World Bank grants $2.25 billion aid package to boost Nigeria’s economic reforms

The World Bank has recently approved a substantial financial aid package for Nigeria, amounting to $2.25 billion, aimed at bolstering the country’s economic reform efforts. This decision comes on the heels of statements made by Finance Minister Wale Edun two weeks prior, emphasizing the importance of maintaining momentum in the wake of challenging reforms. These reforms, which include the controversial elimination of fuel subsidies and the abandonment of a longstanding currency peg, have contributed to an uptick in inflation rates.

On June 12, which is observed as a national holiday in Nigeria to honor democracy, President Tinubu acknowledged the longstanding need for economic restructuring. He pointed out the country’s historical overdependence on oil revenue as a fundamental weakness in its economic foundation. President Tinubu has committed to increasing government revenue and addressing the issue of inflation.

The financial support from the World Bank is divided into two main operations. The first is a $1.5 billion allocation for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing Program (DPF). The second is a $750 million provision for the Nigeria Accelerating Resource Mobilization Reforms (ARMOR). These initiatives were detailed in a press release from the Minister’s office.

Ousmane Diagana, the World Bank Vice President for Western and Central Africa, expressed optimism about Nigeria’s reform agenda. He stated that the comprehensive macro-fiscal reforms underway in Nigeria are setting the country on a new trajectory that promises economic stability and the potential to reduce poverty.

However, despite the initial steps towards reform, economic experts have expressed skepticism regarding the government’s consistency in implementing these changes. Following the initial phase-out of fuel subsidies, the government faced pressure to reinstate them quietly due to a spike in foreign exchange rates and rising global oil prices.

Moreover, even after allowing the naira to float freely and implementing several interest rate increases, the foreign exchange (FX) market has continued to experience volatility. The FX rates have seen significant fluctuations, with a notable increase in February, a recovery in March, and a subsequent decline by the end of April.

This volatility in FX rates has been a contributing factor to the accelerated rate of inflation. Additionally, the government has not yet removed multiple taxes and excise duties on food items and other commodities. A presidential task force has recommended the elimination of several taxes and anticipates progress by the year’s end.