World Bank lists conditions that may warrant cancellation of $1.5bn loan to Nigeria

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.