June 28, (THEWILL) – The World Bank said the removal of petrol subsidy and unification of the Foreign Exchange (FX) rates by the administration of President Bola Tinubu, were crucial measures to rebuild fiscal space and restore macroeconomic stability in Nigeria.
The bank’s position was contained in its latest Nigeria Development Update (NDU) for June 2023
Titled “Seizing the Opportunity”, the report showed that in the first part of 2023, Nigeria’s economic growth weakened, as real Gross Domestic Product (GDP) growth fell from 3.3% in 2022 to 2.4% year-on-year (y-o-y) in Q1 2023.
Tasking President Bola Tinubu with a transformative impact on the lives of millions of Nigerians, it, therefore, called for a comprehensive reform package encompassing a range of complementary measures, including a new social compact to protect the poor and most vulnerable, to maximize the collective impact on growth, job creation, and poverty reduction.
According to the report, “The challenging global economic context has put pressure on Nigeria’s economy. However, domestic policies play a major role in determining Nigeria’s economic performance and resilience to further external shocks.
“The previous mix of fiscal, monetary, and exchange rate policies, including the naira redesign program, did not deliver the desired improvements in growth, inflation, and economic resilience.
“The new government has recognised the need to chart a new course and has already made a start on critical reforms, such as the elimination of the petrol subsidy and reforms in the FX market.
“With the petrol subsidy removal, the government is projected to achieve fiscal savings of approximately 2 trillion naira in 2023, equivalent to 0.9% of GDP. These savings are expected to reach over 11 trillion naira by the end of 2025.
“However, compensating transfers will be essential to help shield the most vulnerable Nigerian households from the initial price impacts of the subsidy reform, as without compensation, many households could be pushed into poverty by higher petrol prices and have to resort to coping mechanisms with long-term adverse consequences.
”Similarly, the move to harmonize the FX windows will help to improve the efficiency of the FX market, unlock private investment, and reduce inflationary pressures, but it is crucial to complete this important reform by removing FX restrictions, clearly communicating how the new FX regime will operate, and implementing supportive monetary and fiscal policies.”
The report recommended specific, critical measures to build on the new government’s bold start in making critical reforms, to ensure that Nigeria rose to its full potential.
These included: restoring macroeconomic stability by increasing non-oil revenue, reducing inflation through a sequenced and coordinated mix of trade, monetary and fiscal policies, and completing the FX reform; expanding social protection to protect the poor and most vulnerable; and developing and communicating how, as fiscal space recovers, resources will be redirected.
In his remarks, Shubham Chaudhuri, World Bank Country Director for Nigeria, also said, “The current move by the Government to implement long-anticipated reforms such as the removal of costly and opaque petrol subsidy, and efforts to harmonize the multiple FX windows, are timely and crucial to set Nigeria on the path of economic growth.
“These reforms should be accompanied by compensatory actions to mitigate the short-term impact on the poor.
“Nigeria should now seize the opportunity to implement a robust, large-scale cash transfer program to provide quick relief to the poor, near poor, as well as low-income households, which are most directly affected by higher petrol prices, as part of a broader compact to redirect scarce fiscal resources towards development priorities.”
About the Author
