World Bank Releases Fresh Fund To Nigeria After Subsidy Removal, Tax Bills
The World Bank has released a $1.5bn loan to Nigeria following the Federal Government’s implementation of a few of its economic reforms, including removing fuel subsidies and introducing tax policies.
This was after the apex bank said it had approved two operations: $1.5 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF) and $750 million for the Nigeria Accelerating Resource Mobilization Reforms (ARMOR) Program-for-Results (PforR).
This combined $2.25 billion package provides immediate financial and technical support to Nigeria’s urgent efforts to stabilise the economy and scale up support to the poor and most economically at risk, according to a document released by the world’s apex bank.
The document dated June 13, 2024, said the loan further supports Nigeria’s ambitious, multi-year effort to raise non-oil revenues and safeguard oil revenues, promote fiscal sustainability and provide sufficient resources to deliver quality public services.
The $1.5bn loan disbursed to Nigeria was structured in two tranches with different maturity periods.
The first tranche was a $750m credit from the International Development Association, featuring a 12-year maturity and a six-year grace period.
The second tranche, a $750m loan from the International Bank for Reconstruction and Development, has a 24-year repayment period with an 11-year grace period.
The first tranche of $750m was disbursed on July 2, 2024, while the second tranche, tied to the fulfilment of specific economic reform conditions, was disbursed in November 2024.
The bank said that the RESET DPF is focused on supporting Nigeria to strengthen its economic policy framework by creating fiscal space and protecting the poor and economically insecure. The ARMOR PforR will support efforts to implement tax and excise reforms, strengthen tax revenue and customs administrations, and safeguard oil revenues.
The bank said, “Confronted with a fragile economic situation, Nigeria recognized the urgency of changing course and embarked on critical reforms to address economic distortions and strengthen the fiscal outlook. Initial critical steps to restore macroeconomic stability, boost revenues, and create the conditions to reignite growth and poverty reduction have been taken.
“These include unifying the multiple official exchange rates and fostering a market-determined official rate, as well as sharply adjusting gasoline prices to begin to phase out the costly, regressive, and opaque gasoline subsidy.
“The Central Bank of Nigeria (CBN) has refocused on its core mandate of price stability and is tightening monetary policy including by increasing interest rates, as is appropriate to reduce inflation. A targeted cash transfer program is being rolled out to cushion the impact of high inflation on the poor and economically insecure households.”The Borrower has satisfied the conditions for the release of the second tranche consisting of the US$750 million loan, as outlined in the Loan Agreement and described below. The three-tranche release conditions for the second tranche have been satisfactorily completed. The macroeconomic framework continues to be adequate for this operation. Despite considerable pressures on the economy and households, the authorities are staying the course with challenging measures to restore macroeconomic stability and create the foundations for sustained and inclusive growth.
“Furthermore. The Government has successfully carried out the program as outlined in the Letter of Development Policy, dated May 3, 2024, with progress along all areas supported by the DPF.”
The bank quoted the Minister of Finance and Coordinating Minister of the Economy, Wale Edun as saying “We have embarked on bold and necessary reforms to restore macroeconomic stability and put the country back on a sustainable and inclusive economic growth path that will create quality jobs and economic opportunities for all Nigerians.
“We welcome the support of the RESET and ARMOR programs as we further consolidate and implement our macro-fiscal and social protection policy reforms, consistent with accelerating investment and redirecting public resources sustainably to achieve development priorities.”
The World Bank document read, “This document summarises the progress made under the Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing for the Federal Republic of Nigeria (Borrower or Recipient), which was approved by the Executive Directors on June 13, 2024.
“The DPF is a standalone operation comprised of two tranches: (1) first tranche comprising $750m credit from the International Development Association (Association) (Shorter Maturity Loan terms with 12-year maturity and grace period of 6 years, Credit No. 7567-NG); and (2) second tranche comprising $750m loan from the International Bank for Reconstruction and Development (Bank) (US dollar-denominated, commitment-linked loan with 24-year maturity and grace period of 11 years, Loan No.9683-NG).
“The Financing Agreement and Loan Agreement were signed and declared effective on June 19, 2024 and June 26, 2024, respectively. The first tranche was released on July 2, 2024.”
The World Bank commended the government for not only meeting the condition but exceeding expectations by fully deregulating the fuel market.
The document noted, “In terms of implementation, while the TRC [Tranche Release Conditions] formulation required introducing the change over a specified time-bound implementation period, the Borrower has moved ahead and made the change immediately, thereby overachieving the TRC in this respect.
“Effective October 2024, the price of PMS has been determined by the international market and the exchange rate set by the Central Bank of Nigeria.”
Commenting on the loan, the World Bank Vice President for Western and Central Africa, Ousmane Diagana said “Nigeria’s concerted efforts to implement far-reaching macro-fiscal reforms place it on a new path which can stabilize its economy and lift its people out of poverty. It is critical to sustain the reform momentum and continue to scale up and expand protection to the poor and economically at risk to cushion the effects of cost-of-living pressures on citizens.
“This financing package reinforces the World Bank’s strong partnership with Nigeria, and our support towards reinvigorating its economy and fast-tracking poverty reduction, which can serve as a beacon for Africa.”
