Nigeria has emerged as the third-largest debtor to the World Bank’s International Development Association (IDA) as of June 30, 2024, intensifying the growing unease surrounding Nigeria’s public debt.

In a detailed financial statement released by the World Bank, Nigeria’s exposure to the IDA soared by 14.4%, climbing from $14.3 billion in the fiscal year (FY) 2023 to a substantial $16.5 billion by the close of FY2024. This $2.2 billion increase not only places Nigeria among the top three IDA debtors for the first time but also signifies a dramatic shift from its previous rank as the fourth-largest borrower in 2023.

This leap into the top three debtor nations highlights Nigeria’s escalating dependence on international financing amidst its ongoing economic challenges. The fiscal year 2024, spanning from July 2023 to June 2024, has seen Nigeria receiving at least $2.2 billion from the World Bank, a financial influx occurring under President Bola Tinubu’s administration.

It is essential to note that this debt is separate from any outstanding loans Nigeria has with the World Bank’s International Bank for Reconstruction and Development (IBRD).

Comparative Analysis of Other IDA Debtors

Nigeria’s ascent in the IDA debtor ranks is set against a broader backdrop of global borrowing trends. Bangladesh retains its position as the largest IDA debtor, with its exposure increasing from $19.3 billion in 2023 to $20.5 billion in 2024. Pakistan follows closely, maintaining its second-place standing with a stable exposure of $17.9 billion. Meanwhile, India, which held the third spot in 2023 with an IDA exposure of $17.9 billion, experienced a decrease to $15.9 billion in 2024, paving the way for Nigeria to surpass it.

Other significant IDA borrowers include Ethiopia, which saw its exposure rise from $11.6 billion in 2023 to $12.2 billion in 2024, and Kenya and Vietnam, each with $12.0 billion in 2024. These nations, along with Tanzania, Ghana, and Uganda, make up the top ten IDA debtors, collectively accounting for 63% of the IDA’s total exposure as of June 30, 2024.

The Implications for Nigeria’s Public Debt

This development has not only propelled Nigeria into the spotlight of global debt but has also amplified domestic concerns over the country’s growing public debt burden. The increasing reliance on international loans, particularly from the World Bank’s concessional arm, raises questions about Nigeria’s long-term economic sustainability and its ability to manage and service this mounting debt.

The IDA plays a crucial role in providing concessional loans and grants to the world’s poorest countries, offering financial support with low interest rates and extended repayment periods. These loans are designed to foster economic growth, reduce inequalities, and improve living conditions in developing countries.

However, Nigeria’s ballooning debt profile under the IDA now casts a shadow over these objectives, as the nation grapples with rising external debt servicing costs.

Nigeria has secured a total of $4.95 billion in loans from the World Bank under President Tinubu’s administration, although it has so far received only about 16% of the funds, suggesting a potential delay in disbursement or challenges in project implementation.

The Debt Management Office (DMO) data reveals that as of March 31, 2024, Nigeria owed the World Bank a total of $15.59 billion. With the possibility of an additional $2 billion in loans being approved for Nigeria this year, the nation’s public debt is poised to swell even further, heightening the urgency for effective debt management strategies.

While the concessional nature of IDA loans offers some relief in terms of low interest rates and extended repayment periods, it also adds to the long-term impact of rising debt on Nigeria’s economy.

In a move to alleviate the economic pressures faced by millions of Nigerians, the Presidential Committee on Fiscal Policy, chaired by Taiwo Oyedele, has proposed sweeping tax reforms aimed at removing taxes on essential goods and services critical to the well-being of the populace.

This proposal, shared by Oyedele during an interview with Channels TV in Abuja on Monday, marks a critical step in the federal government’s broader effort to create a more equitable and sustainable economic framework.

Key Components of the Proposal

The committee’s recommendations include the removal of all taxes on food, public transportation, and housing—items deemed essential for everyday living. These measures are intended to directly benefit low- and middle-income Nigerians, who have been disproportionately affected by the country’s economic challenges, including rising inflation and the removal of fuel subsidies.

A particularly notable aspect of the proposal is the exemption of Value-Added Tax (VAT) on these basic necessities. Oyedele emphasized that this approach is designed to ensure that the cost of living is more manageable for the average Nigerian.

“What we have taken into account is what are those basic necessities of life—food, accommodations, transportation, education, and health. We’ve deliberately identified those items. And we’ve removed almost all the taxes applicable to them, including no VAT,” Oyedele explained.

He further clarified that while certain forms of public transportation, such as shared passenger buses, will be entirely tax-free, services that cater to more affluent individuals, like private taxi hires, will still attract taxes. “If you hire a taxi, we assume that you’re not the poorest Nigerian, so you have to pay the tax. Whereas if you get into a bus, that will be completely tax-free,” Oyedele noted.

The Federal Government had earlier directed the Nigerian Customs Service (NCS) to remove import duties on select food items and other essential goods, including medicines.

Job Creation Incentives

In addition to alleviating the tax burden on basic necessities, the committee has also put forward proposals aimed at stimulating job creation within the private sector. One of the key recommendations is offering tax exemptions to companies that significantly increase their workforce. This policy is designed to encourage businesses to expand their operations and hire more workers, thereby addressing the high unemployment rate in the country.

“We’ve also developed some proposals where the government can give relief to private sector employers who provide transportation relief to their workers,” Oyedele added. “Also, we have had proposals around more employment. So if an employer employs more people than they will normally do, they get some relief. That helps to stimulate employment generation.”

The Challenge of Multiple Taxation

The committee’s recommendations come at a time when Nigeria’s complex tax environment has been widely criticized for stifling economic growth. Multiple taxation has been a major impediment, with various sectors of the economy bearing the brunt.

For example, in the first half of 2024, MTN Nigeria, the country’s largest mobile network operator, reportedly paid an astonishing N232 billion in taxes—a 586% increase from the same period last year. The company paid 54 different taxes in 2024 alone, imposed by federal, state, and local government agencies.

This overwhelming tax burden, which is expected to increase next by the end of the year, is not unique to MTN but affects the entire telecommunications sector. The Association of Licensed Telecommunication Operators of Nigeria (ALTON) has highlighted that state governments collect the majority of these taxes, which include building permits, sewage fees, and other arbitrary levies.

Gbenga Adebayo, President of ALTON, revealed that these taxes have increased the operational costs of telcos by 50% in 2024.

“The multiple taxes are driven primarily by revenue,” Adebayo stated. “There is a perception that the telecoms industry is highly profitable and so can be treated as a cash cow.”

He warned that the current tax environment threatens the expansion of broadband infrastructure, which is crucial for integrating millions of Nigerians into the digital economy.

Tackling the Menace

The federal government’s ongoing tax reform initiative, launched following the establishment of the tax and fiscal policy committee by President Bola Tinubu in August 2023, is a response to the pressing need for a more balanced and growth-oriented tax system. The committee, led by Oyedele, is tasked with crafting a new tax framework that not only drives economic growth but also ensures that the tax burden is equitably distributed.

The proposed tax exemptions on essential goods and services represent a bold step in this direction. However, the successful implementation of these reforms will depend on their approval by the National Assembly and the ability of the government to enforce them effectively.

Act 1, Scene 1: Nigeria floats its currency and removes fuel subsidies. A village boy from Ovim cautioned: “Nigeria’s floating of its currency, while progressive, will cause severe perturbations in the economy – and a stable state may not come as most experts have predicted”.

Act 1, Scene 2: Manufacturing companies are rattled, banks book unreal profits.

Act 2, Scene 1: Economic activities froze, factories went down, and governments lost massive tax revenue.

Act 2, Scene 2: The nation’s lender of last resort, NNPCL, booked strategic losses to decouple deteriorating floated Naira from the vagaries of escalating imported energy costs. By doing so, it paused any strong correlation between the exchange rate and petrol prices. 

Act 3, Scene 1: The press accused the lender that it was owing partners more than $6 billion due to the strategic subsidies, as fuel scarcity hit the land. The lender rejected the claim.

Act 3, Scene 2: The lender then came clean and wrote: “This financial strain has placed considerable pressure on the Company and poses a threat to the sustainability of fuel supply”.

Act 4, Scene 1: With the lender’s purse dry, the government updated the petrol price to  N855 per liter from about N650/liter.

The Play Ends.

The next Play will begin soon since this N855/liter is still below the landing cost of petrol.  However, this next Play could be amazing since Dangote Refinery is expected to commence the supply of petrol to local filling stations. Also, the government did the right thing by selling the crude oil in Naira to the refinery.

Yet, if you sell the crude oil in Naira, the nation’s foreign earnings will go down, and those foreign loan interests which must be paid in US dollars will still be serviced. So, when a bird flies from the land and perches on the ant-hill, it is still largely on the ground. In other words, Nigeria still needs US dollars in American banks to pay its debts.

With all said, the next Play will begin once we know what price Dangote Refinery and NNPCL will sell petrol at. That information is still classified but we expect it in days!

Indeed, the next Play will begin soon since this N855/liter is still below the landing cost of petrol.  But wait: Dangote Refinery will begin to sell petrol soon and NNPC will be the sole buyer: “Dangote Refinery has reportedly started processing petrol after delays, with NNPC set to be sole buyer. Dangote Oil Refinery has commenced petrol processing following delays caused by recent crude shortages, a Reuters report which quoted an executive said on Monday”. The price it will sell  is still classified but we expect it in days!

What a nation!