The Federal Government of Nigeria is seeking an additional $400 million loan from the World Bank to support conditional cash transfers to 15 million households. This initiative aims to mitigate the impact of the removal of petrol subsidies on the Nigerian population. The $400 million loan will bring the total amount borrowed from the World Bank for this purpose to $1.2 billion, as a previous loan of $800 million had been secured.
President Bola Tinubu announced this conditional cash transfer program during a nationwide address on October 1, which marked Nigeria’s Independence Day. The program entails providing a monthly payment of N25,000 to 15 million households for three months, from October to December 2023.
The previous administration, under President Muhammadu Buhari, had secured an $800 million loan from the International Bank for Reconstruction and Development (World Bank) to provide palliatives following the removal of petroleum subsidies for over 50 million Nigerians. The current administration is now utilizing these funds.
However, the government’s handling of the cash award to federal civil servants has faced challenges, with protests regarding the exclusion of certain categories of workers and pensioners. The government eventually announced a provisional wage increase of N35,000 for all treasury-paid federal workers for six months following consultations with labor unions and stakeholders.
The $400 million loan for cash transfers will be used exclusively for this program, while the cash award for federal civil servants will be funded by the government without the need for a loan.
Meanwhile, Nigeria maintains its fourth position on the World Bank’s list of top 10 International Development Association (IDA) borrowers. The country’s IDA debt has increased from $13 billion to $14.3 billion within one year. Bangladesh tops the list of IDA debtors, followed by India and Pakistan.
In the World Bank’s fiscal year 2023, Nigeria received a commitment of $1.55 billion in new IDA loans, making it the ninth-highest beneficiary. This further highlights the government’s reliance on external financing to address various developmental needs.
The increase in borrowing also raises concerns about debt sustainability and the government’s ability to manage its debt service-to-revenue ratio effectively. The Debt Management Office has warned that the government’s current revenue may not support higher levels of borrowing, emphasizing the need for revenue mobilization initiatives and reforms to boost tax revenue. To reduce borrowing and budget deficits, the government is encouraged to engage the private sector and consider privatization or the sale of government assets.