The World Bank has released a $1.5bn loan to Nigeria following the Federal Government’s implementation of several economic reforms, including removing fuel subsidies and introducing tax policies.
This was after the apex bank said it had approved two operations: $1.5bn for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF) and $750m for the Nigeria Accelerating Resource Mobilization Reforms (ARMOR) Program-for-Results (PforR).
According to a document released by the world’s apex bank, this combined $2.25bn 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.
The document dated June 13, 2024, said the loan further supports Nigeria’s ambitious, multi-year effort to raise non-oil 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’s strengthening of 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 recognised the urgency of changing course and embarked on critical reforms to address economic distortions and strengthen the fiscal outlook. Initial critical steps have been taken to restore macroeconomic stability, boost revenues, and create the conditions to reignite growth and poverty reduction.
“These include unifying the multiple official exchange rates, fostering a market-determined official rate, and 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 poor and economically insecure households.
“The Borrower has satisfied the conditions for releasing the second tranche consisting of the $750m 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 programme as outlined in the Letter of Development Policy, dated May 3, 2024, with progress along all areas supported by the DPF.”
The bank quoted Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, 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 the Executive Directors approved 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 six 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 meeting the condition and 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 that 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 people with low incomes 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.”
Credit: THIS NIGERIA
