Critical reforms needed to protect the economy from a deeper recession
As the government took steps to protect the economy from a much deeper recession, it would be essential to lay the political foundation for a strong recovery, according to the latest World Bank report on Nigeria’s (NDU) development. .
The NDU, titled “Resilience through Reforms”, notes that in 2020 the Nigerian economy experienced a smaller contraction of -1.8% than what was projected at the start of the pandemic (-3.2 %). Although the economy has started to grow again, prices are rising rapidly, severely affecting Nigerian households. In April 2021, the inflation rate was the highest in four years. Food prices accounted for over 60% of the total increase in inflation. Rising prices pushed an estimated 7 million Nigerians below the poverty line in 2020 alone.
The report recognizes the government’s notable policy reforms aimed at mitigating the impact of the crisis and supporting the recovery; including measures taken to reduce gasoline subsidies and adjust electricity prices to more cost-representative levels, both aimed at expanding fiscal space for pro-poor spending. Additionally, the report points out that federal and state governments have cut non-essential spending and redirected resources toward the COVID-19 response. At the same time, public sector transparency has improved, particularly around oil and gas sector operations.
The report notes, however, that despite the more favorable external environment, with the recovery in oil prices and growth in advanced economies, failure to sustain and deepen reforms would threaten both macroeconomic sustainability and economic sustainability. credibility of policies, thus limiting the government’s ability to address human resource gaps. and the physical capital needed to attract private investment.
“Nigeria faces interrelated challenges of inflation, limited employment opportunities and insecurity,” said Shubham Chaudhuri, World Bank Country Director for Nigeria. “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.”
This edition of the Nigeria Development Update offers a short-term policy option organized around three priority objectives:
Reduce inflation by implementing policies that support macroeconomic stability, inclusive growth and job creation;
Protect poor households from the impacts of inflation;
Facilitate access to finance for small and medium-sized enterprises in key sectors to mitigate the effects of inflation and accelerate the recovery.
“Given the urgency of reducing inflation in the midst of the pandemic, political consensus and accelerate the implementation of reforms on exchange rate management, monetary policy, trade policy, fiscal policy and the social protection would help save lives, protect livelihoods and secure recovery, ”said Marco Hernandez, World Bank chief economist for Nigeria and co-author of the report.
In addition to assessing Nigeria’s economic situation, this edition of the NDU also examines how the COVID-19 crisis has affected employment; how inflation exacerbates poverty in Nigeria; how reform of the electricity sector can stimulate economic growth; and how Nigeria can mobilize income in times of crisis.