The World Bank says Nigeria’s government will save a total
of N11 trillion from the recent petrol subsidy removal policy.
However, the financial body said more people would be pushed
into poverty in Nigeria if the government does not provide palliatives to
alleviate the effect of the recently implemented reforms.
In its latest report Nigeria Development Update (NDU)
released on Tuesday, the Bretton Woods institution said over four million
people were pushed into poverty between January and May 2023.
The bank, in the report, titled ‘Seizing the Opportunity’,
said it was important for the country to implement a comprehensive reform
package that encompasses a range of complementary measures, including a new
social compact to protect the poor and most vulnerable, to maximise the
collective impact on growth, job creation, and poverty reduction.
Since the assumption of the new administration, critical
fiscal reforms have been initiated to address macroeconomic imbalances.
The World Bank believes this could be a window of
opportunity that could have a transformative impact on the lives of millions of
Nigerians and establish a solid foundation for sustainable and inclusive
growth.
“The removal of the petrol subsidy and foreign exchange (FX)
management reforms are crucial measures to begin to rebuild fiscal space and
restore macroeconomic stability, and the opportunity should be seized to take
further, necessary policy reform steps,” the report reads.
“In the first part of
2023, Nigeria’s economic growth weakened, and real gross domestic product (GDP)
growth fell from 3.3 percent in 2022 to 2.4 percent year-on-year (y-o-y) in Q1
2023. The challenging global economic context has put pressure on Nigeria’s
economy.
“However, domestic policies play a major role in determining
Nigeria’s economic performance and resilience to further external shocks. The
previous mix of fiscal, monetary, and exchange rate policies, including the
naira redesign program, did not deliver the desired improvements in growth,
inflation, and economic resilience.
“The new government has recognised the need to chart a new
course and has already made a start on critical reforms, such as the
elimination of the petrol subsidy and reforms in the FX market.
“With the petrol subsidy removal, the government is
projected to achieve fiscal savings of approximately N2 trillion in 2023,
equivalent to 0.9 percent of GDP. These savings are expected to reach over N11
trillion by the end of 2025.”
‘COMPENSATE THE POOR’
The global lender said the recent reforms would have a more
direct effect on the poor and vulnerable.
The bank, however, suggested that while policies are being
implemented, measures should be put in place to lessen the effect on the poor.
According to the bank, in the immediate term, the removal of
the petrol subsidy caused an increase in prices, adversely affecting poor and
economically insecure Nigerian households.
“Petrol prices appear
to have almost tripled following the subsidy removal,” the report reads.
“The poor and economically insecure households, who directly
purchase and use petrol as well as those that indirectly consume petrol, are
adversely affected by the price increase. Among the poor and economically
insecure, 38 percent own a motorcycle and 23 percent own a generator that
depends on petrol. Much more use petrol-dependent transportation.
“The poor and
economically insecure households will face an equivalent income loss of N5,700
per month, and without compensation, an additional 7.1 million people will be
pushed into poverty.”
According to the World Bank, many newly poor and
economically insecure households will likely resort to consequential coping
mechanisms, such as “not sending children to school, or not going to the health
facilities to seek preventative healthcare or cutting back on nutritious
dietary choices.”
The firm, therefore, suggested that “compensating transfers
will be essential to help shield the most vulnerable Nigerian households from
the initial price impacts of the subsidy reform, as without compensation, many
households could be pushed into poverty by higher petrol prices and have to
resort to coping mechanisms with long-term adverse consequences”.
“Similarly, the move to harmonise the FX windows will help
to improve the efficiency of the FX market, unlock private investment, and
reduce inflationary pressures, but it is crucial to complete this important
reform by removing FX restrictions, clearly communicating how the new FX regime
will operate, and implementing supportive monetary and fiscal policies,” it
added.
‘POLICIES ARE TIMELY’
Shubham Chaudhuri, World Bank country director for Nigeria,
said the current move by the government to implement the long-anticipated
reforms and efforts to harmonise the multiple FX windows,” are timely and
crucial to set Nigeria on the path of economic growth”.
According to Chaudhuri, these reforms should be accompanied
by compensatory actions to mitigate the short-term impact on the poor.
“Nigeria should now seize the opportunity to implement a
robust, large-scale cash transfer program to provide quick relief to the poor,
near poor, as well as low-income households which are most directly affected by
higher petrol prices, as part of a broader compact to redirect scarce fiscal
resources towards development priorities. “
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