The World Bank has disbursed $1.5 billion to Nigeria in support of economic reforms under President Bola Ahmed Tinubu’s administration, including the removal of fuel subsidies and the introduction of tax policies.
Swift Disbursement Linked to Reform Milestones
The loan is part of the World Bank’s Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing initiative and represents one of the fastest disbursements Nigeria has received. The two tranches were released within six months of approval: the first $750 million in July 2024 and the second in November 2024.
The World Bank highlighted that the second tranche was tied to specific reform conditions, which Nigeria fulfilled ahead of schedule.
Loan Structure and Terms
The $1.5 billion loan is divided into two tranches with differing terms:
- First Tranche: A $750 million credit from the International Development Association 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 with a 24-year repayment period and an 11-year grace period.
The agreements were signed and became effective in June 2024, shortly after the loan’s approval.
Commendations and Economic Impacts
The World Bank commended the Nigerian government for exceeding reform requirements, particularly in fully deregulating the fuel market. As of October 2024, the price of Premium Motor Spirit (PMS) is determined by international market rates and the Central Bank of Nigeria’s exchange rate policy.
However, these reforms have had mixed reactions. The removal of subsidies has led to a fivefold increase in fuel prices, while exchange rate unification has resulted in higher living costs. Inflation rates have risen significantly, with headline inflation at 34.6% and food inflation at 39.93%.
Palliatives and Challenges
To mitigate the economic strain, the government introduced measures such as cash transfers of ₦25,000 to households, though only about two million families have benefited so far. The Compressed Natural Gas (CNG) Initiative, aimed at providing a cheaper alternative to fuel, remains in the early stages of implementation.
While these reforms have attracted praise for their boldness, they have also drawn criticism due to the resulting hardship for many Nigerians. The $1.5 billion loan is expected to support further stabilization and transformation efforts, as the government continues navigating these challenges.
