Nigeria’s fiscal position is deteriorating resulting in higher debt and shrinking investments in human capital and infrastructures, the World Bank Group has said in a new report on Wednesday. The total public debt stock of Africa’s largest economy stood at N35.5 trillion as of June 30, data from the Debt Management Office indicated.
Federation revenues will be significantly lower in 2022 than in 2020, mainly due to lower net oil and gas revenues, the World Bank said. It also said that federal government revenues will be hard hit particularly in 2021 and especially in 2022, adding that transfers to the states are projected to decline in 2022.
According to the report, 35 out of 36 states are likely to see transfers from the Federation fall (in nominal terms) from 2021 to 2022, with the average decline projected to be about 11 percent. In the case of many states, this will mean that transfers from the federation will not be enough to cover even salaries, and certainly not recurrent costs, which are growing in nominal terms.
Responding to the World Bank’s statement, Jimi Ogbobine, head of Consulting at Agusto Consulting, a pan-African credit rating agency said the impact is that time is running out on Nigeria to take some decisive fiscal decisions. “We have missed out on various windows of opportunities to review our fiscal position particularly on knotty issues like the fuel subsidy,” Ogbobine said.
He said the most recent window opened in the second quarter of 2020 when crude oil prices dropped to historic lows. However, with the unsustainability of the subsidy payments currently estimated at over a trillion annually, Nigeria has been pushed once again to dire fiscal straits. On the issue of subsidy, the report said Nigeria is the only country in the world that subsidizes only PMS, the cost of which is massive and unsustainable; as a result, Nigeria is sacrificing critical investments in physical and human capital.
“Most of the PMS subsidy benefits richer Nigerians, and fuel smugglers. The poorest 40 percent consume less than 3 percent of the total PMS consumption in Nigeria. By creating a large price differential between Nigeria and its neighbours, the PMS subsidy is incentivizing smuggling,” the World Bank said.
“Higher oil prices won’t get us there…only policy reforms can boost growth to the levels Nigeria needs. What this means over the next 3 years, business unusual,” the report said, adding that a business unusual scenario would prevent 6 million additional Nigerians from falling into poverty during 2022-2024. According to the World Bank, the priority for the next 3-6 months include reducing inflation, addressing fiscal pressures, catalysing private investment to boost job creation and protecting the poor and vulnerable.
Also, there is a need to enhance the flexibility and predictability of exchange rate management, fully reopen land borders to trade, remove FX restrictions on imports of staple foods and medicines, signal the CBN’s commitment to price stability as the primary goal, and reduce CBN overdrafts for deficit financing to their legal limit, among others.