The World Bank has provided a $1.5 billion foreign loan to Nigeria to support the federal government's efforts in implementing fuel subsidy removal and tax reforms. This initiative is part of the Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing program.
According to a recent World Bank document, the loan was approved on June 13, 2024, and disbursed in two tranches. The first tranche of $750 million, provided by the International Development Association (IDA), was disbursed on July 2, 2024, with a 12-year repayment period and a six-year grace period. The second tranche, also $750 million, was issued in November 2024 by the International Bank for Reconstruction and Development (IBRD), featuring a 24-year repayment period and an 11-year grace period.
The World Bank noted that Nigeria met the stringent conditions required for loan approval, including key reforms such as:
- Subsidy removal: the deregulation of the fuel market, allowing retail prices to be determined by market conditions.
- Exchange rate harmonization: Addressing currency distortions to foster economic stability.
- Tax policy reforms: The government submitted a comprehensive tax reform bill to the National Assembly on October 3, 2024. This reform package aims to revamp the VAT regime, simplify tax policies, and enhance tax administration.
However, these reforms have been met with mixed reactions. While they have garnered praise for addressing structural economic challenges, they have also sparked criticism due to their impact on the cost of living.
Fuel prices have risen fivefold, and the unification of the exchange rate has led to significant inflation. In November 2024, headline inflation reached 34.60 percent, with food inflation climbing to 39.93 percent. These increases have strained household budgets, despite the government's introduction of palliative measures, such as disbursing N25,000 to fewer than two million households.
Additionally, the Compressed Natural Gas (CNG) Initiative, designed to provide a cheaper alternative to fuel, is yet to be fully implemented, leaving many Nigerians without immediate relief.
The World Bank emphasized the government's commitment to avoiding deficit monetization, relying instead on standard debt instruments to finance the budget deficit. While the reforms are expected to stabilize the economy in the long run, their immediate impact continues to fuel debates across Nigeria.
