Business

Word Bank lists conditions that may warrant cancellation of $1.5 billion loan to Nigeria

Story highlight

  • World Bank has warned Nigeria that it could cancel a $1.5 billion loan unless the country meets strict economic reform criteria, including fiscal transparency and VAT rate increases.
  • Nigeria has taken initial steps like raising gasoline prices and launching cash transfer programs, but must fully comply with macroeconomic policies to secure the loan.
  • The loan includes an IDA credit and an IBRD loan with long-term repayment terms, contingent on Nigeria’s adherence to specified conditions and deadlines.

The World Bank has indicated that it may cancel a significant loan of $1.5 billion if Nigeria fails to adhere to specific requirements outlined in the financing agreements.

This is according to the financing agreement documents for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF) project, seen by Nairametrics.

The documents were signed by Nigeria’s Minister of Finance, Wale Edun and World Bank’s Acting Country Director for Nigeria, Taimur Samad.

The $1.5 billion loan comprises two separate agreements between Nigeria and the World Bank: An International Development Association (IDA) credit of $750 million and an International Bank for Reconstruction and Development (IBRD) loan of $750 million.

One of the documents read: No withdrawal shall be made of the Single Withdrawal Tranche unless the Bank is satisfied, after an exchange of views as described in paragraphs (a) and (b) of Section 3.01 of Article III of this Agreement based on evidence satisfactory to the Bank:

  1. with the progress achieved by the Borrower in carrying out the Program;
  2. that the macroeconomic policy framework of the Borrower is adequate;
  3. that the actions described in Section I.B [which are the key requirements presented in the next section of this report] of this Schedule have been taken.

“If, after this exchange of views, the Bank is not so satisfied, it may give notice to the Borrower to that effect and, if within ninety (90) days after the notice, the Borrower has not taken steps satisfactory to the Bank, with respect to paragraphs (a), (b) and (c) above, then the Bank may, by notice to the Borrower, cancel all or any part of the Unwithdrawn Loan Balance.”

This means that the borrower can only withdraw a specific loan tranche if the bank is satisfied with the program’s progress, the macroeconomic policy framework, and required actions; otherwise, the bank may cancel the remaining loan if concerns are not addressed within 90 days.

The document highlighted the existing macroeconomic reforms made already by Nigeria, such as increasing gasoline prices, removing certain tax allowances, introducing new taxes, eliminating a negative import list to improve affordability and trade, and improving revenue remittance systems. It also noted the measures in place to protect the poor and economically insecure through a targeted cash transfer program.

Key Requirements

Both IDA Credit and IBRD loan agreements have the same requirements, according to the loan agreement documents obtained from the World Bank.

The actions to be undertaken under this loan project include the following:

Presidential Executive Order: A mandate for 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 specified implementation period.

Value-Added Tax (VAT) Reforms: Submission of a draft bill to the National Assembly to progressively increase the VAT rate to at least 12.5% by 2026 and allow input tax credits for capital and services.

National Social Investment Program Bill: Submission of a revised bill to the National Assembly mandating the use of the national social registry as the primary targeting tool for social investment programs.

Loan Repayment Terms

IDA Credit Repayment Terms: The principal amount of the $750 million credit is to be repaid in equal installments on April 15 and October 15 each year, commencing October 15, 2030, and concluding April 15, 2036. It starts with repayments of 8.33334% of the principal amount, with the final installment slightly adjusted to 8.33326%​.

There is a maximum commitment charge rate of 0.5% per annum on the unwithdrawn financing balance.

IBRD Loan Repayment Terms: The principal amount of the $750 million loan is to be repaid semi-annually on April 15 and October 15 each year, starting October 15, 2035, and ending April 15, 2048. The installment for each repayment date is set at 3.85% of the total principal amount, with a slight adjustment to 3.75% for the final payment.

There is a front-end fee of 0.25% of the loan amount, totaling $1,875,000, and a commitment charge of 0.25% per annum on the unwithdrawn loan balance.

What you should know

So far, Nigeria has made progress in some areas, such as increasing gasoline prices and beginning the implementation of cash transfer programs. However, continuous monitoring and adherence to the agreed reforms will be done to ensure the continued availability of funds.

The World Bank team is expected to closely monitor Nigeria’s compliance with these conditions. The government must demonstrate a strong commitment to implementing these reforms to avoid the risk of losing the $1.5 billion loan, which is vital for the country’s economic stability and growth.

Both financing agreements include stringent audit and reporting requirements to ensure transparency and accountability.


Source: TheTimes.com.ng.

Back to top button