Nigerian economy and World Bank spotlight on redundant policies — Business — The Guardian Nigeria News – Nigeria and World News


The World Bank’s recent Nigeria Development Update (NDU) is indeed a textbook on Africa’s biggest economy – the challenges, opportunities and pitfalls.

One may disagree with some of the advice and recommendations, which is understandable as there is no one-way solution to any situation. But the completeness, inclusiveness and depth are, as usual, unparalleled.

Addressing faltering growth, falling incomes, unsustainable subsidies, unmatched fiscal mechanisms, redundant monetary policies and flawed trade policies among many other areas, the report exposes the country’s weak spots, making them as clear as possible.

The report also highlights the many near misses of recent times while making recommendations on the path that immediate long-term plans could follow.

Maybe launching the document is helpful. First, the Muhammadu Buhari administration is in its twilight years. This makes the report a mirror for an administration that genuinely wants to assess its performance. And with presidential candidates for the 2023 elections also slated for extensive campaigning, the World Bank document could also mean a politician’s sidekick.

From a broader perspective, it is a succinct account of the country’s economic realities and near-term projections, many of which are as daunting as they have been in recent years. Although the reviews and some of the predictions are not entirely new, the report, titled “The Continuing Urgency of Unusual Cases,” details the issues in a way that gives policymakers a benchmark for intellectual reconciliation.

Interestingly, the theme defines every piece of advice contained in the 100-page document. The government appears to be in a dilemma – between maintaining legacies and adopting new and radical approaches to save the economy. Quite rightly, the report notes that a “business as usual policy would fail to address Nigeria’s macroeconomic challenges” and generate the kind of growth that can lead to drastic poverty reduction and massive job creation. jobs.

A major unproductive policy seen as a blight on the economy, especially incomes, is the payment of fuel subsidies. Of course, the World Bank does not claim to be biased against the market economy, the report argues with facts and figures about how the payment of subsidies has become a major drain on the country’s revenue.

“The burden of the gasoline subsidy would shrink the already limited fiscal space, limiting options to mitigate the impact of high inflation on the poorest Nigerians. In the absence of foreign exchange reforms, there will be a continued pressure on the parallel exchange rate, which will continue to discourage private investment and fuel inflation,” the report said.

Inflation is also a complex subject with multidimensional effects in different sectors and aspects of the economy. The report highlights the possibility of “high” inflation and more overwhelming impacts due to the ongoing war in Europe. The combined impact of the war and the continuing food price crisis is expected to push an additional seven million Nigerians into poverty before the end of the year.

But there is even a stranger scenario, according to the report. “Once 2022 GDP per capita is adjusted for price and exchange rate changes, GDP per capita growth would be close to zero,” the Bank says, stressing that reforms are needed to avoid “negative scenarios.” high growth and higher vulnerabilities”.

The World Bank is unrepentant in its call for broader economic reform to increase fiscal, trade, monetary, and regulatory efficiency, among others. In its latest report, it calls for the extension of the same reforms to all economic and service borders to strengthen sustainable growth. The report assumes an “unusual business” scenario where the government would embark on a sequence of macro-structural reforms to put Nigeria on a faster and more inclusive growth trajectory and thus forecasts: “Growth could exceed four per cent. cent on average in 2022-2024, driven by sustained growth in services and industry.

“Reducing inflation would restore confidence in the economy, promoting consumption and investment. By removing the burden of the gasoline subsidy, the government would be able to use the additional resources in investment projects at the state and federal levels and protect the poor through cash transfers. These measures would stimulate public investment and consumption and private consumption. Finally, a more flexible exchange rate in a context of increasing currency availability will promote private investment and reduce inflationary pressures.

At the same time, he admits that the risk of reverting to a scenario where economic growth is lower than population growth is high with the current policy mix. This, he says, could be “further complicated by an unfavorable external context and a deceleration in vaccination rates (COVID-19)”.

Nigeria’s GDP closed last year at 3.4% and posted 3.11% in the first quarter. While the growth of 2021 was celebrated, especially in the public circle, the report recalls that the “impressive” performance was mainly

Even in the most favorable global context, the policy response of the Nigerian authorities will be crucial in laying the foundations for sustained growth was “mainly the result of base effects following the 2020 recession”, without which GDP would have remained at 1.8 and 2.3 percent. cent, warns the bank. Invariably, growth would have fallen below the estimated population growth rate of 2.6%.

“The government cannot afford to be complacent and expect growth to maintain the GDP growth trajectory seen in 2021 without any sustained effort,” the report noted.

To achieve a rate of economic growth that can accelerate development, the report sees the value of a more liberal foreign exchange (FX) management approach. Thus, he calls for a more aggressive implementation of the exchange rate unification program, saying that the economy cannot continue with the negative impacts caused by the misalignments of the current exchange rate regime.

“The benefits of more effective exchange rate management, towards a unified and market-reflecting exchange rate, are greater than in previous years. Favorable external conditions (oil prices being the highest in nine years) offer the possibility of adjusting the exchange rate according to market dynamics. Allowing a further gradual adjustment to the Investors and Exporters (I&E) rate, where the CBN manages the price, would help eliminate the misalignment and ease lingering pressures on the exchange rate.

“The CBN has taken steps to unify several exchange rates by adopting the IEFX window rate as the official exchange rate in May 2021. However, different windows still exist and the parallel rate premium continues to climb, reaching 39% compared to at the official I&E rate. in March 2022. The CBN continues to supply foreign exchange to at least four windows, sometimes at variable rates: the I&E window, the secondary market intervention retail sales window; the counter for small and medium-sized enterprises (SMEs) and the counter for invisibles.

As many central banks around the world roll back unprecedented stimulus packages inspired by COVID-19 and the trend towards policy normalization, the World Bank also says it’s time for the CBN to scale back its funding programs of development, which have increased its share of the private sector. 10 percent credit in December.

While the government refuses to bite the bullet in the face of falling revenues, the institution warns that it cannot continue to maintain a bloated structure at the expense of the economy and that it is a question of survival to moderate spending recurrent expenditures, which make up 60% of federal government spending.

A sort of foreshadowing of calamity, the report projects: “In 2022, federal government revenue is projected to be 3.7% lower, despite a 22% increase in estimated independent revenue. In 2022, despite rising oil prices, Nigeria’s net oil revenue is expected to remain stagnant due to low oil production and large oil subsidy deductions. Federal spending is estimated to increase by more than 25% in 2022 amid the election, with a 37% increase in capital spending.

“If budgeted expenditures are in line with the medium-term fiscal framework (MTFF), the federal budget deficit will reach 5.4% of GDP. Assume that capital expenditure is maintained at the 2021 level, which may occur due to delays in the adoption of the 2022 amending budget. In this case, the federal budget deficit should still be higher than in 2021 and reach 4.7% of GDP.


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