World Bank Urges FG to Utilize Fuel Subsidy Savings for Relief
The Federal Government has received a call from the World Bank to redirect a portion of the savings gained from the removal of fuel subsidies towards alleviating the hardships faced by Nigerians. In its latest Nigeria Development Update report titled “Seizing the Opportunity,” the World Bank highlighted the negative impact of the subsidy removal on the population, which could push an additional 7.1 million Nigerians into poverty.
The World Bank emphasized that the removal of fuel subsidies and foreign exchange management reforms were crucial steps toward rebuilding fiscal space and restoring macroeconomic stability. However, it stressed the need for complementary measures and a comprehensive reform package to protect the poor and vulnerable while maximizing the collective impact on growth, job creation, and poverty reduction.
The report also highlighted a decline in Nigeria’s economic growth, with real Gross Domestic Product (GDP) falling from 3.3% in 2022 to 2.4% year-on-year in the first quarter of 2023. While global economic challenges contributed to this decline, the World Bank emphasized that domestic policies played a significant role in determining the country’s economic performance and resilience to external shocks.
The World Bank urged the President and the government to seize this opportunity to make a transformative impact on the lives of millions of Nigerians and establish a solid foundation for sustainable and inclusive growth. By implementing necessary policy reforms and utilizing subsidy savings effectively, the government can mitigate the suffering caused by subsidy removal and pave the way for a brighter future.”The previous combination of fiscal, monetary, and exchange rate policies, including the naira redesign program, failed to achieve the desired enhancements in growth, inflation, and economic resilience.”World Bank Calls for Compensation Measures and Reforms Amid Fuel Subsidy Removal
The World Bank has acknowledged the Nigerian government’s efforts to implement critical reforms, such as eliminating petrol subsidies and reforming the foreign exchange (FX) market. However, the World Bank has emphasized the need for compensatory actions to mitigate the immediate impact of the subsidy removal on the poor and vulnerable segments of society. The removal of the petrol subsidy is projected to result in fiscal savings of approximately N2 trillion in 2023, with the savings expected to reach over N11 trillion by the end of 2025.
The World Bank has highlighted the adverse effects of the subsidy removal, including a significant increase in petrol prices, negatively impacting households that directly and indirectly rely on petrol. It is estimated that poor and economically insecure households will experience an income loss of N5,700 per month, potentially pushing an additional 7.1 million people into poverty. The World Bank has cautioned that without compensation, affected households may resort to detrimental coping mechanisms, such as cutting back on education, healthcare, and nutrition.
To mitigate these challenges, the World Bank has recommended implementing compensating transfers to shield Nigerian households from the initial price impacts of the subsidy reform. It also suggests the government elaborate on the use of freed-up resources in a new compact with the Nigerian people, outlining support in the short, medium, and long term. Additionally, the World Bank urges fiscal realism to avoid potential increased fiscal deficits resulting from a large expansion in spending.
Regarding the FX market, the World Bank acknowledges the benefits of harmonizing the FX windows to improve market efficiency, attract private investment, and reduce inflationary pressures. However, it emphasizes the importance of completing the reform by removing FX restrictions, communicating the new FX regime clearly, and implementing supportive monetary and fiscal policies.
In light of these recommendations, the World Bank has approved a $500 million loan for Nigeria to support the Women Program Scale Up (NFWP-SU), aiming to improve the livelihoods of women. The loan is expected to create better economic opportunities, address gender inequality, improve education, health, and nutrition outcomes for families, and enhance women’s and communities’ resilience to climate change.
The World Bank recognizes that women’s empowerment is crucial for building resilience to climate change at the household and community levels. It also highlights the economic impact of gender disparities in earnings, underscoring the potential gains from closing the gender gap in key economic sectors.
The NFWP, already implemented in six states, has demonstrated promising outcomes in creating economic opportunities for rural women through Women Affinity Groups. These groups help enhance women’s capacity to adapt to climate change, participate in local administrations, and access financial and non-financial services. Through the NFWP, poor and vulnerable women are mobilized into institutions and linked to markets, fostering social and economic empowerment.
The World Bank’s recommendations and loan approval reflect the importance of compensation measures, comprehensive reforms, and women’s empowerment to foster sustainable development and address the challenges posed by the removal of fuel subsidies.
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