The World Bank has cautioned Nigeria that a $1.5 billion loan could be canceled if the country fails to meet stringent economic reform criteria, such as fiscal transparency and increased VAT rates. Despite initial steps like raising gasoline prices and initiating cash transfer programs, Nigeria must fully comply with macroeconomic policies to secure the loan.
The loan, which includes an IDA credit and an IBRD loan with long-term repayment terms, is contingent on Nigeria’s adherence to specified conditions and deadlines. This warning is detailed in the financing agreement documents for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF) project, obtained by Nairametrics.
Signed by Nigeria’s Finance Minister, Wale Edun, and the World Bank’s Acting Country Director for Nigeria, Taimur Samad, the $1.5 billion loan comprises an International Development Association (IDA) credit of $750 million and an International Bank for Reconstruction and Development (IBRD) loan of $750 million.
The agreement stipulates that Nigeria can only withdraw the loan if the World Bank is satisfied with the program’s progress, the adequacy of the macroeconomic policy framework, and the fulfillment of key actions. Failure to address concerns within 90 days after notice may result in the cancellation of the remaining loan balance.
The document highlights Nigeria’s macroeconomic reforms, such as increasing gasoline prices, removing certain tax allowances, introducing new taxes, eliminating a negative import list, and improving revenue remittance systems. It also notes measures to protect the economically insecure through targeted cash transfer programs.
Key requirements for the loan include:
– A presidential executive order mandating all fiscal transfers to the Federal Government at the prevailing market exchange rate.
– VAT reforms, including a draft bill to increase the VAT rate to at least 12.5% by 2026.
– A revised National Social Investment Program Bill to use the national social registry for targeting social investment programs.
The repayment terms for the IDA credit involve equal installments starting October 15, 2030, and ending April 15, 2036, with a maximum commitment charge rate of 0.5% per annum on the unwithdrawn financing balance. The IBRD loan repayments will start October 15, 2035, and end April 15, 2048, with a front-end fee of 0.25% of the loan amount and a commitment charge of 0.25% per annum on the unwithdrawn loan balance.
While progress has been made, such as increasing gasoline prices and implementing cash transfer programs, continuous adherence to the agreed reforms is crucial for the continued availability of funds. The World Bank will closely monitor Nigeria’s compliance, and the government must demonstrate a strong commitment to avoid losing the $1.5 billion loan, which is vital for economic stability and growth. Both agreements include stringent audit and reporting requirements to ensure transparency and accountability.
Credit: Nairametrics (Text Excluding Headline)
