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World Bank Clears Air on Nigeria’s $800M Loan, Says Decision To Draw Down Facility Rests With Incoming Government

Chaudhuri stated the need to eliminate the payment for fuel subsidy in order to create fiscal space for other activities that would impact the citizens’ welfare.

Shubham Chaudhuri

 Following the controversy surrounding President Muhammadu Buhari’s recent request for the National Assembly to approve an $800 million World Bank facility, the multilateral institution on Monday, clarified that the loan request was not a fresh one, adding that the decision to withdraw the facility would rest with the incoming government.

The Country Director of the World Bank in Nigeria, Mr. Shubham Chaudhuri, who said this during an exclusive interview with THISDAY, explained that securing the National Assembly’s approval would make it easy for the incoming government to easily deploy palliatives if it decides to phase out the country’s controversial fuel subsidy policy.

Chaudhuri, however, reiterated the need to eliminate the payment for fuel subsidy in order to create fiscal space for other activities that would directly impact on the welfare of the citizens.

The World Bank official explained: “If the incoming government commits to removing fuel subsidy, the whole point of having the National Assembly’s approval is that it can immediately start providing relief to ordinary Nigerians. That is actually the smart thing to do.

“The outgoing government is saying, ‘Look, ’we have this facility waiting, you (incoming government) don’t have to go through the process of getting National Assembly approval.’  If this had not gone to the National Assembly, the new government would have to wait for approval from our board which takes at least six months.

“So, the decision to draw down the facility rests with the incoming government. If it decides not to, it can be cancelled. Also, the National Assembly approving it does not mean the incoming government must draw it down.

“The only time this will translate to actual debt for Nigeria is only when it is drawn down and that decision rests with the incoming government.”

According to Chaudhuri, the $800 million facility was actually approved by the board of directors of the World Bank in December 2021, as an additional round of financing for the National Social Safety Net Programme which had already been in operation for seven years and which started with an original $500 million.

He further explained that the National Social Safety Net Programme was part of the support for Nigeria’s vision for establishing a social protection system.

“This was spearheaded by the Vice President, Prof. Yemi Osinbajo and the idea being that like more and more developing countries around the world and even here in Africa –Ethiopia, Kenya, etc, the government needs to have a programme that can do two things – Help people who are poor climb out of poverty.

“So, think of it as a ladder and what global evidence shows is that regular cash transfers targeted at the poorest and most vulnerable people who are really caught in a poverty trap, can help them climb out of poverty. Another reason for a social security programme is to prevent people who are near poor such that when they are hit by a shock – price increase, natural disaster or economic crisis – it keeps them from falling into poverty.

“So, the original $500 million was approved in 2017, and it was targeted at a larger programme. The first task was to register people after identifying the poorest and vulnerable all around the country.

“Many NGOs were involved in the process and it was a bottom-up process as communities were asked to identify the most vulnerable among them. Now that register has over 16 million households nationwide and it is maintained by the National Social Safety Coordination Office (NASSCO).

“In 2021, the government approached us saying that they want to do away with fuel subsidy. This was actually a sub-committee of the National Economic Council, chaired by Governor Nasir El-Rufai of Kaduna State. They asked us to support them and we put together a proposal. I advised that they can take out fuel subsidy and roll out a cash transfer programme to help some fraction of the population deal with the fact that prices would go up when fuel subsidy is removed,” Chaudhuri explained.

According to him, the $800 million whose approval is presently before the National Assembly, was meant to be more of a safety net, “meant to get to the working poor and low income earners in urban areas, because they are the ones that would directly or indirectly be hit hardest by fuel price hike.”

“That was the consent in which we accelerated the preparation and designed the proposal. There were some conditions attached. It was agreed that all payments had to be digital, either through a bank account or mobile wallet and that it must not be caught. Everything was to be identified biometrically either through BVN or National Identity Number.

“The idea was that the minute that the government decides to eliminate fuel subsidy, the cash transfers would be rolled out. The idea was that if fuel subsidy is eliminated and savings made, the government would then use some of the recovered revenues to reduce its fiscal deficit and how much.

“This $800 million has been approved by our board, but not a single dollar has been drawn down.  So, until the National Assembly approves it as part of the country’s external borrowing plan, it cannot be drawn down.

“Also, until the facility is drawn down, there is no obligation. Our financing is highly concessional. Not only that, you can sign a financing agreement and if you change your mind and decide not to draw it down, then there won’t be any charge. A lot of the concern that has been expressed comes from the general distrust of government and also not a clear understanding of how the World Bank financing works,” Chaudhuri added.

The World Bank director advised the incoming government to eliminate fuel subsidy and to be decisive about it.

“Take a look at the numbers, do you know that even if fuel subsidy is eliminated by the end of June as stipulated in the Petroleum Industry Act and as planned for in the Appropriation Act, Nigeria’s fiscal deficit will still be N10 trillion.

“This is how bad things have gotten. Most of that deficit would be due to the fact that the government is paying for fuel subsidy. Nigeria has to get out of this cycle of borrowing to pay for fuel subsidy and interest rate on debt.

“Borrowing to service your debt is not sustainable and it keeps getting bigger. The most important thing that Nigeria can do is to eliminate fuel subsidy.

“The first bit of advice is for the incoming government to engage with all stakeholders and have a frank conversation and explain the challenges and how it can be solved. It is very simple, if fuel subsidy continues after the end of June, an additional N3 trillion revenue would be lost.

“Nigeria does not have much time less; already the fiscal situation is so bad and if fuel subsidy is not removed within the first three months of the new administration, the federal and states would not have enough money unless the country starts printing money again, which takes us back to the Ways and Means,” he added.

Obinna Chima