Subsidy Removal, Tax Reforms Among Conditions for Loan Approval
The World Bank has disbursed a $1.5 billion loan to Nigeria to support the federal government’s economic reform agenda, which includes fuel subsidy removal and tax policy adjustments.
The loan, part of the Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing initiative, was approved on June 13, 2024. The first tranche of $750 million was disbursed on July 2, 2024, and the second tranche followed in November after Nigeria fulfilled specific reform conditions.
Loan Structure and Terms
The $1.5 billion facility comprises two tranches with distinct repayment terms:
- First Tranche: A $750 million credit from the International Development Association (IDA), featuring a 12-year repayment period with a six-year grace period.
- Second Tranche: A $750 million loan from the International Bank for Reconstruction and Development (IBRD), with a 24-year repayment period and an 11-year grace period.
The funds aim to support structural reforms critical for economic stability and transformation, including deregulating the fuel market and harmonizing the exchange rate.
Economic Reforms and Conditions
The World Bank commended Nigeria for implementing sweeping reforms that paved the way for the loan approval. These include:
- Fuel Subsidy Removal: Retail fuel prices are now market-determined, encouraging competition and reducing fiscal burdens.
- Exchange Rate Harmonisation: Policies to align currency valuation have been implemented to address market imbalances.
- Tax Reforms: In October 2024, the government submitted a comprehensive tax reform bill to the National Assembly, simplifying tax policy laws and administration.
While these measures address fiscal deficits, they have sparked public debates over their impact, especially as fuel prices and the exchange rate have increased dramatically, driving up the cost of living.
Economic and Social Impacts
The reforms have led to significant economic challenges for Nigerians, including surging inflation rates—headline inflation at 34.60% and food inflation at 39.93%. Despite the government’s introduction of palliative measures, such as distributing N25,000 to selected households and promoting the Compressed Natural Gas (CNG) Initiative as a cheaper fuel alternative, these efforts have yet to alleviate the full impact on citizens.
