The World Bank Group has recommended a seven-point macro-critical reform measures for implementation by the Nigerian government in order to achieve the medium and long term objectives of its ongoing reforms.
The development finance institution gave the policy roadmap option to the Federal Government on Thursday during the launch of its Nigeria Development Update Report titled ‘Staying the Course: Progress Amid Pressing Challenges’ which highlighted the need to sustain the ongoing policies while addressing structural issues to combat inflation and promote long-term investment, growth, and job creation.
It recalled that since May 2023, Nigeria had implemented significant reforms to stabilize its economy, resulting in modest growth, improved fiscal health, and rising foreign exchange reserves, noting that while these measures were necessary to urgently avert a fiscal crisis and place Nigeria on a stronger development path, they have imposed short-term pressures on households and businesses.
According to the Breton Woods institution, while it is still early, the report finds that positive results from these reforms are starting to show at the macroeconomic level citing, for instance, the output growth has remained modest overall, but inched higher through mid-2024 as oil sector output has stabilized and activity in some services as robust.
In addition, the World Bank noted that Nigeria’s fiscal position had been improving, with the Federal Government’s fiscal deficit narrowing to 4.4% of GDP in the first half of 2024 from 6.2% in the first half of 2023, helping to mitigate debt-related risks. Foreign exchange reserves – a buffer against external shocks – have risen from $32.9 billion at the end of 2023 to more than $38.8 billion by mid-October 2024.
It, however, reported that inflation remained high, and inched up again in September 2024, mainly due to the most recent gasoline price increases and recent floods.
Given these promising results, the bank argued that the new direction of macroeconomic policies should be sustained, including the Central Bank of Nigeria’s appropriately tight monetary policy stance.
This is even as it maintained that complementing the tight monetary policy stance with measures to address long-standing structural constraints would enable faster progress in the fight against inflation, and spur the investment, growth, and jobs which Nigeria urgently needs. In addition, the report explains that previous distortionary and unsustainable policies were hindering Nigeria from achieving its immense potential.
The World Bank clarified: “Monetary and foreign exchange (FX) policies were increasingly opaque, distortive, and inconsistent with maintaining price stability, including multiple managed and overvalued official exchange rates.
“Fiscal revenues were hampered by one of the lowest tax-to-GDP ratios globally (3.2% of GDP in 2022), while a large share of the Federation’s oil revenues was absorbed by a costly, regressive, and opaque gasoline subsidy.
“The Central Bank initiated major foreign exchange policy reforms that resulted in a unified, better regulated, and market-reflective official exchange rate and the government has now moved towards market-based pricing of gasoline to address the enormous fiscal cost of subsidized pricing”, it added.
Commenting on the report’s findings, World Bank Country Director for Nigeria, Dr. Ndiame Diop, said: “Nigeria took the bold and courageous move to undertake difficult but critical reforms. This against the backdrop of an already fragile economic position, high food and transport inflation, and other heightened uncertainties. If these reforms were not done, Nigeria would have fallen into a serious fiscal crisis that would have made it difficult for government to meet its obligations to citizens.
“Going forward, it will be important to consolidate the improving fiscal outlook and scale up the support for the poorest households to cope with purchasing power losses and hardships, while expanding opportunities for growth and productive jobs, especially for young Nigerians is most urgent and crucial”, the banker stressed.
Specifically, the report offered key recommendations on policy priorities to build upon Nigeria’s macro-critical reforms, and ignite growth and job creation, namely the need for the Nigerian government to maintain a tight monetary policy until a sustained disinflation path is achieved, and continue improving policy effectiveness, ensure the exchange rate is unified and reflects market conditions, while expanding the foreign exchange market.
Others are, to reduce debt risks and create room for development and poverty-focused spending, the government should focus on four key areas: continue removing the fuel subsidy and increasing transparency in the oil sector, increase non-oil revenues through better tax policies, cut government waste and direct spending to targeted poverty programs, and stick to realistic budgets to avoid unplanned spending.
It also canvassed the need for government to protect vulnerable groups by expanding cash transfer programs and strengthening social safety nets, and to continue addressing long-standing structural constraints.
In his remarks, the World Bank Lead Economist for Nigeria, Alex Sienaert, said: “Recent reforms are starting to restore macroeconomic stability.
“GDP is projected to grow by 3.3% in 2024, rising to an annual average of 3.7% over 2025-2027; headline inflation is anticipated to peak at an average annual rate of 31.7% in 2024, largely driven by the previous depreciation of the naira and increased gasoline prices. Yet, in the medium term, staying the course with implementation of the current policy mix will reduce inflation, expected to fall to 14.3% by 2027 in the base case”, the economist added.
