Nigeria is struggling to pass the 2016 budget. The budget has caused a lot of wrangling and finger pointing between law makers, the bureaucracy and the presidency. The fiscal stimulus that everyone is waiting for is no where to be found. The general view from both sides of the political spectrum has been that the budget is froth with errors.
To finance the budget when it eventually passes the government will have to borrow money from the same institutions that has been asking government to relax exchange rate policy and allow the economy to organically grow. So the government has gone borrowing from China complete with a swap between the Central Bank of Nigeria, the CBN, and China’s largest bank, the Industrial and Commercial Bank of China, Ltd, the ICBC which by assets and market capitalization is also the largest bank in the world. As has been observed by a highly regarded Nigerian economist and noted banker, the swap deal is nothing more than borrowing forex to sell at the federal government’s stubborn low rate, a heady policy that, at best, only postpones the evil day. Given the global economic conditions, crude oil prices and the self -imposed capital controls, financing the budget will be a challenge. Who will lend and what will be the expected cost of financing? Regardless of whom it is, we expect a call for Nigeria to structurally tighten its belt by reducing spending and aspects of the economy. This will stunt growth and cause pain to the already impoverish and severely underemployed population. Trade will suffer and Nigeria will run to the usual suspects for funding, IMF, WB, but these loan will take time to materialize and prolong recovery.