Nigeria’s economic transformation plans hit a potential snag as the World Bank Loan of $1.5 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF) comes with strict conditions.
A review of the financing agreement documents by Nairametrics reveals a clause allowing the World Bank to cancel the loan if Nigeria fails to adhere to specific requirements. The agreement, signed by Nigeria’s Finance Minister Wale Edun and the World Bank’s Acting Country Director for Nigeria, Taimur Samad, stipulates that the bank can withhold loan tranches based on its evaluation of:
Progress achieved by Nigeria in implementing the RESET program.
The adequacy of Nigeria’s macroeconomic policy framework.
The completion of specific actions outlined in the loan agreement.
The documents detail that if the World Bank expresses dissatisfaction with any of these factors, they can issue a formal notice to Nigeria. If the borrower (Nigeria) fails to address these concerns within 90 days, the World Bank holds the authority to cancel the remaining loan balance entirely.
Existing Reforms Highlighted
The document acknowledges the existing economic reforms undertaken by Nigeria, including:
Increase in gasoline prices
Removal of certain tax allowances
Introduction of new taxes
Elimination of a negative import list
Improvement of revenue remittance systems
The agreement also recognizes the targeted cash transfer program designed to protect vulnerable populations.
Key Requirements for Loan Disbursement
Both the IDA credit and IBRD loan agreements necessitate specific actions from Nigeria. These include:
Presidential Executive Order: This mandate requires all fiscal transfers to the federal government, including those from crude oil sales and gasoline imports, to be executed at the prevailing market exchange rate within a designated timeframe.
Value-Added Tax (VAT) Reforms: Nigeria must submit a draft bill to the National Assembly proposing a gradual increase in the VAT rate to at least 12.5% by 2026. This bill should also allow input tax credits for capital and services.
National Social Investment Program Bill: A revised bill mandating the use of the national social registry for social investment program targeting needs to be presented to the National Assembly.
World Bank Loan Repayment Details
The agreement outlines distinct repayment terms for the IDA credit and IBRD loan:
IDA Credit: The $750 million credit will be repaid in equal installments starting October 15, 2030, and concluding April 15, 2036. The initial installments will be 8.33334% of the principal amount, with slight adjustments for the final payment. There’s a maximum commitment charge of 0.5% per annum on the unwithdrawn balance.
IBRD Loan: Repayment of the $750 million loan commences on October 15, 2035, and concludes on April 15, 2048, with semi-annual installments of 3.85% (adjusted to 3.75% for the final payment). The loan carries a front-end fee of $1,875,000 (0.25% of the loan amount) and a 0.25% annual commitment charge on the unutilized balance.
The Importance of the RESET Program
The RESET program, funded by the World Bank loan, aims to support Nigeria’s economic stabilization efforts. The program focuses on promoting macroeconomic stability, improving fiscal sustainability, and implementing structural reforms to enhance economic growth and job creation.
Potential Impact of Loan Cancellation
The potential cancellation of the $1.5 billion loan could have significant consequences for Nigeria. The funds were intended to support crucial reforms and social programs. Losing access to this financing could hinder the government’s ability to address economic challenges and improve the lives of its citizens.
If You Ask Me
The World Bank loan offers significant financial support for economic reforms. However, successfully accessing these funds hinges on Nigeria’s ability to meet the outlined requirements within the stipulated timeframe which will likely be challenging. Failure to do so could jeopardize the loan and potentially hinder the country’s economic transformation efforts. Therefore, the government must work diligently to meet the outlined requirements and ensure access to these vital resources.
The Nigerian government need to ask certain questions and in time will need to defend certain actions; the introduction of new taxes and the increase in VAT to will no doubt raise brows. While a tax reform committee is in place to ensure smooth transition to a new tax system, the economy might not be ready to accommodate it.
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The CBN recently suspended transaction levy shook the banking sector as many would not have it. The levy almost damaged the success of the cashless policy. Telecoms operators are still lamenting multiple taxation which hasn’t been resolved and yet new taxes are in the works.
Eventually the government will find a means to bridge the several gaps to acquire the loan, hopefully the already starving masses will not be at the negative end.
