As Nigeria gear up for another fiscal year, the World Bank has suggested ways the country can mitigate against dwindling economic realities. The apex bank in its November 2021 Nigeria Development Update highlights key seven critical things the country and implement.
Side by side, the bank also analyzed that the need for Nigeria to take these recommendations seriously is coming on the heels of eight million Nigerians falling into poverty in less than two years following inflation shocks.
In another alarming analysis, Nigeria according to the financial institution currently boast the worst revenue-to-GDP ratio among 115 countries monitored, overtaking Haiti in this ranking that portends a serious downturn.
These critical steps mentioned include; the increase of sin tax, removal of fuel subsidy, renewed attention to Forex Policy, making the Ports hassle-free, digitalization, reduction of consistent loans from CBN, and provision of welfare for the Poor.
Below are deductions from the publication explaining these critical action plans:
“These reforms include improving tax administration, especially for VAT, while also undertaking some significant policy reforms, such as implementing a levy on electronic money transfers, and additional excise taxes on alcohol and tobacco.
“While these reform efforts are expected to generate additional revenues of over ₦3 trillion a year, they may be challenging to politically implement in the run-up to the national elections, planned for 2023.”
“Nigeria is the only country in the world with a universal price subsidy that applies exclusively to PMS. Universal price subsidies for liquid fuels are almost always regressive, as the rich consume far more fuel than the poor,”.
“PMS subsidies are especially regressive because PMS is used primarily in light- and medium-duty motor vehicles, which are rarely owned by the poor. Since raising PMS prices tends to have minimal adverse effects on poor households, governments worldwide have typically prioritized eliminating PMS subsidies over those that apply to other fuels.
“However, Nigeria has done the opposite—eliminating all subsidies for liquid fuels other than PMS. Moreover, the Nigerian PMS subsidy is exceptionally generous, and in October 2021 the PMS pump price was the seventh-lowest among 168 economies surveyed at just ₦495 per liter”
“Faced with a widening budget deficit, policymakers have increasingly turned to costly CBN overdrafts (also known as Ways and Means financing), which are not properly integrated into the fiscal accounts.
“While Nigeria’s debt burden remains manageable for the time being, maintaining sustainable debt dynamics will require curbing the use of CBN financing for the deficit and addressing fiscal pressures to break the cycle of low growth and rising public debt.”
“The current mix of monetary, fiscal, foreign exchange (FX), and trade policies also plays a prominent role as a driver of inflation,” the World Bank said. The bank recommended that fixing inflation will need some solution from forex management.
“Trade and FX restrictions, including the closure of land borders starting in August 2019, have increased prices for food and consumer goods, and imports of over 40 goods, including many staple foods, are currently ineligible for FX through formal windows.
“Nigeria’s exchange-rate management has resulted in the rise of parallel rates, which are closely linked to food-price dynamics.”
“One leading barrier is Nigeria’s underdeveloped fixed broadband infrastructure, which is partly attributable to burdensome Federal and State regulations,” the World Bank diagnosed.
“This weak infrastructure base creates a ripple effect across the economy, contributing to low levels of financial inclusion, and persistent geographic and gender gaps in access to and use of digital technologies.
“Conflicts, particularly in the north, exacerbate these challenges, due to heightened security risks. By investing in its digital infrastructure and strong foundational ID systems, Nigeria can promote economic development, security, governance, and efficient delivery of services, thereby accelerating progress toward an inclusive digital economy.”
“Implement a large-scale (covering 25% to 50% of the population) and time-bound targeted cash-transfer program to mitigate impacts of high inflation and the PMS subsidy removal,” “reduce delays in border and port clearance by simplifying and harmonizing documents, streamlining, automating procedures, and introducing risk-based customs interventions.”