The World Bank has disbursed a $1.5 billion loan to Nigeria as part of the federal government’s initiatives to implement fuel subsidy removal and tax reforms. This was revealed in a recent World Bank document detailing the progress of the loan.
The loan is part of the Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing program, initiated within the past six months. Approved on June 13, 2024, the first tranche of $750 million was disbursed on July 2, 2024, while the second tranche followed in November 2024 after Nigeria met specific reform conditions.
The loan disbursement brings the World Bank’s total financing to Nigeria under this program to approximately $1.88 billion. The $1.5 billion disbursed under the program was structured into two tranches with differing terms.
– First Tranche: A $750 million credit from the International Development Association (IDA), with a 12-year maturity and a six-year grace period.
– Second Tranche: A $750 million loan from the International Bank for Reconstruction and Development (IBRD), featuring a 24-year repayment period and an 11-year grace period.
According to the World Bank, the approval was tied to Nigeria’s implementation of significant economic reforms, including the removal of fuel subsidies, exchange rate harmonisation, and comprehensive tax policy adjustments.
Tax Reform and Economic Adjustments
In October 2024, the federal government submitted a tax reform bill to the National Assembly, aiming to overhaul the VAT regime and simplify tax administration laws. This proposal sparked controversy, particularly among Northern Nigerian leaders, due to its potential socio-economic implications.
The World Bank document states, “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.”
Further, the report highlights progress under the development program, including the deregulation of the fuel market to align retail prices with market conditions and eliminate deficit monetisation, relying instead on standard debt instruments to finance fiscal gaps.
Economic Impacts and Public Reaction
While the reforms have been praised for their potential to stabilise the economy, they have also drawn criticism due to their immediate impact on Nigerians. Fuel prices increased fivefold, and exchange rate adjustments led to a significant rise in living costs.
Despite government efforts to mitigate the impact, including a N25,000 cash transfer to households and the introduction of the Compressed Natural Gas Initiative as a cheaper fuel alternative, implementation challenges persist. As of now, fewer than two million households have benefited from the palliatives, while inflation rates have soared.
– Headline Inflation: 34.60%
– Food Inflation: 39.93%
The reforms continue to attract mixed reactions as Nigerians navigate the resulting economic pressures.
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