April 28, 2020 / 4:03 PM / a month ago

UPDATE 1-Nigeria switches to domestic naira markets to finance 2020 budget

(Adds details, background)

By Camillus Eboh

ABUJA, April 28 (Reuters) - Nigeria will shelve plans to borrow 850 billion naira ($2.36 bln) from international markets and instead tap domestic markets to finance its 2020 budget, President Muhammadu Buhari said after the new coronavirus pandemic triggered an oil price plunge.

Nigeria relies on crude oil sales for around 90% of foreign exchange earnings and they make up the bulk of government revenues.

In total, the government had planned to borrow $3.3 billion from international markets this year to finance its 2020 budget and to refinance a $500 million eurobond due in January.

The Senate had previously approved 744.9 billion naira in domestic borrowings for 2020 and another 850 billion naira from offshore sources. Buhari said he preferred to tap local markets in naira to ensure adequate funds for the budget.

He said the money is needed to replace previously approved external loans, as conditions on offshore markets are “not conducive” to borrowing. The government would refinance the new naira loan into U.S. dollars once conditions improve, Buhari said.

Nigeria, Africa’s largest crude oil producer, has cut nearly $5 billion from its 2020 budget as oil prices collapsed. The revised version uses a benchmark of $30 per barrel oil, though Brent crude was trading at just under $20 on Tuesday.

President Buhari sent a request to the Senate to approve the naira borrowings, a letter read out in the Senate on Tuesday said.

The move signals a policy shift for a government that has touted private sector investment and pushed for low interest rates to channel funds into the development of rail and road infrastructure.

The central bank has kept liquidity tight to lure foreign investors into high-yielding government securities to support the naira currency, which has hit new lows on the black market in recent weeks.

Lockdowns caused by the new coronavirus pandemic have crushed global economic growth and reduced oil consumption by roughly a third.

The Senate, the upper house of parliament, had approved foreign borrowings of $22.7 billion for infrastructure projects before the coronavirus outbreak forced countries around the world, including Nigeria, into lockdown.

Nigeria is also seeking almost $7 billion in emergency loans from multilateral institutions, including the International Monetary Fund, the World Bank and the African Development Bank.

Tuesday is the first day that lawmakers have conducted a full session since late March, when the capital Abuja went into lockdown.

$1 = 360.00 naira writing by Libby George and Chijioke Ohuocha, editing by Alexis Akwagyiram/John Stonestreet/Jane Merriman

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