Nigeria is making slow progress in reforming its economy, especially following the fiscal pressures and gaps following the Covid – 19 pandemic and falling oil prices, but the World Bank is as yet unimpressed and will not trigger the US $1.5 billion policy support loan because of credibility concerns of Nigeria’s reforms, BusinessDay can now confirm.
“There is skepticism about the commitment to structural reform. They are trying to ensure the reforms started are followed through and the commitment is credible. Therefore, unless the i’s are dotted and the t’s are crossed, the fund will not be released”, a senior World Bank source told Businessday from Washington.
Our source highlighted two key areas of concern. First, while the Petroleum Products Pricing Regulatory Agency (PPPRA), established in 2003, had issued few months ago a guidance towards total removal of subsidy on petrol, marketers and retailers in Nigeria want clarity and detailed guidelines of how the price components will be determined and how government hope to end the anomaly in which it is the only sole importer of petroleum products through the PPMC.
The other area of concern being raised by the World Bank is that the Nigerian Autonomous Foreign Exchange Market (NAFEX), also known as the exporters and investors window (I and E) is not thought by credible market players to be truly reflective of demand and supply conditions, rather there are arbitrary restrictions on what FX is used for, who gets it and at what rate.
This concern by the World Bank also coincides with two dramatic developments that are bound to raise the element of credibility around ongoing reforms by the government in Abuja. Last week Wednesday, the Petroleum Products Marketing Company (PPMC), a subsidiary of the National Oil Company announced a new ex depot price of N151.56 per litre for petrol and following this, fuel prices at the pumps have risen to as much as N161 per litre.
In the last few days also, there have been developments that could narrow the huge disparity between the NAFEX rate and the parallel rates, as the Central Bank of Nigeria (CBN) starts to deal with both the estimated $2 billion demand backlog, and supply to Bureau De Change (BDCs). The real worry now is that Nigeria is moving too slow and without the conviction and this is capable of sending the wrong signals to the investment community.
“The longer it takes to push through these reforms, the possibility of losing momentum grows”, the World Bank source added.
Nigeria’s window of meeting the terms for the World Bank support fund is narrowing as BusinessDay gathered that all documents relating to the badly needed budget support loans must reach the board of the World Bank at least one month ahead of a decision meeting in Washington.
So far, there is no indication that the documentation for a decision has been submitted, following the concerns on policy credibility.
Early in the year, following the emergence of Covid – 19 and the consequent fall in oil prices, the federal government had requested for US $3.2 billion from the World Bank.
Out of this, $3.2 billion, $1.5 billion is for policy based budget support, US $750 million for fiscal relief for the States, $750 million helping States directly with programmes on improving standard of living and support for farmers.
The $200 million, which has already been disbursed by the World Bank, is to provide $85 million for the Nigeria Centre for Disease Control (NCDC), established in 2011, and $115 million for States for fighting Covid -19.
Following oil price decline to less than US $30 per barrel on average between March and May 2020, and an oil price outlook of about US $40 for the remainder of the year, Nigeria’s government faces a $15 – 20 billion financing gap. The expectation of the government is that the World Bank funding, in addition to the US $3.4 billion received from the International Monetary Fund (IMF) in April will help plug some of the gaps that had emerged, easing the pain of Nigerians and their businesses as they struggle with the pandemic.
Analysts say the need for a strong policy response by Nigeria and broad range of reforms is strengthened, not only by the impact of the decline in oil prices on the export earnings and the foreign exchange pressure that emanates from there but also by the fiscal crisis that has emerged as government revenues fall. There is also the key element that all these exert pressure on private sector credit. It is estimated that about 30% of bank credit is concentrated in the oil and gas sector.
In the mantime, though the policy based budget support has not materialised, Businessday learnt that the World Bank has already provided different forms of loans and support to Nigeria of about $3 billion under both the investment financing and programme funding this year alone.
They include the recently approved Nigeria’s COVID – 19 preparedness and response project, the power sector recovery performance based operation and Nigeria’s digital identification for development project.