Nigeria’s $1.5b World Bank loan stalled over failure to implement flexible exchange rate

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NIGERIA’S bid to secure a World Bank’s loan of $1.5 billion has hit the rock after the global bank expressed concerns over the country’s failure to meet the desired reforms to get access to the loan, according to a Reuters report.

Getting access to a World Bank loan depends on reforms made in the country and the bank without specific demands imposed on Nigeria had “recommended” a more unified, flexible exchange rate for the naira.

It had also discussed Nigeria’s fuel subsidies and electricity tariffs before the loan would be granted.

The delay of funding from the multilateral lenders could put pressure on the Nigerian economy as the country’s crude oil equivalent is currently at $44.80 which mean Nigeria will be unable to fund the 2020 budget pegged at N10.8 trillion.

Zainab Ahmed, Nigeria’s Minister of Finance in May had predicted a deeper recession than was earlier forecast after oil prices dived due to the coronavirus pandemic.

“We will go into recession – but what we are trying to do is to make sure that it is shallow so that we will quickly come out of it, come 2021,” she said.

The World Bank which stated that Nigeria could be heading toward its greatest fiscal crisis in 40 years, had aimed to bring the loan to its board for approval this month, but the Reuters sources said negotiations over what Nigeria will do to secure it were incomplete.

The report said the global bank was not convinced about the reforms being carried out in the Nigerian economic space which bothered majorly on the naira.

Nigeria had announced the removal of fuel subsidies through a “floating” price cap, but the report said the World Bank felt the mechanism was not sufficiently transparent.

According to the report,  discussions were at an advanced stage but confirmed that it had not presented the loan to its board.

“Of particular importance is the steps the government is taking to marshal the needed financial resources for a pro-poor response to the crisis and undertake the reforms that will help ensure a robust recovery,” bank said.

Nigeria’s policy of strengthening the naira has become more expensive since the oil price slide, as it relies on oil for 90 per cent of its foreign exchange.

Also, the naira has been devalued twice this year, but the sources said that was not enough for the World Bank, which wanted fuller reform of the naira policy.


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