By Chijioke Ohuocha

ABUJA (Reuters) – Nigeria plans to raise $3.5 billion in foreign loans including from the World Bank and from international debt markets to help fund its 2017 budget deficit, the head of its budget office told Reuters on Wednesday.

The country is in its second-year of recession brought on by low oil prices, which has slashed government revenues, hammered the naira currency and it has struggled to raise funds from concessionary organisations such as the World Bank.

Budget Office Director General Ben Akabueze said $2 billion of the foreign borrowings would come from concessionary loans with the balance of $1.5 billion from commercial markets including the Eurobond market.

He said Nigeria has a shortfall of $7.5 billion for its 2017 budget expenditure.

“We would look at which options gives us the best value including Eurobonds,” he told Reuters in an interview.

The government will raise $4 billion from the local debt market, Akabueze said.

The Debt Management Office sold fewer bonds than expected at its last auction in May as the yields on offer failed to attract foreign investors worried about currency risk.

Nigeria’s parliament signed off on a record 7.44 trillion naira ($24 billion) budget for 2017 last week, aiming to drag the West African country out of its first downturn for a quarter of a century.

The plan projects a deficit of 2.21 trillion naira, implying a deficit equivalent to 2.18 percent of Nigerian GDP.

The budget must now be signed by the president to become law. Nigerian President Muhammadu Buhari is on leave in Britain and has handed over to his deputy Yemi Osinbajo, who will sign the budget in Buhari’s absence.

Akabueze said the budget provided a debt service amount of 1.8 trillion naira to pay off maturing bonds and interest on domestic and foreign loans but lower oil prices had weakened its debt service ratios.

He said improving tax collection and consolidating accounts of revenue generating agencies will boost debt ratios.

Nigeria’s local-currency debt spiked to 13.88 trillion naira last year, up from 8.83 trillion in 2015, and is set to rise further, which could send interest rates higher at home and choke the real economy.

Last August, Nigeria approved a three-year plan to borrow more from abroad so that 40 percent of its loans would come from offshore, compared with the previous 16 percent, and to extend its debt maturity profile.

It has said it planned to borrow as much as $10 billion from debt markets, with about half of that coming from abroad.

($1 = 315 naira)

(Editing by Louise Ireland)

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