The World Bank has said that inflation in Nigeria, which is seen as one of the highest in the world before the war in Ukraine, may push another one million Nigerians into poverty by the end of this year.
The bank in its latest Nigeria Development Update (NDU) report, titled, “The Continuing Urgency of Business Unusual”, released yesterday, said the figure is in addition to the 6 million Nigerians that were already predicted to fall into poverty this year due to the rise in food and energy prices.
The report also said the inflationary pressures will be compounded by the fiscal pressures Nigeria will face this year because of the ballooning cost of fuel subsidies at a time when oil production continues to decline.
The NDU assesses recent economic and social developments and prospects in Nigeria, and places these in a longer-term and global context. It also provides an in-depth examination of selected economic and policy issues and an analysis of Nigeria’s medium-term development challenges.
In addition to assessing Nigeria’s economic situation, this edition of the NDU also casts a spotlight on the unintended effects of Nigeria’s trade restrictions; the importance of investing in adolescent girls to defuse Nigeria’s demographic time bomb; and the imperative of bringing Nigeria’s out-of-school children back to school.
Paradoxical situation
The NDU notes that, “Nigeria is in a paradoxical situation: growth prospects have improved compared to six months ago but inflationary and fiscal pressures have increased considerably, leaving the economy much more vulnerable.”
In view of these circumstances, the report said: “Hence, Nigeria, for the first time since its return to democracy, and alone amongst major oil exporters, is unlikely to benefit fiscally from the windfall opportunity created by higher global oil prices.”
World Bank Country Director for Nigeria, Shubham Chaudhuri, said: “When we launched our previous Nigeria Development Update in November 2021, we estimated that Nigeria could stand to lose more than N3 trillion in revenues in 2022 because the proceeds from crude oil sales, instead of going to the federation account, would be used to cover the rising cost of gasoline subsidies that mostly benefit the rich. Sadly, that projection turned out to be optimistic.
“With oil prices going up significantly, and with it, the price of imported gasoline, we now estimate that the foregone revenues as a result of gasoline subsidies will be closer to N5 trillion in 2022. And that N5 trillion is urgently needed to cushion ordinary Nigerians from the crushing effect of double-digit increases in the cost of basic commodities, to invest in Nigeria’s children and youth, and in the infrastructure needed for private businesses small and large to flourish, grow and create jobs.”
According to the report, Nigeria’s growing macroeconomic challenges in 2022 highlights the continuing urgency of a departure from business as usual, and the need for consensus around a package of robust reforms.
The inflationary pressures will be compounded by the fiscal pressures Nigeria will face this year because of the ballooning cost of fuel subsidies at a time when oil production continues to decline.
Policy priorities
The Report highlights three policy priorities:
- Reducing inflation through a sequenced and coordinated mix of exchange rate, trade, monetary, and fiscal policies including the adoption of a single, market-responsive exchange rate;
- Addressing mounting fiscal pressures at the federal and sub-national levels by phasing out the petrol subsidy (estimated to cost up to N5 trillion in 2022) and redirecting fiscal resources to investments in infrastructure, education, and health services; increasing “pro-health taxes”, and improving tax compliance;
- Catalyzing private investment to boost job creation by improving the transparency of key government-to-business services and eliminating trade restrictions.
Commenting, World Bank Lead Economist for Nigeria and co-author of the Report, Marco Hernandez, said: “Despite the better-than-expected performance of the services and agriculture sectors and higher oil prices stemming from the war in Ukraine, Nigeria is experiencing a curious case of lower fiscal revenues.
“This is limiting the government’s ability to expand basic services, support the economic recovery, and protect the poor during this difficult time.”
