The World Bank has disbursed a $1.5 billion loan to Nigeria to support the federal government’s reforms, including fuel subsidy removal, exchange rate harmonization, and tax reforms.
This was part of the Reforms for Economic Stabilization to Enable Transformation Development Policy Financing initiative.
The loan, approved on June 13, 2024, was structured into two tranches. The first tranche of $750 million, a credit from the International Development Association with a 12-year maturity and six-year grace period, was disbursed on July 2, 2024. The second tranche, also $750 million from the International Bank for Reconstruction and Development with a 24-year repayment period and an 11-year grace period, was released in November after specific economic reform conditions were met.
The World Bank noted that Nigeria surpassed the conditions required for the loan by implementing major reforms. In October 2024, the federal government submitted a tax reform bill to the National Assembly, aiming to simplify tax laws and administration while restructuring the VAT regime. Despite months of opposition, especially from Northern leaders, the reforms were part of broader efforts to stabilize the economy.
The loan agreement, signed in June 2024, also included measures to fully deregulate the fuel market, allowing prices to be determined by market forces and encouraging competition. The government has ceased deficit monetization and now relies on standard debt instruments to manage fiscal deficits.
However, these reforms have drawn mixed reactions. Fuel prices have increased fivefold, while the exchange rate surge has raised the cost of living significantly, leading to inflation rates of 34.6% for headline inflation and 39.93% for food inflation. Though the government introduced measures like a N25,000 cash transfer to households and promoted the Compressed Natural Gas Initiative as a cheaper fuel alternative, implementation has been slow, with less than two million households benefiting from the palliative programs.
The twin policies of subsidy removal and exchange rate unification have attracted both praise for fiscal discipline and criticism for their impact on ordinary Nigerians.
Be the first to comment