The World Bank has disbursed a $1.5 billion foreign loan to Nigeria as part of the federal government’s effort to implement fuel subsidy removal and tax reforms.
The World Bank’s recent document on the progress of the loan revealed.
Chronicle NG reports that the loan had been spearheaded as part of the Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing initiative in six months.
The document showed that the loan was approved on June 13, 2024, with the first tranche of $750m disbursed on July 2, 2024, while the latest disbursement was done in November.
Accordingly, the second tranche disbursement was tied to the fulfilment of specific economic reform conditions and was disbursed in November 2024.
Consequently, this brought the total disbursement from the World Bank to Nigeria to about $1.88 million, representing less than one percent of the total approved $750 million for the ARMOUR project.
Further details indicated that the $1.5 billion loan disbursed to Nigeria was structured in two tranches with different maturity periods.
The first tranche was a $750 million credit from the International Development Association, featuring a 12-year maturity and a six-year grace period.
The second tranche, a $750 million loan from the International Bank for Reconstruction and Development, has a 24-year repayment period with an 11-year grace period.
According to the World Bank, Nigeria surpassed conditions for the loan approval with the implementation of sweeping reforms such as subsidy removal, exchange rate harmonisation, and tax policies.
Recall that in October 2024, the Federal Government submitted a tax reform bill to the National Assembly for passage, which had generated months-long controversies over its impact and opposition by Northern Nigerian leaders.
According to the World Bank document, “The borrower has prepared and submitted to the National Assembly on October 3, 2024, a comprehensive package of tax reforms, which not only reform the VAT regime but also simplify tax policy laws and tax administration.
“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) the first tranche comprising $750m credit from the International Development Association (Association) (shorter maturity loan terms with a 12-year maturity and grace period of 6 years, Credit No. 7567-NG); and (2) the second tranche comprising a $750m loan from the International Bank for Reconstruction and Development (Bank) (US dollar-denominated, commitment-linked loan with a 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.
“Reforms have also been implemented to fully deregulate the fuel market, ensuring that retail prices are determined by market conditions and opening the sector to competition. The authorities are following through on their commitment to cease deficit monetisation, relying instead on standard debt instruments to finance the deficit.”
Meanwhile, in the past months, the government’s twin policy of fuel subsidy removal and exchange unification has attracted both praise and condemnation.
Specifically, under the policies, fuel prices had increased fivefold, and the exchange rate had increased astronomically, impacting the cost of living for the majority of Nigerians.
Though the Federal Government of Nigeria introduced palliatives, such as the disbursement of N25,000 to households, only less than two million households had benefitted.
The Compressed Natural Gas Initiative, which is a cheaper alternative to fuel to cushion the impact of fuel subsidy removal, has not been fully implemented.
The resultant impact is a high headline and food inflation rate, which have skyrocketed to 34.60 percent and 39.93 percent, respectively.
