The World Bank has completed the disbursement of a $1.5 billion loan to Nigeria following the implementation of key economic reforms by the Federal Government. These reforms, including the removal of fuel subsidies and the introduction of comprehensive tax policies, were part of the conditions tied to the Reforms for Economic Stabilisation to Enable Transformation (RESET) Development Policy Financing initiative.
The loan, approved on June 13, 2024, was structured in two tranches. The first tranche of $750 million, under the International Development Association (IDA), was released on July 2, 2024, with a 12-year maturity period and a six-year grace period. The second tranche, under the International Bank for Reconstruction and Development (IBRD), was disbursed in November 2024, with a 24-year repayment period and an 11-year grace period. This expedited disbursement—completed within six months—contrasts with other World Bank loans that often experience delays due to partial or slow implementation of conditions.
The removal of fuel subsidies was a critical reform that enabled the release of the second tranche. Effective October 2024, the government deregulated the fuel market, allowing petrol prices to be determined by international market conditions and the exchange rate set by the Central Bank of Nigeria. This reform ended implicit subsidies that had burdened public finances, leading to a more than fivefold increase in fuel prices since mid-2023.
Additionally, sweeping tax reforms were introduced through the Nigeria Tax Bill 2024, which proposes a gradual increase in the Value Added Tax (VAT) rate to 10% by 2025. The bill, submitted to the National Assembly on October 3, 2024, aims to simplify tax compliance, expand input tax credits for businesses, and improve non-oil revenue generation.
The RESET loan was structured to support Nigeria’s fiscal stability and economic transformation. However, the reforms triggered widespread public dissent, as the removal of fuel subsidies and rising VAT rates significantly increased living costs. Protests erupted in major cities, including Abuja, Lagos, and Kano, with citizens decrying the economic hardships caused by soaring transportation and fuel costs.
President Bola Tinubu and his cabinet have defended the reforms as necessary for stabilizing the economy and diversifying Nigeria’s revenue base. The World Bank commended the government for its commitment to reforms, describing the measures as exceeding expectations.
On the same day the RESET loan was approved, the World Bank sanctioned another $750 million for the Accelerating Resource Mobilisation Reforms (ARMOR) Programme for Results in Nigeria. However, as of December 2024, only $1.88 million of this loan had been disbursed, less than 1% of the approved amount. This stark contrast underscores the efficiency of the RESET programme compared to ARMOR, which is tied to more complex reforms in resource mobilization.
Despite the challenges, the World Bank remains optimistic about Nigeria’s economic outlook, citing the reforms as vital for addressing its historically low tax-to-GDP ratio and reducing dependency on oil revenue. However, critics argue that the reforms may widen regional economic disparities and exacerbate social tensions. As the government continues to implement its ambitious reform agenda, Nigerians face a delicate balance between enduring short-term economic hardships and achieving long-term fiscal sustainability.
