Nigeria has announced plans to seek $1.5bn in concessional loans from the World Bank as the government continues its attempts to reform and liberalise the country’s economy.
Speaking from the Annual Meetings of the World Bank Group and International Monetary Fund in Marrakech earlier this week, Nigeria’s finance minister, Wale Edun, confirmed that the government had “concluded plans” to seek funding from the organisation.
Edun said Nigeria would be applying for the loans through the International Development Association, a Washington-based development finance institution that is part of the World Bank Group and offers concessional loans and grants to emerging economies. He added that “effectively the interest rate will be zero” on these loans.
The move comes at a time when the Nigerian economy is struggling to adapt to the reforms initiated by President Bola Tinubu, who came to office in May this year. Since then, Tinubu has tried to liberalise the Nigerian economy by lifting some of the restrictions on foreign exchange markets that had kept the naira artificially high and ending fuel subsidies that he believed had become an unsustainable burden on public finances.
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While most international financial institutions, including the World Bank, have welcomed what they see as necessary reforms, they have caused significant levels of economic and political turbulence in Nigeria. The naira has plunged to record lows, the Nigerian stock market has been removed from major indices, and labour unions have threatened indefinite strikes. Ongoing foreign exchange restrictions also mean that, despite Tinubu’s initial reforms, foreign companies still have billions of dollars “stuck” in Nigeria, deterring further investment.
Esaie Diei, CEO at Lagos-based fintech advisory firm Afrinovatech, tells African Business he is unsure whether the $1.5bn loan will be particularly helpful in addressing the systemic issues plaguing Nigeria’s economy.
“The fundamental problem is that Nigeria still has high inflation and low productivity, as the World Bank itself has pointed out,” Diei says. “Would borrowing another $1.5bn help the country get out of this tough situation or get on the right track to prosperity?”
Teniola Tayo, economic intelligence lead at the Office for Strategic Preparedness and Resilience (OSPRE) in Abuja, is of a similar opinion. She notes that Nigeria’s economic troubles are deep-rooted and, while a loan from the World Bank could help reduce short-term volatility, is sceptical that it would have much impact over the longer term.
“Nigeria has been in a tough fiscal position for a while now, due to a confluence of issues, including our persistent struggle to diversify our exports away from oil and gas, as well as external shocks including Covid-19 and the Russia-Ukraine war,” she says.
“The situation was worsened by the debilitating costs of the petrol subsidies, and the difficult operating environment for businesses due to high inflation and the forex crisis.
“A loan might provide some temporary relief, but it might not be enough. There are still unnecessary policies blocking the flow of forex into the country and these have to be removed. Of course, the most important thing is to improve our balance of trade by growing exports. There are no quick fixes to the issues with our currency.”
Markets appear to have reacted positively to the news of a potential loan, with the Nigerian Stock Exchange All Share Index strengthening slightly in trading so far this week. However, question marks remain as to whether the funds will ultimately have any major impact on the Nigerian government’s efforts to reform the country’s ailing economy.
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