Nigeria Secures $1.5 Billion World Bank Loan for Subsidy Removal, Tax Reforms
The World Bank has disbursed a $1.5 billion loan to Nigeria to support the federal government’s economic reforms, including the removal of fuel subsidies and the implementation of tax policies.
The loan is part of the Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing initiative, aimed at stabilizing the economy and fostering growth. According to a World Bank document, the loan was approved on June 13, 2024, with the first tranche of $750 million disbursed on July 2, and the second tranche released in November 2024.
The funding, structured into two tranches with varying repayment terms, includes a $750 million credit from the International Development Association (IDA) with a 12-year maturity and a six-year grace period. The second tranche, a $750 million loan from the International Bank for Reconstruction and Development (IBRD), comes with a 24-year maturity and an 11-year grace period.
The World Bank noted that Nigeria met the conditions for the loan approval by implementing key economic reforms, including fuel subsidy removal, exchange rate harmonization, and comprehensive tax reforms.
In October 2024, the government submitted a tax reform bill to the National Assembly, sparking widespread debate, particularly from northern leaders who voiced concerns about its potential impact. The reforms aim to simplify tax laws, improve tax administration, and overhaul the VAT regime.
The World Bank document highlighted progress in deregulating the fuel market, allowing retail prices to reflect market conditions and encouraging competition. Additionally, it acknowledged the government’s shift away from deficit monetization, opting instead for standard debt instruments to finance budget shortfalls.
Despite these reforms, the policies have drawn mixed reactions. The removal of fuel subsidies led to a fivefold increase in fuel prices, while the unification of exchange rates caused the naira to depreciate significantly, exacerbating the cost of living for most Nigerians.
Inflation rates have surged, with headline inflation reaching 34.60 percent and food inflation hitting 39.93 percent. The government introduced palliatives, such as a cash disbursement of N25,000 to households, but less than two million households have benefited.
The Compressed Natural Gas Initiative, proposed as a cheaper alternative to fuel, has yet to be fully implemented, further straining Nigerians.
While the World Bank loan aims to support Nigeria’s economic stability, the reforms’ full impact remains uncertain, with citizens grappling with rising living costs and inflationary pressures.
