World Bank Disburses $1.5 Billion Loan to Support Nigeria’s Economic Reforms

The World Bank has released a $1.5 billion loan to Nigeria, marking a significant milestone in the country’s economic reform journey. This funding follows the Federal Government’s implementation of critical policies, including the removal of fuel subsidies and the introduction of new tax measures.

The loan is part of a broader $2.25 billion financial package approved by the World Bank, comprising two initiatives aimed at stabilizing Nigeria’s economy and supporting vulnerable populations. The programs include:

1. The Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF) – A $1.5 billion operation designed to create fiscal space, safeguard the economically vulnerable, and enhance Nigeria’s economic policy framework.
2. The Nigeria Accelerating Resource Mobilization Reforms (ARMOR) Program-for-Results (PforR) – A $750 million initiative focused on implementing tax reforms, improving revenue collection, and ensuring the sustainability of oil revenues.

The $1.5 billion loan is structured into two tranches, each with distinct terms and objectives:

• First Tranche: A $750 million credit provided by the International Development Association (IDA) with a 12-year maturity period and a six-year grace period. This tranche was disbursed on July 2, 2024.
• Second Tranche: A $750 million loan from the International Bank for Reconstruction and Development (IBRD) with a 24-year repayment period and an 11-year grace period. This tranche was disbursed in November 2024, contingent on Nigeria meeting specific economic reform milestones.

The World Bank emphasized that the funding supports Nigeria’s ambitious efforts to strengthen non-oil revenue streams, safeguard existing oil revenues, and achieve fiscal sustainability. A key focus is ensuring sufficient resources to deliver quality public services and provide financial relief to the country’s poorest and most economically at-risk populations.

The RESET DPF program is designed to foster economic stability by creating fiscal space, enabling the government to allocate resources efficiently while protecting vulnerable groups. Simultaneously, the ARMOR PforR initiative aims to accelerate the implementation of tax and excise reforms, strengthen revenue administration, and bolster customs efficiency.

This financial support comes amid Nigeria’s multi-year push to reform its economy and reduce dependence on oil revenues. The removal of fuel subsidies—a politically sensitive but economically necessary decision—has been a cornerstone of these reforms. By shifting focus toward non-oil revenues and enhancing tax systems, the government aims to promote fiscal sustainability and build resilience against external economic shocks.

The bank said, “Confronted with a fragile economic situation, Nigeria recognized the urgency of changing course and embarked on critical reforms to address economic distortions and strengthen the fiscal outlook. Initial critical steps to restore macroeconomic stability, boost revenues, and create the conditions to reignite growth and poverty reduction have been taken.”

“These include unifying the multiple official exchange rates and fostering a market-determined official rate, as well as sharply adjusting gasoline prices to begin to phase out the costly, regressive, and opaque gasoline subsidy.”

“The Central Bank of Nigeria (CBN) has refocused on its core mandate of price stability and is tightening monetary policy including by increasing interest rates, as is appropriate to reduce inflation. A targeted cash transfer program is being rolled out to cushion the impact of high inflation on the poor and economically insecure households.”

The World Bank document reads in part, “This document summarises the progress made under the Reforms for Economic Stabilisation to Enable Transformation Development Policy Financing for the Federal Republic of Nigeria (Borrower or Recipient), which was approved by the Executive Directors on June 13, 2024.

“The DPF is a standalone operation comprised of two tranches: (1) first tranche comprising $750m credit from the International Development Association (Association) (Shorter Maturity Loan terms with 12-year maturity and grace period of 6 years, Credit No. 7567-NG); and (2) second tranche comprising $750m loan from the International Bank for Reconstruction and Development (Bank) (US dollar-denominated, commitment-linked loan with 24-year maturity and grace period of 11 years, Loan No.9683-NG).”

“The Financing Agreement and Loan Agreement were signed and declared effective on June 19, 2024 and June 26, 2024, respectively. The first tranche was released on July 2, 2024.”

“In terms of implementation, while the TRC [Tranche Release Conditions] formulation required introducing the change over a specified time-bound implementation period, the Borrower has moved ahead and made the change immediately, thereby overachieving the TRC in this respect.”

“Effective October 2024, the price of PMS has been determined by the international market and the exchange rate set by the Central Bank of Nigeria.”

The World Bank’s $2.25 billion package not only provides immediate financial relief but also delivers technical support for implementing these transformative policies. As Nigeria continues on this path, the success of these reforms will play a critical role in shaping the nation’s economic future.