Nigeria needs to end its costly petrol subsidy within the next three-to-six months, improve exchange-rate management and speed up other reforms to boost growth, the World Bank said on Tuesday.
The petrol subsidy has cost Nigeria 864 billion naira ($2.1 billion) in the first nine months of 2021, it said, up from 107 billion naira in 2020 and the highest deduction in six years, as oil prices increase the cost of imports.
Zainab Ahmed, Nigeria’s finance minister said the government planned to remove the subsidy by the middle of next year and replace it with 5,000 naira monthly payments to the poorest families.
Fiscal pressures have increased for Nigeria as higher petrol subsidy costs cut revenues, the bank said in a report, urging bold reforms to boost income.
“The Premium Motor Spirit (PMS) subsidy is eroding Nigeria’s limited fiscal space to provide essential services,” it said. “Aggressive reform effort could contribute more to growth than a sustained period of high oil prices.”
Nigeria has fallen behind on implementing reforms started at the height of the COVID-19 pandemic, the bank said, adding that growth rates will lag those of other emerging economies, unless momentum is restored.
“The subsidies regime in the (petroleum) sector remains unsustainable and economically disingenuous,” Ahmed said during the launch of the report.
The World Bank revised Nigeria’s GDP projection to 2.4% this year, from 1.8% earlier, after the economy grew just over 4% in the third quarter, its fourth consecutive quarterly rise, following the COVID-19-induced recession in 2020.
The World Bank said the economy’s prospects have improved, but the recovery is fragile and action is needed to reduce poverty arising from high inflation.
“Urgent priorities for the next three to six months include reducing inflation, improving exchange-rate management … eliminating the PMS subsidy … and improving infrastructure,” the report said.
The bank called for tighter monetary policy to attract investment, saying the naira’s black market premium was fuelling inflation, as was the central bank’s financing of the government’s deficit.