WITH Nigeria’s economy facing tough times, the recent approval by the African Development Bank (AfDB) of a $1 billion loan to bridge the country’s 2016 budget deficit and aid economic recovery could not have come at a better time. The credit facility is coming to Nigeria at a concessionary interest rate of 1.2 percent.
President of the bank, Dr. Akinwunmi Adesina, disclosed the loan package last week at the Presidential Villa, Abuja, when he met with members of the Economic Management Team led by the Vice President, Prof. Yemi Osinbajo. According to Akinwunmi, the AfDB has plans to increase its loan portfolio in Nigeria to a total of $10 billion by 2019. Besides, the institution plans to inject a total of $4.1 billion into different sectors of the Nigerian economy between 2016 and 2017 to help the government meet its fiscal responsibilities, as well as for private sector financing and lending.
Altogether, the sectors into which the $1bn will be invested are of great interest to Nigerians. According to the AfDB president, the package includes $300 million to create jobs for 185,000 people; $250m towards infrastructure development in the North-East that has been ravaged by insurgency; $1bn grant to deal with the challenges of Internally Displaced Persons (IDPs); $300m for the development of infrastructure around Abuja and $200m for the Transmission Company of Nigeria (TCN) to improve its facilities.
We commend the bank for giving Nigeria this lifeline in these difficult times. Even though Nigeria is the highest shareholder in the bank, the significance of this strong financial support should not be lost on the country. It is a financial intervention that the managers of our economy must reciprocate by judiciously investing it in the identified areas. The sectors that the credit facility is meant for are of great importance to economic recovery and inclusive growth in Nigeria. The loan should, therefore, be closely monitored to ensure that it achieves the desired objective.
One of such areas is the support for the 2016 budget regarding the deficit of N2.2 trillion of the total N6.06trn outlay. The federal government has also provided N1.47trn for debt servicing. The budget, which was predicated on an oil benchmark of $38 per barrel and production estimate of 2.2 mpb daily, has already run into a storm due to falling prices in the international oil market and the activities of vandals in the Niger Delta, which has cut down Nigeria’s oil production by about 800,000 barrels per day, resulting in billions of dollars in revenue losses.
But, besides the budget deficit and the challenges of infrastructural development and job creation, investing in agriculture and solid minerals remains critical for economic growth. This is necessary to deepen the diversification of the economy.
Beyond the loan package from AfDB, much more needs to be done to stimulate the economy. We need to correct fiscal imbalances and support critical sectors such as agriculture, solid minerals, power and manufacturing. We need to increase access to loans for small and medium scale enterprises (SMEs).
The power sector remains one of the Achilles heels of the efforts to diversify the economy. We are, however, delighted about the assurance of AfDB that it would invest in the production of about 1,400 megawatts of electricity in the energy sector. This will form part of the $4.1bn package for Nigeria between this year and the next. We are optimistic that the current recession will serve as a wake-up call for government at all levels to design economic strategies that can lead to the recovery of the country. The prudent management of our limited resources is also very important.
The fiscal deficit of 3.5 percent with regard to the Gross Domestic Product (GDP) is still below the five percent recommended by the Fiscal Responsibility Act. It is, therefore, necessary to closely monitor the disbursement of every loan taken. This is in addition to engaging the private sector in the management of the economy. Incentives are very important to small and blue chips firms that are currently groaning under the current fiscal and monetary policies. That is why we call for a downward review of the present 14 percent Monetary Policy Rate (MPR) fixed by the Central Bank of Nigeria (CBN).
Overall, it is important for government to prioritise projects and invest in sectors that can have a positive impact on the lives of the people and rev up the economy. That is what the present economic realities demand.