©Reuters

Kemi Adeosun: Nigeria’s finance minister

Nigeria is considering selling a Chinese panda bond to help finance a budget deficit of about $11bn, its finance minister has said.

“The opportunity now, with the renminbi being a reserve currency, we are looking obviously at the lowest cost of funds to fund our budget deficit. Initially we were looking simply at the eurobond but then we began to explore opportunities in the renminbi market so there is a possibility of issuing a panda bond,” Kemi Adeosun told the Financial Times and Reuters in an interview. Panda bonds are renminbi-denominated debt sold by foreigners into China’s bond markets.

The priority, Ms Adeosun said, is to borrow “the cheapest possible money” — a total of 1.8tn naira ($9bn) from international and Nigerian markets. She said it seemed that a renminbi-denominated bond would be cheaper than issuing a eurobond. She also said that, given Japan’s negative interest rates, “there’s the possibility of doing a Samurai [yen-denominated bond] which is also an option we’ll look at. We’re simply shopping around for the best deals.”

President Muhammadu Buhari, elected last year, is visiting China in the coming week for a visit “aimed at securing greater support from Beijing for the development of Nigeria’s infrastructure, especially in the power, roads, railways, aviation, water supply and housing sectors”, the presidency said in a statement.

Ms Adeosun told the FT in January that Nigeria planned to tap the eurobond market to plug the deficit. Nigeria started talks in January with the World Bank and the African Development Bank for loans of $3.5bn to plug the deficit.

Nigeria is continuing talks started earlier in the year with the World Bank over a budget support loan, Ms Adeosun said in the interview on Saturday. She is set to travel to Washington this weekend for the World Bank’s spring meetings in the coming week.

Ms Adeosun said Nigeria has already begun implementing a “whole policy framework” to “support” the World Bank loan under discussion. She said Nigeria and the World Bank are “within the process” to obtain the loan and expect to complete that process “within the second quarter”, by August at the latest, she said.

She said aspects of this policy framework include “fiscal housekeeping, improving [non-oil] revenues, controlling costs” and reform of the state-owned oil company.

Mr Buhari proposed record spending of 6.06tn naira in a budget that was delayed by political wrangling but approved by parliament last month. Financing of the deficit from international lenders and markets has been held back due to the delay in passing the budget, Ms Adeosun said.

Ms Adeosun said Nigeria needs an expansionary budget to jump-start an economy that has suffered a dramatic slow down due to the global oil price crash. Nigeria is Africa’s top oil exporter. Spending on infrastructure such as power and roads is “really what is needed to get the economy out of where it is now”, she said, adding that the government plans to run a deficit for the next two to three years. The 2016 deficit of 2.2tn naira is 2.2 per cent of GDP, she said.

The International Monetary Fund forecasts growth will slow to 2.3 per cent this year, its lowest rate in more than 15 years. The minister said the administration understands that life is very difficult for the majority of citizens in the country of more than 180m, but says the changes the government is implementing will see the country turn a corner. Despite benefiting from years of oil prices over $100 per barrel, Mr Buhari said state coffers were barren when he took office last May — a discrepancy he blamed on pervasive corruption in government.

Ms Adeosun said the push to develop infrastructure outlined in the budget was essential to help Nigeria diversify away from oil in the longer term.

Though the government intends to pay for some of these projects through the budget, it is also looking abroad, namely to China, for funding for them.