The World Bank yesterday called on the Federal Government to reallocate part of the savings from fuel subsidy removal to reduce the suffering of Nigerians worsened by the negative impact of the policy.
Making this call in its latest Nigeria Development Update, NDU, released yesterday, the World Bank noted that an additional 7.1 million Nigerians would be pushed into poverty, especially without measures to compensate for the negative impact of subsidy removal on the populace.
The removal of the petrol subsidy and foreign exchange (FX) management reforms, according to the World Bank, 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.
It noted that the new administration had initiated critical reforms to address macroeconomic imbalances.
Specifically, the organisation said the president should seize the window of opportunity for a transformative impact on the lives of millions of Nigerians and establish a solid foundation for sustainable and inclusive growth.
In the NDU report, titled "Seizing the Opportunity", The World Bank added that it is critical to implement a comprehensive reform package encompassing a range of complementary measures, including a new social compact, to protect the poor and most vulnerable, to maximize the collective impact on growth, job creation, and poverty reduction.
The report showed that in the first part of 2023, Nigeria's economic growth weakened, as real Gross Domestic Product, GDP, growth fell from 3.3% in 2022 to 2.4% year-on-year (y-o-y) in Q1 2023.
It added: "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 programme, did not deliver the desired improvements in growth, inflation, and economic resilience.
"The new government has recognized the need to chart a new course and has already made a start on critical reforms, such as the elimination of 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% of GDP. These savings are expected to reach over N11 trillion by the end of 2025.
Impact of subsidy removal on Nigerians
The World Bank stated: "In the immediate term, the removal of the petrol subsidy has 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 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 per cent own a motorcycle and 23 per cent own a generator that depends on petrol. Many 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.
"Many current, as well as newly, poor and economically insecure households, will likely resort to coping mechanisms that will have long-term adverse consequences, 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."
Measures to compensate Nigerians
Highlighting measures to reduce the negative impact of the subsidy removal on Nigerians, the World said: "Compensating transfers will be essential in helping to shield Nigerian households from the initial price impacts of the subsidy reform.
"In addition to providing immediate cash compensation, the government could also elaborate on the use of the freed-up resources in a new compact with the Nigerian people, outlining support in the immediate as well as medium and long term, at the federal, state, and local government levels.
"The recent proposal to implement a set of measures to alleviate the impact of the subsidy removal, led by the National Economic Council, NEC, should clearly identify priority areas for government investment and effectively communicate these to the public to garner support.
"A public commitment to identifying development (including infrastructure) spending priorities, pro-poor service delivery, and a role for social protection programs to help households cope with shocks could guide such a compact.
"The compact should also be anchored in a clear commitment to fiscal realism, as a large expansion in spending could have fiscal implications, potentially leading to increased fiscal deficits over the medium-term."
FX restrictions
"Similarly, the move to harmonize 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."
The report recommended specific, critical measures to build on the new government's bold start in making critical reforms, to ensure that Nigeria rose to its full potential.
These included restoring macroeconomic stability by increasing non-oil revenue, reducing inflation through a sequenced and coordinated mix of trade, monetary and fiscal policies, and completing the FX reform; expanding social protection to protect the poor and most vulnerable; and developing and communicating how, as fiscal space recovers, resources will be redirected."
World Bank Country Director for Nigeria, also said: "The current move by the Government to implement long-anticipated reforms such as the removal of costly and opaque petrol subsidy, and efforts to harmonize the multiple FX windows, are timely and crucial to set Nigeria on the path of economic growth.
"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."
World Bank approves fresh $500m loan for Nigeria
Meanwhile, the World Bank has approved a fresh $500 million loan for Nigeria to help improve the livelihood of women.
Disclosing this in a statement, the World Bank said: "The World Bank has approved $500 million for Nigeria for Women Program Scale Up (NFWP-SU). The scale-up financing will further support the government of Nigeria to invest in improving the livelihoods of women in Nigeria.
"The NFWP-SU will help to ensure better economic opportunities for women which is essential for addressing gender inequality; guaranteeing better education, health, and nutrition outcomes for families; and building women's and communities' resilience to climate change."
According to the World Bank, women's empowerment is essential to their ability to build resilience to climate change and, by extension, the resilience of their households and communities.
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It noted that by building assets, women could better respond to family needs and mitigate risks and the effects of climate and other shocks on livelihoods, adding that gender disparities in earnings held back the Nigerian economy.
Shubham Chaudhuri, World Bank Country Director for Nigeria, said: "We have seen promising outcomes from the parent NFWP which has helped to create economic opportunities for thousands of rural women through the Women Affinity Groups.
"NFWP's model is helping to improve livelihood opportunities for women and enhancing their capacity to adapt to climate change and participate in local administrations for policymaking related to community empowerment.
"closing the gender gap in key economic sectors could yield gains of between $9.3 billion and $22.9 billion, we are optimistic that this scale-up will help Nigeria to move closer to bridging this gap."
Task Team Leader for Nigeria for Women Project, Michael Ilesanmi, also said: "The Program aims to mobilize poor and vulnerable women into different institutions and, using these institutional platforms, link them to markets as well as financial and non-financial services.
"Through participation in Women Affinity Groups, project beneficiaries build social capital that can then be leveraged to access financial, political, and economic capital, thus leading to both social and economic empowerment."
The statement further noted that the NFWP had been implemented in six states and provides support to over 427,887 WAG members through the formation and strengthening of 20,506 of these groups.
It added that in about two years, these WAGs had saved about NGN4 billion ($8.9 million equivalent), with a significant percentage of these funds in circulation as loans at any given time, noting that so far, 835,573 community members have benefited from the NFWP through different interventions.
