Nigerian economy and World Bank's spotlights on redundant policies

THE recent W orld Bank Nigeria Development Update ( NDU), indeed, is a handbook on the biggest economy in Africa – the challenges, the prospects and the booby traps. One may not agree with some of the advisories and recommendations, which is understand able as there is no one- way solution to any situation. But the completeness, inclusiveness and depth are, as usual, unparalleled.

Touching on the wobbly growth, tumbling revenues, unsustainable subsidies, unmatched fiscal mechanisms, redundant monetary policies, faulty trade policies among many other thrusts, the report unearths the countr y’s pain points, making them as plain as possible.

The report also highlights the many nearmisses of recent times while making recommendations on the path the immediate to long- term plans could follow.

Perhaps, the launch of the document comes in handy. First, the Muhammadu Buhari administration is in its twilight. This makes the report a mirror for an administration that truly wishes to assess its performance. And with the presidential candidates for the 2023 elections also set for an extensive campaign, the World Bank document could also mean a politician’s companion.

On a broader view, it is a succinct narrative of the country's economic realities and projections into the near- term future, many of which are as scary as they have always been in recent years. Though the reviews and some of the forecasts are not entirely new, the report titled ‘ The Continuing Urgency of Business Unusual’ details the issues in a manner that gives policymakers a go- to for intellectual reconciliation.

Interestingly, the theme defines every piece of advisory contained in the 100- page document. The government seems to be in a dilemma – between sustaining legacies and taking fresh and radical approaches to salvage the economy. Most apt, the report notes that a “business- as- usual policy stance would not address Nigeria’s macroeconomic challenges” and deliver the kind of growth that can lead to drastic poverty reduction and massive job creation

A major unproductive policy considered blight on the economy, especially revenue is fuel subsidy payment. Of course, the World Bank does not pretend about its bias against the market economy, the report argues with facts and figures about how the subsidy payment has emerged as a major drain on the country’s revenue.

“The burden of the petrol subsidy would reduce the already limited fiscal space, limiting the options to alleviate the impact of high inflation on the poorest Nigerians. In the absence of FX reforms, there will be continued pressure on the parallel exchange rate, which will continue discouraging private investment and fueling inflation,” says the report.

Inflation is also an elaborate subject with multi- dimensional effects across different sectors and aspects of the economy. The report brings to notice the possibility of “elevated” inflation and more damning impacts owing to the ongoing war in Europe. The combined impact of the war and the persistent food price crisis is expected to push another seven million Nigerians into poverty before the end of the year.

But there is even one stranger scenario, according to the report. “Once 2022 GDP per capita is adjusted by changes in prices and exchange rates, per capita GDP growth would be close to zero,” the Bank says, stressing that reforms are necessary to prevent “highgrowth- higher vulnerabilities scenarios”.

The World Bank is unrepentant in its call for “The benefits of a more effective exchange broader economic reform to raise tax, trade, rate management, with a view towards a unimonetar y policy and regulator y efficiency fied and market- reflective exchange rate, are among others. In its latest report, it calls fo r more significant than in previous years. the extension of the same reforms across all Favorable external conditions ( oil prices economic and servi ce frontiers to enhance being the highest in nine years) provide an sustainable growth. The report assumes a sceopportunity to adjust the exchange rate nario based on “business unusual” where the reflective of market dynamics. Allowing furgovernment would embark on a sequence of ther gradual adjustment in the Investors’ and macro- structural reforms to put Nigeria on a Exporters’ ( I& E) rate, where the CBN manages faster and more inclusive growth path and the price, would help eliminate misalignforecasts thus: “Growth could exceed four per ment and alleviate persistent FX pressures. cent on average in 2022– 2024, driven by sus“The CBN took steps to unify multiple tained growth in services and industry. exchange rates by adopting the IEFX window

“The reduction in inflation would rest ore rate as its official exchange rate in May 2021. confidence in the economy, promoting conHowever, different windows still exist, and sumption and investment. By removing the the parallel rate premium continues to burden of the petrol subsidy, the government climb, reaching 39 per cent over the official would be able to use the additional resources I& E rate in March 2022. The CBN continues to in investment projects at the state and federal supply FX to at least four windows, somelevels and protect the poor through cash times at varying rates: I& E window, the sectransfers. These measures would boost public ondary market intervention sales retail wininvestment and consumption and private dow; the small and medium- size enterprises consumption. Finally , a more flexible ( SME) window and the window for invisiexchange rate in a context where FX availabilbles.” ity increases will promote private investment With many central banks across the world and reduce inflationary pressures.” rolling back the unprecedented COVID- 19

In the same breath, it admits that the risk of inspired stimulus packages and the tendency returning to a scenario where economic towards policy normalisation, the World growth is below population growth is high Bank also says it is time the CBN dialed down under the current policy mix. This, it says, its development financing programmes, could be “further complicated by an unfavorwhich have expanded its share of private secable external context and a deceleration of tor credit to 10 per cent as at December. ( COVID- 19) vaccination rates”. While the government refuses to bite the

Nigeria’s GDP closed last year at 3.4 per cent bullet in the face of dwindling revenues, the and posted 3.11 per cent in Q1. While the 2021 institution cautions that it cannot continue growth was celebrated, especially in the pubto maintain a bloated structure at the lic circle, the report recalls that the ' impresexpense of the economy and that it is a matsive' performance was majorly ter of survival to tone down recurrent expen

Even in the most fa vorable global context, diture, which constitutes 60 per cent of federthe policy response of Nigerian authorities al government’s spending. will be crucial t o l aying the foundation for A kind of foreshadowing of calamity, the sustained growth was “mainly the result of report projects: “In 2022, Federal government base effects following the 2020 recession”, revenues are projected to be 3.7 per cent without which the GDP would ha lower, despite a 22 per cent increase in estiremained at 1.8 and 2.3 per cent, the bank mated independent revenues. In 2022, warns. Invariably, the growth would have falldespite higher oil prices, net oil revenues for en below the population growth rate estimatNigeria are projected to remain stagnant due ed at 2.6 per cent. to low oil production and large petrol sub

“The government cannot afford to be comsidy deductions. Federal expenditures are placent and expect growth to maintain the estimated to increase by over 25 per cent in GDP growth trajectory observed in 2021 with2022 amid elections, with a 37 per cent out any sustained effort,” the report notes. increase in capital expenditures.

To achieve an economic growth rate that can “If budgeted expenditures are in line with accelerate development, the report sees value the Medium- Term Fiscal Framework ( MTFF), in a more liberal foreign exchange ( FX) manthe federal fiscal deficit will reach 5.4 per cent agement approach. Thus, it calls for a more of GDP. Suppose capital expenditures are aggressive implementation of the exchange maintained at the 2021 level, which may rate unification programme, saying the econoccur due to delays in passing the 2022 omy cannot continue with the negative amended budget. In that case, the federal fisimpacts caused by the misalignments in the cal deficit is still expected to be higher than in current FX regime. 2021 and reach 4.7 per cent of GDP.”