The Latest Nigeria Development Update Report, Resilience through reforms, says Nigeria has emerged from its deepest recession in four decades as COVID-19 restrictions were relaxed. With poverty increasing in 2020 due to the combined effects of COVID-19 and rising prices, the report recommends policy options that can help reduce inflation and protect poor households from its impacts.
In 2020, the Nigerian economy contracted by 1.8%, its biggest drop since 1983. The COVID-19 crisis led to the economic downturn; the external context was marked by capital outflows, increased risk aversion, low oil prices and a decrease in foreign remittances.
Published by World Bank, Nigeria Development Update Resilience through reforms states that the reforms implemented by the Nigerian government were essential and timely to mitigate the impact of the recession on the economy and to create additional fiscal space. Reform slippages would threaten the pace of recovery and limit the government’s ability to address human and physical capital gaps.
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The report examines policy options to reduce inflation, protect the poor and vulnerable, and support economic recovery. Achieving these goals will require strong impetus in the management of exchange rates, monetary policy, trade policy, fiscal policy and social protection. Some recommendations for specific action include:
- Increase the transparency and predictability of exchange rate management policies in order to reduce distortions in allocations in the private and public sectors; and ensure that agents can access foreign exchange in a timely and orderly manner at an agreed rate.
- Clearly defined monetary policy priorities and objectives, with price stability as the main objective. The resumption of open market operations (OMOs) denominated in naira on the basis of a transparent issuance schedule and signals to the markets that OMOs will use short-term securities to ensure price stability.
- Complete and effective reopening of land borders for trade and strengthening of regional cooperation to combat smuggling.
- Facilitation of imports of staple foods and medicines by removing them from the list of exchange restrictions (FX) and replacing import bans and tariffs that align with the ECOWAS common external tariff.
- Establish mechanisms to monitor and report the federal government’s central bank overdraft stock to control money supply growth.
- Total elimination of the gasoline subsidy; and designing sequenced reforms to mobilize non-oil domestic revenue in a way that does not affect economic recovery, including increasing excise taxes on harmful consumer goods, streamlining tax expenditures, removing loopholes in tax laws and improving tax compliance by strengthening revenue administration.
- Leverage the National Social Safety Nets Program (NASSP) to provide transfers to additional households and temporarily increase transfers to current beneficiaries.
- Complement the NASSP with the National Home-Grown School Feeding Program (NHGSFP) to strengthen the food security of vulnerable households in 26 states; and rapidly implement the World Bank-supported CARES project to support households, farmers and businesses.
Shubham Chaudhur, Country Director of the World Bank in Nigeria: “Nigeria faces interrelated challenges related to inflation, limited employment opportunities and insecurity. While the government has made efforts to reduce the effect of these by pushing forward long-delayed political reforms, it is clear that these reforms will need to be sustained and deepened for Nigeria to realize its development potential.
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Recent economic developments
Nigeria’s economy is expected to grow 1.8% in 2021, although there is great uncertainty about the outlook. The recovery would be driven by higher oil exports and domestic demand.
However, Nigeria’s recovery is expected to be weaker than that of other oil producers and an unexpected shock to oil prices could threaten projected modest growth. Additionally, high inflation and high unemployment exacerbate macroeconomic risks and activity in the tertiary sector will not fully normalize unless COVID-19 is contained.
By the end of 2021, Nigeria’s GDP is expected to approach its 2010 level, reversing a full decade of economic growth. GDP per capita is expected to continue to decline as the economy is expected to grow more slowly than the population.
Read the report here