The World Bank has declared that despite temporary pains, economic reforms introduced by the Bola Tinubu administration are beginning to record positive impacts, including macro-economic stabilization, and pro-people priorities, but only an extended momentum of current reforms can propel Nigeria towards the high and inclusive path of growth.
The World Bank’s analysis is part of the 45-page bi-annual Nigeria Development Update for December 2023 titled “Turning the Corner: From Reforms and Renewed Hope to Results,” launched in the presence of top government and private sector functionaries at the Yar’Adua Centre in Abuja on Wednesday.
The report stated: “Continuing on the difficult reform path is necessary to improve Nigeria’s growth prospects and reduce poverty. Important reform decisions have been taken for Nigeria to avoid a fiscal diff, and temporary compensation is being provided to help the poorest and most vulnerable households.
“In May and June 2023, the incoming administration undertook two critical policy decisions, which have resulted in price and exchange rate adjustments in the second half of the year; while the reforms were essential for Nigeria to avoid a fiscal cliff and enable faster growth, they have brought difficult economic adjustments.”
According to the World Bank, the inevitable reforms and policy changes introduced by the Tinubu administration ended petroleum subsidy and shifted to market-reflective exchange rate that led to 163% increase in gasoline prices, 41% depreciation in Naira: US dollar official exchange rate and contributed to an increase in Nigeria’s inflation to 27% year-on-year level by October this year.
It added, “‘Targeted cash transfers are helping to cushion the adjustment to higher gasoline prices: recognizing the need to help especially poor and vulnerable households cope with the shock of one-off price adjustments, on October 17 the Government announced that it would roll out cash transfers of N25.000 (about USS32) per month to 15 million recipients and their families, {directly benefiting over 67 million Nigerians, for three months.
“The total costs of these transfers to provide relief to Nigeria’s most poor and vulnerable are similar to what Nigeria was previously spending every three months on subsidy; previously, the unsustainable spending on the subsidy was fueling economic imbalances (especially deficit monetization and rising inflation) that were worsening poverty outcomes and pushing Nigeria toward a full-blown crisis.”
Pointing out that the Federal Government is making good progress with its ongoing economic reforms, it noted that Nigeria’s foreign exchange policy is moving towards ‘a unified, transparent, and flexible exchange rate while the monetary policy has begun to tighten liquidity and the fiscal policy appears poised to sustain fiscal savings from subsidy reform and mobilizing more revenue for the government in coming years.
However, the World Bank sounded a note of warning against premature celebrations, noting that the forex market has remained volatile and is still in a period of continuing adjustment to the new policy approach while more clarity is needed on oil revenues, including the fiscal benefits from the PMS subsidy reform and that inflation remains at record high levels for Nigeria.
“The near-term priority is to enhance the reform effort with a closely coordinated mix of fiscal, monetary, and foreign exchange policies to reduce inflation and achieve macroeconomic stabilization; on the fiscal front, it will be crucial to sustain the savings from the PMS subsidy reform, the government needs to also continue implementing revenue-led fiscal consolidation as, in the absence of such consolidation, debt levels will escalate, along with debt servicing costs.”
It added that while urging that the government’s exchange rate policy should embrace additional measures towards increasing market stability.
Emphasizing the crucial need for the Federal Government to sustain both the communication and implementation of its coordinated fiscal and monetary policy mix, the World Bank stressed that ‘well-articulated policy direction and strategy can help build market confidence and allow the economy to stabilize more quickly.’
According to the multilateral agency, Nigeria needs to extend its reform momentum to effectively address longstanding structural constraints and propel the nation’s economy onto a high and inclusive growth path.
The World Bank noted: “Moving decisively onto a higher long-term growth and poverty reduction path requires not only a stable macroeconomic environment but also concerted structural reforms; in the medium term, the economy will begin to benefit from increasing fiscal space for development spending, including on power and transport infrastructure, as well as on human capital.
“Structural constraints to growth can be alleviated by strengthening public services and investments, reducing insecurity, improving the business environment, and increasing openness to trade; together, such reforms would boost investment and productivity across sectors, unlocking the stronger growth that Nigeria’s economy is demonstrably capable of, and allowing economic development to regain its fast pace.”
