• Clear, transparent exchange rate policy urgently required, says World Bank
• ‘CBN’s intervention programmes undermining commercial, risk-adjusted lending’

The World Bank has warned that the war in Europe could effectively push an additional one million Nigerians into poverty by the end of the year. The figure excludes the six million earlier predicted to fall into poverty this year owing to the rise in prices of essentials, especially food.

The bank also cautioned against inefficient exchange rate approaches saying: “Clarity on exchange rate policy, and transparency in its management are necessary to attract more significant capital inflows, including foreign direct (FDI).”

The concerns were contained in the latest World Bank Nigeria Development Update (NDU), tagged, ‘The Continuing Urgency of Business Unusual’, yesterday.

The report, which was launched at a function attended by Minister of Finance, Budget and National Planning, Zainab Ahmed, and other government functionaries, gave a scary verdict about the country’s fiscal and monetary outlook and warned that urgent reforms are required to save the economy.

The report notes that, “stagnating oil revenues harm fiscal accounts at both federal and sub-national levels” and that fiscal performance has suffered enormously from sluggish oil production and rising petrol subsidy, amid “expenditure pressures”, which remain high.

“On the expenditure side, interest payments and capital expenditures increased. As a result, the general government fiscal deficit is estimated at 6.5 per cent of GDP in 2021, with the federal fiscal deficit reaching 4.2 per cent of GDP – a marginal improvement from 4.4 per cent in 2020 –but still breaching the limit set by the 2007 Fiscal Responsibility Act for the third consecutive year,” the report states, adding that Nigeria, for the first time, did not benefit from rising crude prices last year.

It adds: “In the wake of the global economic recovery from COVID-19, international oil prices increased sharply. Although the price of Bonny light crude oil rose to an average of US$70/barrel in 2021, from US$42/barrel in 2020, net oil revenues transferred to the Federation Account increased only by 3.9 per cent (approximately N100 billion). The stagnation in oil revenues is attributable to declining oil production and sizable deductions from the federation’s oil revenues for the petrol subsidy.”

It projects that net oil revenue will remain stagnant this year due to low production profile and large reductions for subsidy payments, with a deficit expected to average 5.05 per cent of gross domestic product (GDP) in the year.

“Federal expenditures are estimated to increase by over 25 per cent in 2022 amid elections, with a 37 per cent increase in capital expenditures. If budgeted expenditures are in line with the Medium-Term Fiscal Framework (MTFF), the federal fiscal deficit will reach 5.4 per cent of GDP.

“Suppose capital expenditures are maintained at the 2021 level, which may occur due to delays in passing the 2022 amended budget, in that case, the federal fiscal deficit is still expected to be higher than in 2021 and reach 4.7 per cent of GDP,” it explains.

The institution reiterates its call for reform of the foreign exchange market, noting that a more liberal model would reduce misalignments and attract more foreign investments required to grow the economy.

According to the report, “the need for timely and consistent monetary policy and exchange rate unification has become critical.

“Clarity on exchange rate policy, and transparency in its management, are necessary to attract more significant capital inflows, including foreign direct investments. The exchange rate policy in 2022 remains focused on maintaining the IEFX rate and the official exchange rate artificially stable through foreign exchange restrictions and administrative measures.” (The Guardian: Excluding headline)

•Photo: A view shows a building destroyed by a military strike, as Russia’s attack on Ukraine continues, in the town of Lysychansk, Luhansk region, Ukraine June 10, 2022. Picture taken June 10, 2022

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