BY MOTOLANI OSENI
Finance experts are advising Nigeria’s government to avoid taking additional foreign loans due to the current exchange rate pressures.
This caution comes as the International Finance Corporation (IFC) and the Central Bank of Nigeria (CBN) recently signed a $1 billion financing agreement.
According to an economist and chief executive officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, servicing foreign loans is becoming increasingly challenging and because “we are talking of IFC which typically finances private investments and unless those projects are those that are export oriented, servicing such facilities may pose a serious challenge.
“Our debt profile is getting to levels where we need to begin to slow down because the burden of debt service is increasing, and it is more worrisome when the new facilities are foreign currency facilities.
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“Domestic loan facilities are easier to manage and service than foreign loans. I know we have challenges with foreign reserves and supply of forex, but we should focus a lot more on how we can ensure the sustainable improvement in our supply of forex, especially, by looking more closely at the oil and gas sector and tackling the problem of insecurity, oil theft, lack of adequate transparency in oil and gas transactions and we need to sustain what the government is doing right now in providing incentives for investors in oil and gas particularly in gas where we have more reserves.”
Similarly, the Head of Financial Institutions Ratings at Agusto & Co., Ayokunle Olubunmi while noting that the detail of the agreement is yet to be made public, said one major advantage of the deal is that it will serve as a source of forex revenue to the government.
Meanwhile, the funding is expected to boost the country’s foreign exchange reserves and increase critical funding for major sectors.
IFC, a member of the World Bank Group, on Monday said it will be providing up to $1 billion in financing to the country over the coming years to help manage Nigeria’s currency risk in a new agreement signed with the Central Bank of Nigeira.
In a statement, the IFC said it will be providing the foreign currency financing to increase local currency financing to enable private businesses in Nigeria to grow and thrive. This, industry watchers say will be helpful for the country.
According to the statement, the partnership will allow IFC to manage currency risks and increase its investment in Nigerian naira across priority sectors of the economy, including agriculture, housing, infrastructure, energy, small and medium enterprises and the creative and youth economy.
With the agreement, IFC plans to significantly scale up its financing of critical sectors in Nigeria, with a goal of providing more than $1 billion in the coming years. Many of these sectors require local currency financing, and IFC’s partnership with the CBN is a key tool in expanding access.
The governor of the CBN, Olayemi Cardoso, commenting on the agreement, said “this pioneering initiative between the IFC and CBN will unlock much-needed long-term local currency financing for private businesses in Nigeria at economically viable rates.
“This collaboration marks significant progress in the CBN’s commitment to delivering innovative development initiatives through reputable third-party service providers, moving beyond traditional intervention programs. It will serve as a catalyst for economic growth and advance the Federal Government’s agenda for economic diversification.”
On his part, IFC Managing Director, Makhtar Diop, said “expanding access to affordable local currency financing for small businesses in Nigeria is essential for IFC to address the increasing demand for diverse funding options and to better manage currency risk. Our partnership with the Central Bank of Nigeria will enhance lending in Nigerian naira, fostering economic growth and creating jobs across the country.
“With an active portfolio of investments in Nigeria of up to $2.13 billion, the second highest in Africa, local currency financing is a key priority for IFC. IFC will continue to leverage innovative financial instruments and strengthen partnerships to meet the growing demand for more local currency financing in emerging markets.”
