The World Bank on Tuesday released its Nigeria Development Report for November 2021, which showed, among other things, that eight million Nigerians fell into poverty in less than two years as a result of inflationary shocks.
The report also found that Nigeria no longer benefits from high oil prices, with record incomes and sky-high fuel subsidies, making Nigeria the only country in the world to provide universal oil price subsidies.
Further, the report reiterated that Nigeria has the worst income-to-GDP ratio among 115 countries monitored by the World Bank. Worse than Haiti.
To deal with the grim picture of the Nigerian economy going forward, the World Bank has recommended a number of policy decisions to the administration of Muhammadu Buhari and the Central Bank of Nigeria (CBN) from 2022.
TheCable brings you a summary of the policy recommendations of the 112-page Nigeria Development Update.
INCREASE TAXES ON SIN GOODS
The World Bank recommended that the government increase taxes on what it called “dangerous products”, including cigarettes, alcohol and sugary drinks.
The bank said FG has “accelerated its efforts to diversify its sources of income; however, the risks for the implementation of these reforms remain high ”.
“These reforms include improving tax administration, especially for VAT, while also undertaking important policy reforms, such as the implementation of a tax on electronic money transfers and taxes. additional excise duty on alcohol and tobacco.
“While these reform efforts are expected to generate additional revenues of over 3 trillion yen per year, they may be difficult to implement politically in the run-up to national elections, scheduled for 2023.”
Despite the perceived difficulties, the bank advised FG to increase these taxes in order to generate adequate income.
KILLING FUEL SUBSIDIES
Removing fuel subsidies has been a recurring recommendation in World Bank / IMF guidance notes for Nigeria for over a decade, but little has been done about it.
In this report, the World Bank again called on the government to remove the subsidies. The bank argues that the poorest Nigerians do not benefit much from the subsidy scheme.
“Nigeria is the only country in the world with a universal price subsidy that applies exclusively to PMSs. Universal liquid fuel price subsidies are almost always regressive, as the rich consume far more fuel than the poor, ”the report says.
“PMS subsidies are particularly regressive because PMS is mainly used in light and medium motor vehicles, which rarely belong to the poor. Since increasing PMS prices tend to have minimal negative effects on poor households, governments around the world have generally prioritized eliminating PMS subsidies over those that apply to poor households. other fuels.
“However, Nigeria has done the opposite by eliminating all subsidies for liquid fuels other than PMS. Additionally, Nigeria’s PMS subsidy is exceptionally generous, and as of October 2021, the PMS pump price was the seventh lowest among the 168 economies surveyed, at just 495 per liter. “
The bank said the poorest 40 percent of Nigerians consume less than 3 percent of total PMS consumption in Nigeria.
CUT CBN LOANS
The World Bank said in its projections for Nigeria that if current levels of debt accumulation are maintained, the country’s debt-to-GDP ratio will reach 40% by 2025.
The bank therefore advised Buhari-admin to reduce its CBN overdraft request through the ways and means financing system. The bank asked FG to keep the overdrafts at the levels stipulated by law.
“Faced with a growing budget deficit, policymakers have increasingly turned to costly CBN overdrafts (also known as ways and means financing), which are not properly captured in the budget accounts.
“While Nigeria’s debt burden remains manageable for now, sustaining sustainable debt momentum will require limiting the use of CBN financing for the deficit and dealing with fiscal pressures to break the cycle. low growth and increased public debt. “
SET FOREX POLICY
“The current mix of monetary, fiscal, foreign exchange (FX) and trade policies are also playing a leading role as a driver of inflation,” the World Bank said. The bank recommended that correcting inflation will require a solution on the part of forex management.
“Trade and exchange restrictions, including the closure of land borders from August 2019, have raised prices for food and consumer products, and imports of more than 40 items, including many staple foods, have are currently not eligible for foreign exchange through formal ATMs.
“Nigeria’s exchange rate management has resulted in the rise of parallel rates, which are closely related to the dynamics of food prices. “
To fight inflation, the bank recommended improving “flexibility and predictability in the management of exchange rates”. He also called for all land borders to be fully open to trade.
BUILDING THE DIGITAL ECOSYSTEM
“One of the main obstacles is Nigeria’s underdeveloped fixed broadband infrastructure, which is in part attributable to heavy federal and state regulations,” the World Bank diagnosed.
“This weak infrastructure base creates a ripple effect throughout the economy, contributing to low levels of financial inclusion and persistent geographic and gender gaps in the access and use of digital technologies. .
“Conflicts, especially in the north, exacerbate these challenges, due to heightened security risks. By investing in its digital infrastructure and strong foundational identification systems, Nigeria can promote economic development, security, governance and efficient service delivery, thereby accelerating progress towards 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 predicts some inflation, which would affect the poor and vulnerable. The bank therefore asks the government to remedy this by protecting the poor.
“Implement a targeted large-scale (covering 25% to 50% of the population) and time-bound money transfer program to mitigate the impacts of high inflation and the removal of PMS subsidies”, declared the bank.
He also called on the government to “reallocate savings from PMS grants to fund primary health, basic education and rural connectivity projects.”
The bank said that in 2022 the government planned to spend around N 3,000 per person per year on health, while fuel subsidies could cost N 13,000 per person per year in the same year.
He called on the government to rearrange its priorities to protect the poor from the burden of cutting subsidies.
ACCELERATE PORT CLEARANCE
The World Bank advised the government to “reduce customs clearance delays at borders and ports by simplifying and harmonizing
documents, streamline and automate procedures and introduce risk-based customs interventions.
This would involve spending the import processes in the popular port of Apapa, which is the busiest in the country and one of the least efficient on the continent.