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Landmark reforms in Nigeria could lead to trillions in savings – World Bank
Significant economic reforms undertaken by Nigeria may result in savings of up to 3.9 trillion naira ($5.10 billion) in 2023 alone, according to a statement from the World Bank this Tuesday, as reported by Reuters. These savings are due to changes in the foreign exchange market and the termination of a costly petrol subsidy. However, the international institution has also warned of escalating inflationary pressures in the near term.
Bola Tinubu, the President of Nigeria, is pioneering the most considerable reforms in the country in decades. These changes include discontinuing the popular but financially draining petrol subsidy and consolidating the nation’s numerous exchange rates.
During a presentation in Abuja, the nation’s capital, Alex Sienaert, the World Bank’s lead economist for Nigeria, clarified that the savings accrued from these reforms should not be perceived as a fiscal windfall. “They prevent Nigeria from going over what you might call the fiscal cliff. They really set the stage for a new and an upward trajectory in terms of Nigeria’s development path,” Sienaert said.
The Nigerian economy is predicted to grow by 3.3% this year and 3.7% in the following year, according to Sienaert. For years, both the World Bank and the International Monetary Fund have urged Nigeria to eliminate its petrol subsidy, costing $10 billion last year, and liberalise its exchange rate.
To further the foreign exchange reforms, Sienaert suggested that Nigeria should lift restrictions on a list of 43 items, including sugar and flour. Currently, the country’s central bank has declared that these items cannot be funded from official dollar sales.
Wale Edun, monetary policy advisor to President Tinubu, anticipates that the naira, currently at record lows following the end of forex restrictions, is expected to stabilise at just below 700 to the dollar.
However, these reforms may have some adverse effects. Inflation, which stood at 22.41% in May, is predicted to increase even further. Sienaert cautioned that high prices may have pushed an additional four million Nigerians into poverty in the first five months of 2023.
Labour unions are putting pressure on Tinubu’s administration to significantly increase the monthly minimum wage, suggesting a more than sixfold rise to protect workers from the fallout of the fuel subsidy removal.
Despite these ambitious reforms, Nigeria still faces significant challenges. The World Bank identifies Nigeria as one of the least developed countries globally, with the second-largest population of impoverished people worldwide. It will undoubtedly be fascinating to watch how these large-scale reforms play out in such a challenging context.
