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Buhari Seeks $800m World Bank Loan for National Social Safety Net Programme

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Nigeria’s President Muhammadu Buhari has requested a fresh $800 million loan from the World Bank to fund the National Social Safety Net Programme.

The loan will be used to expand the coverage of shock-responsive safety net support among poor and vulnerable Nigerians.

In a letter read out by the President of the Senate, Ahmad Lawan, Buhari noted that the loan had been approved by the Federal Executive Council and urged the Senate to give it expeditious consideration. He explained that the programme was designed to assist poor and low-income households in coping with the costs of meeting basic needs.

Under the programme, the Federal Government of Nigeria will transfer N5,000 per month to 10.2 million poor and low-income households for a period of six months, with a multiplier effect on about 60 million individuals. The transfers will be made directly to beneficiaries’ accounts and mobile wallets to ensure transparency and accountability.

This loan request comes as Nigeria’s borrowing from the World Bank reached $14.34 billion as of March 31, 2023, an increase from the $13.93 billion debt recorded by the Debt Management Office as of December 31, 2022. The loan, if approved, will add to Nigeria’s debt from the World Bank in the first quarter of 2023.

The International Bank for Reconstruction and Development (IBRD) lends to governments of middle-income and creditworthy low-income countries, while the International Development Association (IDA) provides concessionary loans and grants to governments of the poorest countries. The loan request will now be considered by the National Assembly.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Nigeria’s Public Debt Hits N101tn as World Bank Loans Soar to $4.95bn

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Nigeria’s public debt has breached the N101 trillion mark, driven by a substantial influx of loans from the World Bank totaling $4.95 billion over the past twelve months.

This surge in borrowing has raised concerns about the country’s ability to service its growing debt obligations amidst economic challenges exacerbated by the COVID-19 pandemic and fluctuating global oil prices.

As of December 2023, Nigeria’s debt stood at approximately N97 trillion, according to data from the Debt Management Office (DMO).

The recent borrowing spree has propelled this figure to N101 trillion, reflecting a rapid escalation in the country’s indebtedness.

The loans from the World Bank are earmarked for various developmental projects, including critical sectors such as power, women empowerment, education, renewable energy, and economic reforms.

These initiatives are part of Nigeria’s broader strategy to enhance infrastructure, socio-economic development, and institutional reforms aimed at bolstering long-term growth and resilience.

The breakdown of the World Bank funding includes $750 million allocated for power sector financing aimed at improving electricity generation and distribution, which remains a persistent challenge in Nigeria.

Another $500 million is dedicated to women’s empowerment programs, focusing on expanding opportunities and economic inclusion for women across the country.

Also, $700 million has been allocated to support education initiatives, particularly for adolescent girls under the Adolescent Girls Initiative for Learning and Empowerment project.

This funding seeks to enhance access to quality education and empower young girls in Nigeria.

Moreover, the World Bank has committed $750 million to the Distributed Access through Renewable Energy Scale-up project, aimed at increasing electricity access through renewable energy solutions.

This initiative targets over 17.5 million Nigerians who currently lack reliable electricity.

The largest tranche of $1.5 billion is designated for Economic Stabilisation to Enable Transformation Development Policy Financing Programme. This funding is intended to bolster fiscal revenues, expand social safety nets, and support economic diversification efforts to reduce dependency on oil revenues.

Despite these investments aimed at driving economic growth and improving living standards, concerns linger over Nigeria’s ability to effectively manage its escalating debt burden.

The country’s debt servicing costs have risen significantly, diverting resources away from critical sectors such as healthcare, education, and infrastructure development.

Critics argue that while external financing is necessary for development, the government must ensure transparency, accountability, and effective utilization of borrowed funds to avoid the pitfalls of previous debt mismanagement.

There is also a growing call for stringent fiscal discipline and reforms to enhance revenue generation and reduce dependency on borrowing.

President Muhammadu Buhari’s administration has defended the borrowing, asserting that it is crucial for bridging infrastructure gaps, stimulating economic growth, and creating job opportunities.

However, stakeholders emphasize the need for prudent debt management and sustainable economic policies to safeguard Nigeria’s financial stability and long-term prosperity.

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China Maintains One-Year Policy Loan Rate at 2.5%, Avoids Excessive Liquidity

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China’s central bank, the People’s Bank of China (PBOC), has decided to keep the key interest rate steady for the tenth consecutive month.

On Monday, the PBOC announced that the rate on one-year policy loans, known as the medium-term lending facility (MLF), will remain at 2.5%.

This decision aligns with the forecasts of a Bloomberg survey, reflecting the bank’s priority to maintain financial stability amid a fragile economic recovery.

The central bank also took measures to manage liquidity, withdrawing a net 55 billion yuan ($7.6 billion) from the banking system.

This action aims to prevent excessive liquidity, which could lead to further depreciation of the yuan. By maintaining a cautious stance on monetary easing, the PBOC underscores its focus on currency stability over lowering borrowing costs.

This move comes as China grapples with mixed economic signals. While exports exceeded expectations in May, inflation rose less than anticipated, and factory activity saw an unexpected contraction according to an official survey.

Despite these challenges, the PBOC’s restraint reflects a strategic choice to prioritize the strength of the yuan, even as calls for a rate cut grow louder.

Last week, the onshore yuan weakened to its lowest level since November, driven by a wide interest rate gap between the US and China.

The PBOC’s decision to hold rates steady is seen as an effort to prevent further devaluation of the yuan, which remains a “powerful currency” according to financial authorities.

Sufficient market liquidity has also influenced the central bank’s decision to refrain from outright rate cuts.

This is evidenced by the declining borrowing costs of popular debt instruments, such as one-year AAA-rated negotiable certificates of deposits, which have dropped to around 2%, compared to the MLF’s 2.5%.

The influx of funds from savings to wealth management products and other higher-yielding assets has bolstered the financial system’s liquidity, allowing the PBOC to adopt a more conservative stance.

China’s economy has experienced a patchy recovery, with government bond sales accelerating to boost infrastructure spending amidst a prolonged property slump.

Despite these efforts, the central bank remains cautious, opting for stability over aggressive monetary easing.

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FG’s Debt Financing Soars, Hits $854.36m in May Alone

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The Federal Government’s expenditure on debt financing rose to $854.36 million in May alone, according to data released by the Central Bank of Nigeria (CBN).

This figure marks the highest single-month spending on debt servicing recorded in the past year, raising alarms about the sustainability of the country’s borrowing practices.

The data from the CBN’s International Payments Report revealed a sharp escalation in debt servicing expenditure, with May’s figure representing a significant surge compared to previous months.

The $854.36 million spent in May is nearly four times higher than the amount disbursed for debt servicing in April and reflects a 286.49% increase from the same period in 2023.

The exponential rise in debt financing expenditure comes despite the Nigerian government’s claims of shifting its borrowing focus towards the domestic market.

Such a substantial outlay on debt servicing raises questions about the government’s ability to manage its fiscal responsibilities while maintaining economic stability and growth.

Analysts have voiced concerns over Nigeria’s increasing reliance on external borrowing, which poses risks to the country’s long-term financial health.

Fitch Ratings previously projected Nigeria’s external debt servicing to escalate to $5.2 billion next year, highlighting the urgency for prudent financial management and strategic debt reduction measures.

The Federal Government’s mounting debt burden has prompted calls for transparency and accountability in fiscal policies.

Stakeholders emphasize the need for effective debt management strategies to mitigate the adverse effects of escalating debt levels on the economy.

Despite assurances from government officials regarding plans to raise additional funds from concessional lenders and international financial institutions, including the World Bank, concerns persist over the sustainability of Nigeria’s borrowing trajectory.

The recent announcement by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, regarding an impending $2.25 billion World Bank package underscores the government’s reliance on external financing to meet its financial obligations.

As Nigeria grapples with the economic challenges exacerbated by the COVID-19 pandemic and fluctuating global oil prices, achieving fiscal stability remains paramount.

Efforts to diversify revenue sources, enhance transparency in public expenditure, and implement prudent debt management practices are crucial for safeguarding Nigeria’s financial future and fostering sustainable economic growth.

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