The federal government has recently commenced negotiations with the World Bank for three additional loans amounting to $1.5 billion, despite Nigeria’s public debt reaching a record N166.79 trillion. The proposed loan will finance three separate $500m facilities for climate resilience, social protection and early childhood development. The increase in public debt in Nigeria has been a subject of scrutiny in recent years. To understand why this is raising concern, one has to look at the conditionalities attached to the World Bank loans and their impacts on the Nigerian economy. The African Democratic Congress (ADC) presidential candidate, Alhaji Atiku Abubakar, has called on President Bola Tinubu to account for the rise in Nigeria’s public debt to N166.79 trillion despite increased government revenues. He also questioned the benefits of the administration’s economic reforms, arguing that Nigerians have yet to experience the promised gains. At this juncture, it is important to note that collection of World Bank loans always come with conditionalities which are specific policy actions and economic reforms that a borrowing country must implement to receive and keep getting loan disbursements. What are these conditionalities?
The first condition is fiscal austerity (cutting public spending or government wage bills) This measure in many cases generates negative wealth effects, as they reduce the number of active workers in households, subsequently suppressing private consumption and investment demand. Reforms targeting the government wage bill are consistently identified by Nigerian government as a more effective device for fiscal consolidation. Consequently, adjustments relying on cuts to the wage bill and transfers are more likely to result in long-lasting fiscal stabilisation and improved macroeconomic conditions compared to those relying on tax increases. Unfortunately for Nigeria, the poor are always at the receiving end.
Another conditionality is revenue generation through raising tax rates, such as Value Added Tax (VAT). Raising VAT rates is a common mechanism for increasing government revenue in developing economies. While effective for fiscal capacity, such policies often face criticism for being regressive and may require social protections to mitigate economic harm. However, the actual revenue generated, especially in developing countries does not always meet government targets. For example, Nigeria’s VAT increase to 7.5 per cent failed to reach the intended annual target of N7.5 trillion.
Third, is privatisation (selling state-owned enterprises to private investors). The World Bank’s structural-adjustment agenda helped put privatisation at the centre of Nigeria’s economic reforms, but the debate has entered a new phase between 2015 and 2026. Rather than simply selling state firms, governments have increasingly combined privatisation, concessions, leases and public listings in search of investment and budget revenue. In 2020, Transcorp acquired Afam Power and Afam Three Fast Power, assets linked to the former PHCN generation system. In 2022, the Bureau of Public Enterprises said N206.18 billion in privatisation proceeds would support the 2023 budget. These moves show that private investors remain central to Nigeria’s strategy, even as the original World Bank-era promise of better services continues to face scrutiny. The biggest new test is the federal government’s 2025 plan to privatise or lease 91 public enterprises. The list reportedly includes Ajaokuta Steel, four refineries, five international airport terminals, Tafawa Balewa Square and the Lagos Trade Fair Complex; 35 enterprises are expected to be fully privatized and 57 partially privatized, while possible IPOs for electricity distribution and generation companies are also being considered.
Another conditionality is subsidy reductions or removal (eliminating state support for fuel and electricity). The World Bank, alongside the International Monetary Fund (IMF), has served as a primary proponent for the removal of petroleum and electricity subsidies in Nigeria. This advocacy is frequently integrated into structural adjustment programs and specific loan agreements. A notable instance occurred in 2021, when the World Bank provided around $1.8 billion loan to the Nigerian government that was explicitly conditional on the implementation of subsidy reforms. These interventions are often framed by international financial institutions as necessary steps toward fiscal sustainability and economic restructuring. Unfortunately, the removal of subsidies in Nigeria has been consistently associated with significant adverse effects on the Nigerian population, particularly regarding household welfare and purchasing power. Empirical simulations indicate that removing subsidies on petrol, electricity, and kerosene increases the national poverty headcount rate.
In conclusion, the conditionalities attached to World Bank loans have significant implications for vulnerable populations in Nigeria, particularly low-income households. Fiscal austerity, increases in taxation and the removal of fuel and electricity subsidies can place considerable pressure on household welfare, purchasing power and employment, while reductions in public spending may weaken the capacity of government to provide essential services. The effects of subsidy removal are particularly concerning because such measures have been associated with increases in the national poverty headcount rate. Similarly, although privatisation can attract capital and generate government revenue, it cannot by itself guarantee improved public services without transparent valuation, effective regulation and adequate protection for workers and consumers. These concerns are especially important for low-income households, which have fewer resources to absorb increases in the cost of essential goods and services.