The World Bank Group has said that Nigeria’s inflation rate is poised to reach 15 percent and the country might face a greater financial crisis.
World Bank’s Nigeria Development Update, titled The Continuing Urgency of Business Unusual, advises that Nigeria address its fiscal deficits with urgency.
The June 2022 update singles out government policies and unique circumstances of the war in Ukraine as the underlying factors affecting Nigeria’s economic growth.
“Amid heightened risks, the government has kept a ‘business-as-usual hinders prospects for economic growth and job creation,’” the report reads in part.
“Multiple exchange rates, trade restrictions, and financing of the public deficit by the Central Bank of Nigeria (CBN) continue to undermine the business environment. These policies augment long-standing weaknesses in revenue mobilization, foreign investment, human capital development, infrastructure investment, and governance.
“Due to the petrol subsidy and low oil production, Nigeria faces a potential fiscal timebomb. We project that the added inflationary pressure emanating from the war in Ukraine could push as many as one million more Nigerians into poverty, on top of the six million already projected before the war. Overall, the “inflation shock” is estimated to result in about 15 million more Nigerians living in poverty between 2020 and 2022”.
The report notes that Nigeria is struggling to address its macroeconomic weaknesses, and faults the government for failing to remove petrol subsidy between 2020 and 2021, when global oil prices were low. The report terms petrol subsidy as ”costly, unsustainable, harmful, and unfair”.
Inflation is one of the macroeconomic variables the World Bank report highlights, claiming Nigeria’s inflation is one of the highest in the world.
“Before the war, inflation was already a major macroeconomic challenge for Nigeria, and it was among the highest in the world. Inflationary pressures were compounded by policy distortions,” World Bank reports.
“As trade disruptions and commodity price volatility placed additional pressure on the domestic prices of food staples and fuel products, our forecast for the average inflation rate in 2022 has been revised upwards from 13.5 to 15.5 percent”.
The World Bank report suggests that Nigeria redirect expenditures from subsidies towards targeted and time-bound cash transfers and other priority investments in health, education, and critical infrastructure.
