The World Bank on Tuesday released its November 2021 Nigeria Development Update, which showed — among other things — that eight million Nigerians fell into poverty in less than two years as a result of inflation shocks.
The report also revealed that Nigeria no longer benefits from high oil prices, with record low revenues, and exorbitant fuel subsidies, which makes Nigeria the only country in the world granting universal price petrol subsidies.
Also, the report reiterated that Nigeria has the worst revenue-to-GDP ratio among 115 countries monitored by the World Bank. Worse than Haiti.
To address the grim picture of Nigeria’s economy going into the future, the World Bank has recommended a number of policy decisions for the Muhammadu Buhari administration and the Central Bank of Nigeria (CBN) starting from the year 2022.
RAISE TAXES ON SINFUL GOODS
The World Bank recommended that the government raises taxes on what it referred to as “sinful goods,” including cigarette, alcohol, sugary drinks.
The bank said FG has “accelerated efforts to diversify its revenue stream; however, risks to the implementation of these reforms remain high”.
“These reforms include improving tax administration, especially for VAT, while also undertaking some significant policy reforms, such as implementing a levy on electronic money transfers, and additional excise taxes on alcohol and tobacco
“While these reform efforts are expected to generate additional revenues of over ₦ 3 trillion a year, they may be challenging to politically implement in the run up to the national elections, planned for 2023.”
Despite the perceived difficulties, the bank advised that FG increase these taxes in order to generate adequate revenue.
KILL FUEL SUBSIDIES
Fuel subsidy removal has been a recurrent recommendation in World Bank/IMF policy briefs for Nigeria for more than a decade, but little has been done about this.
In this report, the World Bank has asked the government to remove subsidies, again. The bank argues that the poorest Nigerians do not benefit much from the subsidy regime.
“Nigeria is the only country in the world with a universal price subsidy that applies exclusively to PMS. Universal price subsidies for liquid fuels are almost always regressive, as the rich consume far more fuel than the poor,” the report read.
“PMS subsidies are especially regressive because PMS is used primarily in light- and medium-duty motor vehicles, which are rarely owned by the poor. Since raising PMS prices tends to have minimal adverse effects on poor households, governments worldwide have typically prioritized eliminating PMS subsidies over those that apply to other fuels.
“However, Nigeria has done the opposite—eliminating all subsidies for liquid fuels other than PMS. Moreover, the Nigerian PMS subsidy is exceptionally generous, and in October 2021 the PMS pump price was the seventh-lowest among 168 economies surveyed at just ₦495 per liter”
CUT LOANS FROM CBN
The World Bank said in its projections for Nigeria, that if current debt accumulation levels are maintained, the country’s debt-to-GDP ratio will hit 40 percent by 2025.
The bank, therefore, advised that the Buhari-admin cut back on its request for overdrafts from the CBN through the Ways and Means financing system. The bank asked FG to keep overdrafts to levels stipulated by law.
“Faced with a widening budget deficit, policymakers have increasingly turned to costly CBN overdrafts (also known as Ways and Means financing), which are not properly integrated into the fiscal accounts.
“While Nigeria’s debt burden remains manageable for the time being, maintaining sustainable debt dynamics will require curbing the use of CBN financing for the deficit and addressing fiscal pressures to break the cycle of low growth and rising public debt.”
FIX FOREX POLICY
“The current mix of monetary, fiscal, foreign exchange (FX), and trade policies also plays a prominent role as a driver of inflation,” the World Bank said. The bank recommended that fixing inflation will need some solution from forex management.
“Trade and FX restrictions, including the closure of land borders starting in August 2019, have increased prices for food and consumer goods, and imports of over 40 goods, including many staple foods, are currently ineligible for FX through formal windows.
“Nigeria’s exchange-rate management has resulted in the rise of parallel rates, which are closely linked to food-price dynamics.”
To address inflation, the bank recommended enhancement of the “flexibility and predictability of exchange rate management”. It also asked that all land borders be fully open for trade.
BUILD THE DIGITAL ECOSYSTEM
“One leading barrier is Nigeria’s underdeveloped fixed broadband infrastructure, which is partly attributable to burdensome Federal and State regulations,” the World Bank diagnosed.
“This weak infrastructure base creates a ripple effect across the economy, contributing to low levels of financial inclusion, and persistent geographic and gender gaps in access to and use of digital technologies.
“Conflicts, particularly in the north, exacerbate these challenges, due to heightened security risks. By investing in its digital infrastructure and strong foundational ID systems, Nigeria can promote economic development, security, governance, and efficient delivery of services, thereby accelerating progress toward an inclusive digital economy.”
The bank advised Nigeria to build digital public platforms, digital financial services, digital entrepreneurship, digital skills, and digital infrastructure.
PROTECT THE POOR
When subsidies are removed, the World Bank forsees some inflation, which would affect the poor and vulnerable. The bank is therefore calling on the government to fix this by protecting the poor.
“Implement a large-scale (covering 25% to 50% of the population) and time-bound targeted cash-transfer program to mitigate impacts of high inflation and the PMS subsidy removal,” the bank said.
It also called on government to “redirect savings from PMS subsidy to finance primary health, basic education, and rural connectivity projects”.
The bank said that the government in 2022 has planned to spend ~N3,000 per person per year on health while fuel subsidies could cost N13,000 per person per year in the same year”.
It called on the government to rearrange its priorities to shield the poor from bearing the burden of the subsidy removal.
SPEED UP PORT CLEARANCE
The World Bank advised that the government “reduce delays in border and port clearance by simplifying and harmonizing
documents, streamlining, automating procedures, and introducing risk-based customs interventions.”
This would entail spending up the processes of import at the popular Apapa Port, which is the busiest in the country, and one of the least efficient on the continent.