In the recently released Macro Poverty Outlook for Nigeria: April 2023, the World Bank highlights Nigeria’s economic challenges and offers suggestions to exit the quandary.

The World Bank, in its Macro Poverty Outlook for Nigeria: April 2023, stated that about 13 million Nigerians would fall below the national poverty line by 2025.

This, according to the Bretton Wood institution is due to the country’s population growth outpacing poverty reduction.

The National Bureau of Statistics (NBS) had, in its 2022 Multidimensional Poverty Index survey stated that 63 per cent of persons living within Nigeria (133 million people) are multi-dimensionally poor.

The World Bank report stated further, “With Nigeria’s population growth continuing to outpace poverty reduction, and persistent high inflation, the number of Nigerians living below the national poverty line will rise by 13 million between 2019 and 2025 in the baseline projection.”

Tracing the genesis of the current situation, the World Bank said “Macroeconomic stability has weakened considerably due to multiple FX rates, high and increasing inflation, rising fiscal pressures, and declining forex reserves.

Nigeria’s fiscal position has deteriorated since 2015 due to declining oil revenues and rising expenditures, resulting in persistently high fiscal deficits.

To finance the growing deficit, the government has resorted increasingly to costly financing from the central bank, which in turn has increased interest costs, crowding out private sector credit, and contributing to inflation.”

The report also showed that inflation, especially for food items, has been on the rise since 2019. This it stated had eroded the purchasing power of poor and vulnerable Nigerians and increasing poverty.

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The World Bank said, “Inflation reached an annual average 18.8 per cent in 2022, a 21-year high. Food inflation in 2022 is estimated to have pushed five million Nigerians into poverty.

The increase in inflation resulted from higher global commodity prices, the sharp depreciation of the parallel market exchange rate, floods that impacted several states, and the monetization of the fiscal deficit.”

It added, “The effectiveness of monetary policy is compromised by multiple FX windows, the central bank’s provision of development finance at subsidised rates, and monetisation of the fiscal deficit.

“Persistent structural economic issues (volatile growth, low private investment, low and inefficient public spending, due to low revenue collection, and low social development outcomes leading to low productivity) have prevented any meaningful acceleration of growth. Insecurity remains widespread, with more violent conflict events occurring across the country, adversely impacting private investment and growth.”

The report pointed out that the oil sector, which hitherto had been the major contributor to fiscal revenues and accounting for about 90 per cent of total exports, has underperformed since 2020.

According to the World Bank, “Declining oil production and the mounting cost of the petrol subsidy have prevented Nigeria from reaping the benefits of higher global oil prices.

The weakness in oil production stems from technical and security challenges in the oil-producing Niger Delta region, aging infrastructure and inadequate investments in the sector, and the Nigerian National Petroleum Company’s (NNPC) delays in paying for the government’s share of costs in joint-venture operations.”

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This, according to the report, deteriorated the country’s fiscal position

It stated, “In 2022, the cost of the petrol subsidy increased from 0.7 per cent to 2.3 per cent GDP.

Low non-oil revenues and high interest payments compounded fiscal pressures. The fiscal deficit was estimated at 5.0 per cent of GDP in 2022, breaching the stipulated limit for federal fiscal deficit of 3 per cent.

This has kept the public debt stock at over 38 per cent of GDP and pushed the debt service to revenue ratio from 83.2 per cent in 2021 to 96.3 per cent in 2022.

“The current account balance recorded a deficit of 0.3 per cent of GDP in Q1-Q3 2022.

The increase in crude oil exports reflecting higher oil prices was outpaced by higher imports of refined petroleum products and lower remittances and capital inflows. As of December 2022, FX reserves were enough to cover 6.9 months of imports, compared to 7.5 months in end-2021.”

It then gave the verdict: “Nigeria is in a more fragile position than before the late 2021 global oil price boom.

Growth and poverty reduction have further been affected by cash scarcity in the context of the Naira redesign.

The economy is projected to grow by an average of 2.9 per cent per year between 2023 and 2025, only slightly above the population growth rate of 2.4 per cent.

Growth will be driven by services, trade, and manufacturing. Oil production is projected to remain subdued in part because of inefficiencies and insecurity.”

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The report stated that respite is not in the horizon yet as “Fiscal and external pressures are expected to persist due to rising global and domestic interest rates and low oil revenues resulting from the moderation in oil prices and inability to significantly increase oil production.

In the absence of significant FX management reforms, international reserves are projected to remain stagnant.”

The World Bank then submitted that for the country to get out of the current situation, it has to embark on a significant tax reform exercise.

 

According to the report, “Non-oil revenues will not increase as a share of GDP without significant tax revenue reforms. As a result, the fiscal deficit will remain above 5.0 per cent of GDP in 2023-2025.”

 

It also called on the Federal Government not to go back on the plan to remove fuel subsidy as by the end of June. It stated: “Downside risks to Nigeria’s outlook have intensified, with most of the risks coming from domestic policies, continued low oil production, and heightened scarcity of foreign exchange and local currency. Fiscal and debt pressures will increase if the petrol subsidy is not phased out in June 2023, as envisaged in the 2023 Budget.”

 

The Bretton Wood institution also charged the government to strengthen the economy by restoring macroeconomic stability through reforms such as increasing oil and non-oil revenues, tightening monetary policies to reduce inflation, and unifying the multiple FX windows and adopting a single, market-responsive exchange rate.

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