Federal Government Seeks $400 Million Loan to Fund Cash Transfers for 15 Million Households

The Federal Government has sought an additional $400 million loan from the World Bank to support conditional cash transfers to 15 million households. This move is intended to mitigate the impact of the removal of petrol subsidies on the Nigerian population.

The new loan request raises the total borrowed from the World Bank for this purpose to $1.2 billion, as an initial loan of $800 million had been secured earlier.

President Bola Tinubu had announced the conditional cash transfer initiative in a national address on October 1, aimed at alleviating the consequences of the subsidy removal and rising living costs. The plan involved providing monthly payments of N25,000 to 15 million households from October to December 2023.

The former administration of President Muhammadu Buhari had obtained an $800 million loan from the International Bank for Reconstruction and Development (World Bank) to provide post-subsidy palliatives to over 50 million Nigerians, intended to be accessed by the succeeding government.

President Tinubu also declared a provisional allowance of N25,000 for junior federal workers over the next six months, following negotiations with labor unions and stakeholders to raise the federal minimum wage without causing undue inflation. In response to protests and threats of a nationwide strike, the government extended this to all treasury-paid Federal Government workers, awarding a provisional wage increase of N35,000 for six months. A supplementary appropriation bill is expected to fund this increase.

Notably, Nigeria has retained its position as the fourth-largest borrower from the World Bank’s International Development Association (IDA). Despite holding the same rank as the previous year, the country’s IDA debt increased by approximately $1.3 billion within one year, reaching $14.3 billion by June 30, 2023.

In the World Bank’s 2023 Annual Report, Nigeria was among the top ten countries to acquire fresh IDA loans. The bank committed $1.55 billion to Nigeria in the 2023 fiscal year, making the country the ninth-highest beneficiary.

This loan, titled ‘Nigeria Human Capital for Opportunities and Empowerment,’ is aimed at strengthening systems to improve the delivery of basic education and primary health services in participating states. It is planned for implementation in 2024, pending approval by the World Bank Group’s board.

The Debt Management Office has reported that Nigeria’s total public debt reached N87.38 trillion at the end of the second quarter of the current year, marking a substantial increase from the previous quarter. Domestic debt accounted for 61.95% of the total debt, with external debt making up the remaining 38.05%. Both domestic and external debt saw significant increases within a three-month period.

The Debt Management Office has cautioned that the Federal Government’s projected revenue of N10 trillion for 2023 may not support additional borrowing, as the projected debt service-to-revenue ratio of 73.5% is considered high and a threat to debt sustainability. To address this issue, the government must focus on revenue generation by implementing revenue mobilization initiatives and reforms, such as the Strategic Revenue Growth Initiatives. Reducing borrowing could also be achieved by involving the private sector in financing capital projects through public-private partnerships and considering the privatization or sale of government assets.