The World Bank has called on Nigeria’s federal government to conduct a comprehensive audit of the Nigerian National Petroleum Company Limited (NNPC) to reconcile outstanding debts to the Federation. This recommendation is part of broader measures aimed at sustaining and deepening Nigeria’s ongoing economic reforms.
In its latest Nigeria Development Update (NDU) report, titled “Staying the Course: Progress Amid Pressing Challenges,” the World Bank also urged improvements in the transparency of oil revenue reporting to the Federation Account Allocation Committee (FAAC) and maintaining a market-reflective price for Premium Motor Spirit (PMS).
The report, launched in Abuja, highlighted several critical areas for reform. Chief among them is ensuring that the gains from the removal of the PMS subsidy are funnelled into the Federation’s coffers. The World Bank also pushed for reforms to Nigeria’s Value Added Tax (VAT) regime and the rationalisation of tax expenditures.
The World Bank further recommended that the government align all foreign exchange (FX) transactions with market-determined exchange rates. It also advised cutting non-essential expenditures, including vehicle purchases and external training, as part of efforts to curtail wasteful spending.
At the NDU launch, Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun, confirmed that PMS is now fully deregulated, ending a tumultuous 40 year subsidy regime. Despite these reforms, some state officials expressed concern over the hardships caused by these changes. Bauchi State Governor, Senator Bala Mohammed, lamented the negative impact of the PMS subsidy removal and the floating of the naira on the Nigerian populace, calling for a re-evaluation of these measures.
Since May 2023, Nigeria has implemented significant reforms to stabilise its economy, resulting in modest growth, improved fiscal health, and increased foreign exchange reserves, according to the NDU report. These reforms, while necessary to prevent a fiscal crisis, have placed short-term pressures on households and businesses.
The report observed that Nigeria’s Gross Domestic Product (GDP) growth has remained steady but modest, buoyed by stabilisation in the oil sector and robust activity in the services sector. By mid-2024, Nigeria’s fiscal deficit narrowed to 4.4% of GDP, down from 6.2% in the first half of 2023, signalling improved fiscal health and reduced debt-related risks.
Additionally, foreign exchange reserves have risen from $32.9 billion at the end of 2023 to over $38.8 billion by mid-October 2024, providing a buffer against external shocks. However, inflation remains a significant concern, climbing again in September 2024due to the latest increases in gasoline prices and recent flooding.
Despite these challenges, the World Bank report argues that Nigeria must sustain its current macroeconomic policies. It recommends a continued tight monetary policy to combat inflation, which is expected to decline as reforms take hold. The NDU report further urged the federal government to tackle long-standing structural issues, which would accelerate progress in reducing inflation, attracting investment, and creating jobs.
The report also criticised previous policy missteps between 2015 and 2023, which contributed to Nigeria’s inflation surge. It emphasised that these earlier distortionary policies hindered Nigeria from reaching its full potential.
The World Bank Country Director for Nigeria, Dr Ndiame Diop, commended Nigeria for its bold decision to undertake critical, albeit difficult, reforms amidst an already fragile economic landscape. Diop stressed that without these reforms, Nigeria would have plunged into a fiscal crisis, severely affecting the government’s ability to meet its obligations to its citizens. He called on Nigerians to support the ongoing economic reforms, warning that reversing these measures could have disastrous consequences.
Dr Diop also emphasised the need to consolidate the current fiscal improvements while scaling up support for Nigeria’s most vulnerable citizens, who are struggling with reduced purchasing power and rising inflation. He noted that providing opportunities for growth and productive jobs, particularly for young Nigerians, is critical to securing the country’s economic future.
The NDU report offered key recommendations to build on Nigeria’s macroeconomic reforms, highlighting four crucial areas: the continued removal of the PMS subsidy, increased transparency in the oil sector, higher non-oil revenue through improved tax policies, and reductions in government waste. It also advocated for redirecting spending to poverty-targeted programmes and maintaining realistic budgets to prevent unplanned expenditures.
To protect vulnerable populations, the World Bank called for expanded cash transfer programmes and strengthened social safety nets. These measures, alongside addressing structural challenges, would help cushion the impact of reforms on the poorest households while fostering long-term economic growth.
Presenting the NDU report, Lead Economist for Nigeria, Alex Sienaert, noted that recent reforms are gradually restoring macroeconomic stability. GDP is projected to grow by 3.3% in 2024, with an annual average growth of 3.7% expected between 2025 and 2027. Sienaert acknowledged that inflation, which is expected to peak at an average rate of 31.7% in 2024, is largely driven by the depreciation of the naira and rising fuel prices. However, inflation is projected to fall to 14.3% by 2027, provided Nigeria stays the course with its current policy framework.
Despite these positive projections, Sienaert warned that 12 million more Nigerians risk falling into poverty due to the current economic reforms, which have triggered widespread job losses. He cautioned that while the N70,000 minimum wage increase benefits about 4% of public sector workers, it is not enough to lift most Nigerians out of poverty.
During a panel discussion at the report’s launch, Bauchi State Governor Bala Mohammed criticised the current economic reforms, arguing that they have inflicted severe hardship on the Nigerian people. He warned that the reforms could trigger widespread unrest if left unaddressed, noting that governors are at risk of facing public backlash.
Governor Mohammed called on the federal government to re evaluate the reforms, urging policymakers to prioritise basic needs such as food security and employment over rigid adherence to academic economic models. He argued that the current economic strategy is disconnected from the realities on the ground, with many Nigerians unable to afford basic necessities.
While Governor Mohammed’s remarks underscored the growing frustration with the economic reforms, World Bank Chief Economist Gill countered that these changes are necessary to set Nigeria on a path towards long-term prosperity. He emphasised that although the reforms are causing short-term pain, they are essential for achieving economic stability and growth in the future.
As Nigeria grapples with the challenges of economic transformation, the debate over how to balance reform with relief for struggling citizens continues. Nonetheless, the government remains committed to its reform agenda, aiming to secure Nigeria’s financial future while addressing the immediate needs of its people.