The loan deal will ease some pressure on Buhari in the short term by allowing him to announce the start of construction and other infrastructure projects. Loans from the Chinese government are likely to command lower interest rates than those available from commercial lenders. Moreover, China is unlikely to demand the reforms and oversight that the World Bank or IMF typically impose as conditions for lending. The Chinese loan is likely to take the form of a credit line that can be accessed on a project by project basis.
Nonetheless, a devaluation of the naira versus the US dollar remains likely in 2016. The Chinese loan does not address the disparity between the official naira exchange rate of 197-199 to the dollar and the actual market rate of approximately 320.
Global Financial markets remain convinced that the government will devalue the naira, and until it does investors will remain reluctant to commit money to Nigeria. Difficulties sourcing foreign exchange, and in some cases shortages of industrial and other goods as a result of foreign exchange restrictions, will continue to adversely impact businesses with operations in Nigeria. The loan amount is larger than expected, putting Nigeria at risk of struggling to repay if the oil price falls further.
Buhari is aware of the need to diversify sources of government income, and wants to broaden Nigeria’s tax base and expand its portfolio of export goods. These measures are likely to take years to generate significant additional government revenue, and infrastructure projects are themselves unlikely to generate sufficient income to finance loan repayments in the near term. Read Full Article Here @ Forbes
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