As Nigeria battles to curtail rising prices which pushed an estimated seven million Nigerians below poverty line in 2020 alone, it has become imperative for the government to set drastic measures and policy foundations for a strong recovery to protect the economy against a much deeper recession, the latest World Bank Nigeria Development Update (NDU) has stated.
In a report titled “Resilience through Reforms”, the NDU noted that in 2020 the Nigerian economy experienced a shallower contraction of -1.8 per cent than -3.2 per cent projected at the beginning of the pandemic. It added that though the economy started to experience gradual growth, cost of living increased rapidly, severely impacting Nigerian households with food prices accounting for over 60 percent of the total increase in inflation, the highest in four years.
The report acknowledges notable government policy reforms aimed at mitigating the impact of the crisis and supporting the recovery; including steps taken towards reducing gasoline subsidies and adjusting electricity tariffs towards more cost-reflective levels, both aimed at expanding the fiscal space for pro-poor spending. In addition, it highlights that both the federal and state governments cut nonessential spending and redirected resources towards the covid-19 response.
NDU, however, notes that despite the more favourable external environment, with recovering oil prices and growth in advanced economies, a failure to sustain and deepen reforms would threaten both macroeconomic sustainability and policy credibility, thereby limiting the government’s ability to address gaps in human and physical capital, which is needed to attract private investment.
In his comment, Shubham Chaudhuri, the World Bank country director for Nigeria noted that Nigeria faces interlinked challenges in relation to inflation, limited job opportunities, and insecurity. He added that while the government has made efforts to reduce the effect of these by advancing long-delayed policy reforms, it is clear that these reforms will have to be sustained and deepened for Nigeria to realise its development potential.
On his part, Marco Hernandez, the World Bank lead economist for Nigeria and co-author of the NDU report pointed out that given the urgency to reduce inflation amidst the pandemic, a policy consensus and expedited reform implementation on exchange-rate management, monetary policy, trade policy, fiscal policy, and social protection would help save lives, protect livelihoods, and ensure a faster and sustained recovery.
In furtherance of this, the NDU proposed near-term policy option organized around three priority objectives including; reducing inflation by implementing policies that support macroeconomic stability, inclusive growth, and job creation; protecting poor households from the impacts of inflation and facilitating access to financing for small and medium enterprises in key sectors to mitigate the effects of inflation and accelerate the recovery.