The World Bank Group on Tuesday pointed out that while the Nigerian government took measures to protect the economy against a much deeper recession, it would be essential to set policy foundations for a strong recovery.
The Breton Woods multilateral institution made this remark in its latest World Bank Nigeria Development Update (NDU) titled “Resilience through Reforms”.
The World Bank reported that in 2020 the Nigerian economy experienced a shallower contraction of -1.8% than had been projected at the beginning of the pandemic (-3.2%).
According to the Bank, although the economy started to grow again, prices are increasing rapidly, severely impacting Nigerian households, noting that as of April 2021, the inflation rate was the highest in four years with food prices accounting for over 60% of the total increase in inflation.
It stated that rising prices pushed an estimated 7 million Nigerians below the poverty line in 2020 alone.
The report acknowledges notable government’s policy reforms aimed at mitigating the impact of the crisis and supporting the recovery; including steps taken towards reducing gasoline subsidies and adjusting electricity tariffs towards more cost-reflective levels, both aimed at expanding the fiscal space for pro-poor spending.
In addition, the report highlights that both the Federal and State governments cut nonessential spending and redirected resources towards the COVID-19 response. At the same time, public-sector transparency has improved, in particular around the operations of the oil and gas sector.
The report, however, noted that despite the more favorable external environment, with recovering oil prices and growth in advanced economies, a failure to sustain and deepen reforms would threaten both macroeconomic sustainability and policy credibility, thereby limiting the government’s ability to address gaps in human and physical capital which is needed to attract private investment.
Commenting on the report findings, the World Bank Country Director for Nigeria, Shubham Chaudhuri, said: “Nigeria faces interlinked challenges in relation to inflation, limited job opportunities, and insecurity.
”While the government has made efforts to reduce the effect of these by advancing long-delayed policy reforms, it is clear that these reforms will have to be sustained and deepened for Nigeria to realize its development potential”, the development banker added.
Specifically, the report proposes near-term policy option organized around three priority objectives, namely government’s commitment to reduce inflation by implementing policies that support macroeconomic stability, inclusive growth, and job creation; protect poor households from the impacts of inflation; and facilitate access to financing for small and medium enterprises in key sectors to mitigate the effects of inflation and accelerate the recovery.
In his remarks, the World Bank Lead Economist for Nigeria and co-author of the report, Marco Hernandez, said: “Given the urgency to reduce inflation amidst the pandemic, a policy consensus and expedite reform implementation on exchange-rate management, monetary policy, trade policy, fiscal policy, and social protection would help save lives, protect livelihoods, and ensure a faster and sustained recovery”
In addition to assessing Nigeria’s economic situation, the latest edition of the NDU also analyses how the COVID-19 crisis has affected employment; how inflation is exacerbating poverty in Nigeria; how reforming the power sector can ignite economic growth; and how Nigeria can mobilize revenues in a time of crisis.
The NDU is published every six months to provide an assessment and outlook of the economy with policy options we believe will help Nigeria in its quest to create more jobs and economic opportunities.