World Bank suggests increased oil revenues to stabilize Nigeria’s economy

The World Bank has highlighted increased oil revenues as one of the ways the Nigerian government can restore macroeconomic stability. The World Bank said this in its April 2023 Macro Poverty Outlook. It says that the government can strengthen the economy through three reforms. They are:

• Increase oil and non-oil revenues
• Tighten monetary policies to reduce inflation
• Unify the multiple foreign exchange windows and adopt a single, market-responsive exchange rate.

The World Bank also stated that increased insecurity as well as adverse climate change effects could further dampen the economic outlook for Nigeria.

Nigeria has not gained from its oil sector in recent times

According to the World Bank, oil price booms have previously supported the Nigerian economy, but that has not been the case since 2021. But macroeconomic stability has weakened amidst declining oil production, costly fuel subsidies, exchange rate distortions, and monetization of the fiscal deficit. The World Bank said:

“The deteriorating economic environment is leaving millions of Nigerians in poverty. Risks are tilted to the downside given the lack of macro-fiscal reforms, the naira demonetization, and an uncertain external outlook.

“Nigeria’s fiscal position has deteriorated since 2015 due to declining oil revenues and rising expenditures, resulting in persistently high fiscal deficits. The oil sector, historically the main contributor to fiscal revenues and accounting for about 90 percent of total exports, has underperformed since 2020.

“Declining oil production and the mounting cost of the petrol subsidy have prevented Nigeria from reaping the benefits of higher global oil prices. The weakness in oil production stems from technical and security challenges in the oil-producing Niger Delta region, ageing infrastructure and inadequate investments in the sector, and the Nigerian National Petroleum Company’s (NNPC) delays in paying for the government’s share of costs in joint-venture operations.

Some supporting statistics

In the report, the World Bank provided some statistics that paint a true picture of how the Nigerian economy has regressed in recent times:

• GDP growth decelerated from 3.6% in 2021 to 3.3% in 2022. Growth was driven by manufacturing, construction, and most services. In contrast, the oil sector shrank by 19.2%.
• In 2022, the cost of the petrol subsidy increased from 0.7% to 2.3% of GDP because low non-oil revenues and high-interest payments compounded fiscal pressures
• Nigeria’s economy is projected to grow by an average of 2.9% per year between 2023 and 2025, only slightly above the population growth rate of 2.4%.
• The number of Nigerians living below the national poverty line will rise by 13 million between 2019 and 2025 in the baseline projection.
• The fiscal deficit was estimated at 5.0% of GDP in 2022, breaching the stipulated limit for the federal fiscal deficit of 3%. This has kept the public debt stock at over 38% of GDP and pushed the debt service to revenue ratio from 83.2% in 2021 to 96.3% in 2022.