Nigeria secured a $1.5 billion loan from the World Bank under the Reforms for Economic Stabilisation to Enable Transformation (RESET) Development Policy Financing initiative. This loan was disbursed remarkably quickly, with both tranches of $750 million each released within six months of approval in June 2024. This rapid disbursement stands in stark contrast to the typical delays experienced in other loan programs due to slower implementation of agreed-upon conditions. The first tranche, a credit from the International Development Association (IDA), carries a 12-year maturity with a 6-year grace period, while the second tranche, a loan from the International Bank for Reconstruction and Development (IBRD), has a 24-year maturity with an 11-year grace period. The swift disbursement underscores Nigeria’s commitment to implementing crucial economic reforms.
The World Bank attributed the rapid disbursement to Nigeria’s successful implementation of key reforms, notably the removal of fuel subsidies and the introduction of comprehensive tax reforms. The government not only met the conditions attached to the loan but exceeded expectations by fully deregulating the fuel market, allowing petrol prices to be determined by market forces. This move, while fiscally prudent, has led to a significant increase in fuel prices, impacting the cost of living and sparking public protests. The government also submitted a comprehensive tax reform package to the National Assembly, including a proposed increase in the Value Added Tax (VAT) rate to 10% by 2025, alongside measures to simplify tax compliance and expand input tax credits for businesses.
The three key conditions attached to the loan disbursement were: increasing net oil revenues, boosting non-oil revenue, and strengthening social protection delivery. The government addressed the first condition by mandating all fiscal transfers, including crude oil sales and gasoline imports, to be executed at the prevailing market exchange rate. The second condition was met by the proposed VAT increase and tax simplification measures. For the third condition, an amendment bill was submitted to mandate the use of the National Social Registry for targeting social investment programs. These reforms aim to diversify Nigeria’s revenue streams and address its historically low tax-to-GDP ratio.
Despite the World Bank’s commendation of the reforms, they have generated significant public controversy. The removal of fuel subsidies has resulted in a sharp increase in transportation and living costs, sparking protests in major cities across the country. While the government defends the reforms as crucial for long-term economic stability and growth, the public outcry highlights the immediate hardships faced by many Nigerians. To mitigate these impacts, the government has introduced palliative measures, including direct cash transfers to vulnerable households and efforts to promote compressed natural gas as a cheaper fuel alternative. However, the reach of these measures has been limited, with significantly fewer households receiving cash transfers than initially targeted.
This $1.5 billion loan is part of a larger lending engagement between Nigeria and the World Bank. In the past 18 months, the World Bank has approved loans totaling $6.95 billion to Nigeria, reflecting the lender’s commitment to supporting the country’s development agenda. This includes an additional $750 million loan approved on the same day as the RESET loan for the Accelerating Resource Mobilisation Reforms Programme for Results (ARMOR) project, although disbursement for this project has been significantly slower. The World Bank also has three more loan projects for Nigeria in the pipeline for 2025, totaling $1.65 billion, focusing on internally displaced persons, education, and nutrition.
Nigeria’s reliance on external borrowing has raised concerns about its growing debt burden and the sustainability of its debt service obligations. The World Bank’s share of Nigeria’s external debt stands at $16.32 billion, a significant portion of the total. While the government maintains that these loans are essential for financing critical development projects and achieving economic stability, the challenge lies in balancing the need for external financing with the imperative of managing debt levels responsibly. The effectiveness of the government’s reforms and its ability to translate these investments into tangible economic growth and improved living standards for its citizens will be crucial in determining the long-term impact of these loans.
