PeakNews Online
Lagos, Nigeria — Analysts are optimistic about the impact of a $2.25 billion World Bank loan on Nigeria’s economy and its beleaguered currency, the naira. The loan aims to stabilize the economy and provide support to the nation’s poor and economically vulnerable populations.
Despite this positive development, the naira continued its decline against the dollar on Friday, falling by approximately 70% since last year. However, experts forecast a potential recovery this week as the World Bank funds bolster the Central Bank of Nigeria’s (CBN) efforts to support the currency.
Loan Details and Impact
On Thursday, Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun, announced the approval of two significant financial support packages from the World Bank. These include:
Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing: $1.5 billion
NG Accelerating Resource Mobilization Reforms Programme-for-Results: $750 million
Analysts like Segun Adams from Afrinvest believe that while the loan, which carries a 1% interest rate, will improve liquidity in the short term, sustainable stability requires more structural reforms.
Currency and Market Reactions
Recent data from FMDQ showed that the naira dropped by 0.44% to N1,482.72/$ on Friday from N1,476.24/$ the previous day. The black market rate also declined by 0.34% to N1,485/$ from N1,480/$.
The naira has been highly volatile since its floatation in June last year, devaluing by over 190% from N460/$ to the current N1,470/$. Earlier this year, dollar inflows increased as the CBN attracted foreign investors with higher interest rates and an undervalued naira. This helped clear a backlog of foreign exchange forwards, boosting confidence in the market.
Long-Term Strategy
To achieve long-term stability, analysts like Adams suggest enhancing Nigeria’s competitiveness to boost non-oil exports and develop local production capacities to reduce reliance on imports.
Nigeria’s cumulative foreign inflows rose to $2.1 billion between January and April, compared to $1.6 billion in the whole of 2023. The CBN’s gross foreign exchange reserves ended the week 0.34% higher at $32.80 billion.
Analyst Projections
Experts from Coronation Securities and CardinalStone Securities expect the loan to buffer Nigeria’s foreign reserve position and strengthen market confidence. However, portfolio manager Gbolahan Ologunro noted that the CBN cannot freely use the funds but can supply them in controlled tranches.
Economic Goals
The loan operation focuses on four key results across two pillars:
Increasing fiscal oil revenues: from 1.8% of GDP in 2022 to 2.7% by 2025.
Boosting non-oil fiscal revenues: from 5.3% to 7.3% over the same period.
Expanding social safety nets: to assist 67 million vulnerable Nigerians.
Raising import value of previously banned products: from $11.3 million to $54.6 million by 2025.
In May, turnover in the official market surged to a record $6.2 billion from $4.90 billion in April, with June’s total turnover so far reaching $1.83 billion.
As Nigeria implements these measures, the focus will be on creating sustainable economic growth and stability for the nation’s future.
