The World Bank has stated that Nigeria stands to save up to 3.9 trillion naira (approximately $5.10 billion) this year through reforms implemented in its foreign exchange market and the removal of the petrol subsidy. However, the World Bank also cautioned about the potential rise in inflationary pressures in the short term as a result of these reform. According to Alex Sienaert, the World Bank’s lead economist for Nigeria, while the savings from these reforms do not represent a fiscal windfall; they do prevent Nigeria from facing severe fiscal challenges and pave the way for positive development.
The World Bank projects that Nigeria’s economy will grow by 3.3% this year and 3.7% next year, indicating cautious optimism regarding the country’s economic prospects. Both the World Bank and the International Monetary Fund have long urged Nigeria to remove the petrol subsidy, which amounted to $10 billion in costs last year, and to liberalize its exchange rate. As part of further foreign exchange reforms, Sienaert suggests that Nigeria should lift restrictions on a list of 43 items, including sugar and flour, which the central bank currently prohibits from being funded through official dollar sales.
Despite the potential benefits of the reforms, Sienaert warns that inflation, which reached 22.41% in May, may further increase as a consequence. He also highlights the possibility that around four million more Nigerians may have fallen into poverty in the first five months of this year due to higher prices. Labor unions are advocating for the government to raise the monthly minimum wage more than sixfold to mitigate the impact of the fuel subsidy removal on workers. It is worth noting that Nigeria has the second-largest population of poor people globally and remains one of the least developed countries, according to the World Bank.
In summary, Nigeria’s reforms in the foreign exchange market and the removal of the petrol subsidy are expected to result in significant savings for the country, preventing fiscal challenges and setting the stage for positive development. However, there are concerns about potential short-term inflationary pressures and the impact on poverty levels. The World Bank projects modest economic growth for Nigeria in the coming years. The successful implementation of these reforms, along with measures to address inflation and poverty, will be crucial for Nigeria’s economic trajectory and development.