Nigeria’s Federal Executive Council (FEC) has approved a $1 billion concessionary loan from the African Development Bank (AfDB) to ensure fiscal stability and enhance foreign exchange reserves.
This move was disclosed by Finance Minister Olawale Edun on Monday during a council meeting presided over by President Bola Tinubu at the Presidential Villa, Abuja.
According to Reuters, Edun said:
“The (Federal Executive Council) approved a $1 billion concessionary loan for general budget support and to be used to improve forex availability in the country.
“The $1 billion loan from AfDB is a budget support fund for ongoing economic reforms. It is to support government programs ... in power sector, social inclusion and the fiscal policy reforms as a whole sector policy initiative.”
- The Minister said the AfDB loan will attract an interest rate of 4.2% for 25 years with an eight-year moratorium.
- The council also approved a total limit of 2 trillion naira for the Ministry of Finance. Edun said this move aims to reduce the nation’s debt servicing burden, potentially saving Nigeria around 50 billion naira in interest payments.
“The view is that there will be an opportunity to save about 50 billion naira or more in debt servicing over time by giving back expensive debt, refinancing it with cheaper funding,” Edun said.
- The FEC revised Nigeria’s 2024 budget upward by 1.5 trillion naira to 27.5 trillion. This adjustment reflects an increase in the oil price benchmark and a revised naira exchange rate assumption.
Why this matters
- Nigeria has been spending the bulk of its revenue on debt service. Its current debt service-to-revenue ratio stands at 73.5%.
- By the end of his term, former President Muhammadu Buhari had amassed a debt of 77 trillion naira ($167 million) to domestic and international lenders.
- The newly elected Tinubu-led government disclosed that 96% of the country’s revenue is currently dedicated to debt servicing.
- Since he assumed office in May, President Bola Tinubu has initiated measures to rejuvenate the economy, which has been steadily declining for almost a decade.
- Some of these reforms include removing fuel subsidies and unifying the foreign exchange market, which resulted in the devaluation of the naira.
- Despite the inflationary impacts of these reforms, President Tinubu insists that these measures have yielded positive economic results.