The World Bank has advised the Federal Government that to reap the benefits of the bold reforms and difficult but necessary economic adjustments currently being implemented by it, it is essential for it to sustain and fully implement the reforms and take complementary actions.
The development finance institution in its December 2023 edition of the Nigeria Development Update, titled ‘Turning the Corner’ launched on Wednesday in Abuja, recalled that Nigerian government avoided a fiscal cliff by implementing bold reforms, including ending the gasoline (premium motor spirit, PMS) subsidy, and shifting to a unified, market-reflective foreign exchange (FX) rate.
It noted the essential reforms entailed painful adjustments as they led to an increase of retail gasoline prices by an average of 163% while the naira had depreciated against the US dollar by approximately 41 % in the official market and by about 30% in the parallel market.
The report also indicated that the recently launched cash transfer intervention to cushion the impact of increased gasoline prices on the poor and vulnerable was providing welcome relief to a growing number of households, with 5 million households expected to be covered by the end of December this year.
The Washington D.C-based finance institution stressed the need to continue with the reform momentum to complete the reforms and to address the costs of the reforms.
It further reported that inflation remained at record high levels for the country, peaking at 27.3% (Y-o-Y) in October 2023, partly driven by the one-off price impacts of the removal of the gasoline subsidy with the negative impact more noticed amongst the poor and vulnerable citizens.
This is even as it noted that over the past months, the FX market had remained volatile and in a period of continuing adjustment to the new policy approach, with significant fluctuations in the exchange rate in both the official and the parallel markets and that the revenue gains from the FX reform were visible.
The Breton Woods institution pointed out, however, that there was a need for more clarity on oil revenues, especially the financial gains of Nigeria National Petroleum Corporation Limited (NNPCL) from the subsidy removal, the subsidy arrears that are still being deducted, and the impact of this on federation revenues.
The latest NDU report recommended specific actions required to further sustain and achieve the full benefits of reforms already embarked on by the Government, including the need for the fiscal authorities to control inflation and improve the stability of the FX market; achieve fiscal consolidation by sustaining savings from the PMS subsidy reform and improve non-oil revenues; and address structural barriers to growth, for instance, by removing trade barriers.
Commenting on the report’s findings, the World Bank Country Director for Nigeria, Shubham Chaudhuri, said: “The petrol subsidy and FX management reforms are critical steps in the right direction towards improving Nigeria’s economic outlook. Now is the time to truly turn the corner by ensuring coordinated fiscal and monetary policy actions in the short to medium term.
“Continued reform implementation can ensure that Nigeria benefits from the difficult adjustments underway. This includes ensuring that improved oil revenues following the sharply increased PMS price accrue to the Federation. In the medium-term, the economy will then begin to benefit from increasing fiscal space for development spending, including on power and transport infrastructure, as well as on human capital”, the banker added.
In his remarks, World Bank Lead Economist for Nigeria and co-author of the NDU report, Alex Sienaert, said: “With the continued implementation of macroeconomic stabilization reforms, Nigeria’s economy is expected to grow at an average annual rate of 3.5% in 2023-2026, or 0.5 percentage points higher than in a scenario where the reforms had not been implemented. In 2024, Nigeria has an opportunity to turn the corner to a more stable and predictable macroeconomic environment, and easier access to foreign exchange (FX) and imported inputs, which is critical to creating new jobs and lifting people out of poverty.”
