The World Bank has warned that as Nigeria prepares for the 2023 general elections, its chances of accelerating economic growth by increasing investments, easing macroeconomic imbalances, addressing fiscal vulnerabilities, and protecting the welfare of poor households have rapidly shrinking. It therefore advised Nigeria to create more jobs to avoid 23 million more people falling into poverty by 2023.
“With the upcoming general election in February 2023, a key challenge is addressing macroeconomic vulnerabilities when elections encourage higher spending, high inflation is pushing millions of Nigerians into poverty; and higher global interest rates weigh on portfolio investment, and raise the costs of private investment financing and public borrowing,” it said.
Instead of benefiting from the windfalls to build macroeconomic resilience, the Nigerian economy is becoming more vulnerable to external shocks and if the external windfalls were to reverse, the economy could face a similar recession to that of 2015–2016, the World Bank observed concerning Nigeria.
According to the bank’s Nigeria Development Update (NDU) for December 2022, and Economic Memorandum, between 2020 and 2021, when oil prices were much lower, the government missed an opportunity to address one of the primary sources of fiscal vulnerability by choosing to maintain the subsidy for petrol, consequently, the country now faces a fiscal time bomb amid its low oil production.
These come as Nigeria’s inability to optimize the global oil price rally has worsened its fiscal position as the government faces revenue generation challenges amid an increasing debt burden; its reliance on oil has also caused the country to be highly vulnerable to global and domestic shocks that heighten its risk of a recession, the World Bank has said.
Furthermore, because Nigeria is unable to benefit from the oil price boom, the government has resorted increasingly to costly CBN financing, which in turn has increased interest costs, causing severe fiscal and debt challenges. Hence without adequate buffers, the economy is more vulnerable to external shocks more severe than the pre-pandemic period.
With such intense fiscal pressure, debt servicing is expected to surge, exerting fiscal and liquidity pressures and is projected to reach about 45 percent of GDP in 2027, the NDU noted.
“As debt is increasing rapidly, the proportion of short-term (expensive) debt is high, and poor market perceptions coupled with higher global financing costs may limit Nigeria’s access to international financing,” the report said.
Pressured finances at the federal level will further weaken the fiscal condition of sub nationals even till 2023 as statutory transfers to states are expected to decline by 5.5 percent as expenditure and capital expenditure is expected to increase by almost 4 percent and 17.3 percent respectively in nominal terms.
“Consequently, the fiscal deficit of an average state is estimated to reach 37.9 percent of revenues in 2022, as opposed to 31 percent of revenues in 2021 and 17 percent of revenues in 2020, debt levels for an average state are estimated to increase from 154.6 percent of revenues in 2021 to above 200 percent of revenues in both 2022 and 2023,” the bank said.
It said Nigeria’s macroeconomic stability had deteriorated significantly and revised downward the country’s growth estimates to 3.1 percent in 2022 and 2.9 percent in 2023–2024 as against the 3.4 percent and 3.2 percent earlier projected for 2022 and 2023–24, respectively.
“A weak infrastructure base, high levels of insecurity, governance issues, bottlenecks to private investment and competitiveness, poor human development outcomes, and uncertainty about the pace and direction of economic policy, are key factors hampering the long term growth of Nigeria’s economy,” it said.
It however noted that in 2023 to 2024, the economy will continue growing at a moderate pace driven by services, particularly in the telecommunications, trade, transport, and financial services sector, manufacturing and construction sector, and a partial recovery in the oil sector.
