Subsidy removal: World Bank forecasts N11tr savings by 2025
By Patience Ikpeme
The World Bank estimates that the federal government could save N2 trillion or 0.9% of GDP in the remaining six months of 2023 by removing petrol subsidies, and more than N11 trillion by 2025.
The World Bank made this forecast in Abuja in its June 2023 Nigeria Development Update released recently.
To maximize the benefits of the reforms initiated by the Tinubu government, the World Bank has asked the government of President Bola Tinubu to provide Nigeria with fiscal space following the abolition of fuel subsidies and the harmonization of foreign exchange (FX) rates.
The report noted that the abolition of fuel subsidies and foreign exchange control reforms are important steps to restore fiscal space and restore macroeconomic stability.
It further stressed the need for further policy reforms and acknowledges the important reforms already undertaken by the new government to address macroeconomic imbalances.
Specifically, the report urged the President to make a transformative impact on the lives of millions of Nigerians and lay a solid foundation for sustainable and inclusive growth.
The NDU also recommended the implementation of a comprehensive package of reforms, including new social agreements to protect the poor and vulnerable; to maximize their collective impact on growth; job creation and poverty reduction.
The report also highlights a slowdown in Nigeria’s economic growth in the first half of 2023, noting that domestic policies will play a key role in determining the country’s economic performance and resilience to external shocks.
“Because previous fiscal, currency and exchange rate policies have not brought the desired improvements, the new government has recognized the need for change and has already implemented important reforms such as the abolition of petrol subsidies and foreign exchange market reforms” said the NDU report.
However, compensation transfers will be crucial to protect vulnerable households from the initial price impact of subsidy reform.
The NDU report added that, “the harmonization of foreign exchange windows will improve market efficiency, attract private investment and ease inflationary pressures.”
The importance of completing this reform by lifting foreign exchange controls, clearly communicating the new exchange rate regime and implementing supportive monetary and fiscal policies was emphasized.
The report recommended concrete measures to increase non-oil revenues, curb inflation through coordinated measures, complete exchange rate reform, extend social protection, and
develop a plan for redistributing tax resources when tax margins recover.
World Bank Country Director for Nigeria Shubham Chaudhuri praised the Tinubu government’s efforts to implement much-needed reforms and stressed the need for compensatory measures to mitigate the short-term impact on the poor.
Mr Chaudhuri also called for the implementation of a cash transfer programme to help those hardest hit by high fuel prices, as part of a broader deal to redirect taxpayer funds to
development priorities.
