, but we will move into real projects,” he said.

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