FRI. 16 DEC, 2022-theGBJournal| Despite favorable global oil prices, “business as usual” economic management is not delivering desired outcomes and, even if a crisis is avoided in the near-term, long-standing policy and institutional challenges are persisting and severely constraining the economy.
This hinders the prospects of the vast majority of the country’s people, at least 80 million of whom live in extreme poverty. Nigeria’s economy needs to grow faster to reduce poverty.
Whether to continue down this path, or to instead chart a new course and rise to its tremendous potential, is Nigeria’s choice. This is the theme of the latest World Bank Nigeria Development Update (NDU): “Nigeria’s Choice”.
Nigeria’s economic growth has slowed on the back of declining oil output and moderating non-oil activity. Real gross domestic product (GDP) rose by 3.1 percent year-on-year (y-o-y) in the first three quarters of 2022, little more than the annual population growth of 2.6 percent. Nigeria’s growth performance, and its fiscal and external buffers, have decoupled from high oil prices, and macroeconomic vulnerabilities have increased.
It is urgent to address the key drivers of this decoupling and make reforms to strengthen Nigeria’s macro-fiscal framework. The Strategic Revenue Growth Initiative (SRGI) of the federal government is a welcome first step, reversing the previously declining trend in non-oil revenues as a share of GDP. This initial success needs to be sustained and built upon.
“Nigeria has a choice to implement critical macroeconomic and structural reforms that can reduce crisis vulnerabilities and increase growth. Doing so will lift per-capita incomes, sustainably reduce poverty and deliver better life outcomes for many Nigerians”, said Shubham Chaudhuri, World Bank Country Director for Nigeria. “Urgent business-unusual choices are needed to avoid a scenario in which up to 80 million working-age Nigerians do not have a full-time job by 2030 and up to 23 million more Nigerians could be living in extreme poverty.”
Inflation has surged to 21.1 percent y-o-y in October 2022, pushing as many as five million more Nigerians into poverty since the start of 2022. Fiscal pressures have intensified, exacerbated by the soaring cost of the petrol subsidy which will likely exceed five trillion naira this year.
Despite higher oil export revenues, official reserves have fallen, and the currency market is severely distorted, undermining the business environment and investment. The weaknesses in the macroeconomic policy framework are suppressing growth and making Nigeria more vulnerable to shocks.
“Previous episodes of reform progress and high growth, such as in the 2000s, show that Nigeria’s economy can turn around quickly, and its tremendous economic potential that could be unleashed is well-known. If Nigeria chooses to make reforms that stabilize its macro-fiscal policy settings and support investment, this would be transformative for 80 million poor Nigerians, for Nigeria as a whole, and for Africa.” said Alex Sienaert, World Bank Lead Economist for Nigeria and co-author of the Report,
The Report presents the reform choices Nigeria can make in three key areas: (1) Restoring macroeconomic stability through measures to reduce the domestic and external imbalances. This will require a coordinated mix of exchange rate, trade, monetary, and fiscal policies, notably including adopting a single, market-responsive exchange rate, eliminating the petrol subsidy, and increasing oil and non-oil revenues; (2) Boosting private sector development and competitiveness by eliminating structural constraints that hinder productivity; and (3) Expanding social protection to protect the poor and most vulnerable.
This edition of the NDU draws on the analysis of a new World Bank Nigeria Report – the Nigeria Country Economic Memorandum (CEM). The CEM offers key insights into Nigeria’s growth record since 2000 and highlights key policy reforms to chart a new and inclusive growth path that boosts growth and accelerates job creation.
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