World Bank has said in a new report on Tuesday that Nigeria needs critical reforms to reduce its jumping inflation rate and accelerate economic recovery. The report notes that while the government took measures to protect the economy against a much deeper recession, it would be essential to set policy foundations for a strong recovery, according to the latest World Bank Nigeria Development Update (NDU).
The update, titled ‘Resilience through Reforms’, notes that in 2020 the Nigerian economy experienced a shallower contraction of -1.8% than had been projected at the beginning of the pandemic (-3.2%). Although the economy started to grow again, prices are increasing rapidly, severely impacting Nigerian households.
“In 2020 the Nigerian economy shrank by 1.8%, its deepest decline since 1983. The COVID-19 crisis drove the economic slowdown; the external context was marked by capital outflows, intensified risk aversion, low oil prices, and shrinking foreign remittances”, World Bank said in the report.
As of April 2021, the inflation rate was the highest in four years. Food prices accounted for over 60% of the total increase in inflation. Rising prices have pushed an estimated 7 million Nigerians below the poverty line in 2020 alone.
World Bank acknowledges notable government’s policy reforms aimed at mitigating the impact of the crisis and supporting the recovery; including steps taken towards reducing gasoline subsidies and adjusting electricity tariffs towards more cost-reflective levels.
Both aimed at expanding the fiscal space for pro-poor spending.
In addition, the report highlights that both the Federal and State governments cut nonessential spending and redirected resources towards the COVID-19 response. At the same time, public-sector transparency has improved, in particular around the operations of the oil and gas sector.
However, update on Nigeria notes that despite the more favorable external environment, with recovering oil prices and growth in advanced economies, a failure to sustain and deepen reforms would threaten both macroeconomic sustainability and policy credibility, thereby limiting the government’s ability to address gaps in human and physical capital which is needed to attract private investment.
‘Nigeria faces interlinked challenges in relation to inflation, limited job opportunities, and insecurity’, said Shubham Chaudhuri, the World Bank Country Director for Nigeria.
‘While the government has made efforts to reduce the effect of these by advancing long-delayed policy reforms, it is clear that these reforms will have to be sustained and deepened for Nigeria to realize its development potential.’
This edition of the Nigeria Development Update proposes near-term policy option organized around three priority objectives which including reduce inflation by implementing policies that support macroeconomic stability, inclusive growth, and job creation.
Also, it proposes the need to protect poor households from the impacts of inflation and facilitate access to financing for small and medium enterprises in key sectors to mitigate the effects of inflation and accelerate the recovery.
‘Given the urgency to reduce inflation amidst the pandemic, a policy consensus and expedite reform implementation on exchange-rate management, monetary policy, trade policy, fiscal policy, and social protection would help save lives, protect livelihoods, and ensure a faster and sustained recovery’ said Marco Hernandez, the World Bank Lead Economist for Nigeria and co-author of the report.
In addition to assessing Nigeria’s economic situation, this edition of the NDU also discusses how the COVID-19 crisis has affected employment; how inflation is exacerbating poverty in Nigeria; how reforming the power sector can ignite economic growth; and how Nigeria can mobilize revenues in a time of crisis.
Source: Market Forces