Nigeria at a crossroads – Finance minister

Zainab Ahmed, minister of finance, budget and national planning, said on Tuesday that the country is facing very tough macroeconomic challenges as revenues continue to dip on account of huge fuel subsidies as well as worsening oil output and surging inflation.

Ahmed spoke at the launch of the World Bank’s 2022 Nigeria Development Update (NDU), which exposed how much the country’s macroeconomic outlook has really deteriorated since November 2021, when the Bank warned that it was no longer business as usual for Africa’s largest economy.

The World Bank estimates that fuel subsidies would gulp at least N5.4 trillion this year.

“Indeed, we are facing very difficult challenges and we are in some kind of crossroads,” Ahmed said at the event, which she joined virtually.

“It is no longer hearsay that Nigeria is not deriving the benefits it should from the current high crude oil prices. Rather, rising crude oil prices are causing significant fiscal challenges to our economy and may lead to some negative receipts, and indeed we have started seeing those negative receipts,” she added.

According to her, three factors are preventing Nigeria from fully benefiting from the current boom in international oil prices, namely oil production, which has fallen below the country’s estimated capacity and the OPEC quota; insecurity, vandalism and oil theft.

The Central Bank of Nigeria had warned in March that the ongoing oil theft in the country was unprecedented and had called on the fiscal authorities to take urgent, necessary actions.

The finance minister highlighted that the fuel pump price in Nigeria has remained fixed, even when global prices continue to rise.

She said rising international crude prices had also increased the burden of fuel subsidies.

“And by maintaining the PMS subsidy, we as a country are foregoing, unfortunately, investments that we would have used the money to make essentially in infrastructure, goods and services that could have increased the overall productivity of the nation,” Ahmed said.

She noted the global rise in inflation, including in Nigeria, where the monetary authorities have had to respond.

“Despite this however, inflationary pressure is already showing in increased food prices, transportation and it is affecting our people. This is a case of concern for us,” she said.

The minister, however, told the gathering about government new measures to cushion the effect on food prices, including steps to lower the cost of some inputs for production like fertiliser.

According to her, the government is still committed to the aspiration of 15 percent revenue to GDP ratio, but to achieve this means a quantum leap in outcomes in some other initiatives like the Strategic Revenue Growth Initiative.

According to the World Bank report, Nigeria’s growing macroeconomic challenges in 2022 highlight the continuing urgency of a departure from business as usual, and the need for consensus around a package of robust reforms.

The report, titled ‘The Continuing Urgency of Business Unusual,’ says that inflation in Nigeria, already one of the highest in the world before the war in Ukraine, is likely to increase further as a result of the rise in global fuel and food prices caused by the war.

The World Bank says it is likely to push an additional one million Nigerians into poverty by the end of 2022, on top of the 6 million Nigerians that were already predicted to fall into poverty this year because of the rise in prices, particularly food prices.

In his opening remarks, Shubham Chaudhuri, World Bank’s country director, said: “I do want to highlight the fact that six months ago, the title of the NDU was ‘Time for business unusual’, which has in some sense been the bank’s tagline since the beginning of COVID crisis in March 2020, that Nigeria is at a critical juncture and has a tremendous potential, which has not been realised at least in the last four decades, and therefore needs a sense of urgency.”

He said the title of the report in part reflected the fact that some of the challenges that were highlighted in November had become even more severe.

The World Bank had estimated last November that Nigeria could end up spending as much as N3 trillion in 2022 on fuel subsidies but has put its new estimates at N5.4 trillion.

The World Bank had also estimated that given the rate at which prices were increasing, six million more Nigerians were likely to fall into poverty in 2022. However, the new report has estimated an additional one million.

“So that’s the extent to which there is an increasing sense of urgency for departing from business as usual,” Chaudhuri said.

In his presentation, Marco Hernandez, World Bank’s lead economist for Nigeria and co-author of the NDU, said: “Despite the better-than-expected performance of the services and agriculture sectors and higher oil prices stemming from the war in Ukraine, Nigeria is experiencing a curious case of lower fiscal revenues.

“This is limiting the government’s ability to expand basic services, support the economic recovery, and protect the poor during this difficult time. Not only that; we are currently at a low point in Nigeria’s history when it comes to macroeconomic instability.”

He said the concerns stemmed from rising inflation, fiscal pressures, and exchange rate.

He said: “We see higher inflation; higher fiscal deficit that widens the overall fiscal balance; a significant increase in public debt; and also a significant rise in exchange rate premium – which is the difference between the parallel exchange rate, which most households and small firms use in Nigeria and the Investors and Exporters window, which the large corporations use.

“Once you put all of these together, Nigeria has become more vulnerable and the markets are actually taking notice; so the perception of risks for Nigeria has constantly increased, and this has been one of the major concerns.”