December 13, 2023

Nigeria still needs to control inflation and stabilise its foreign exchange market to boost growth in Africa’s largest economy following currency reforms and the removal of a petrol subsidy, the World Bank said on Wednesday.

Nigerian President Bola Tinubu has embarked on the country’s biggest reforms in decades, unifying the country’s multiple exchange rates and scrapping a popular but expensive petrol subsidy, which the World Bank and International Monetary Fund had for years called on Nigeria to do.

The impact has been record inflation, which has risen for 10 straight months, reaching 27.33% in October, the highest in almost two decades.

World Bank lead economist for Nigeria Alex Sienaert said during a presentation in the capital Abuja that “several complementary reforms are needed to support Nigeria’s structural agenda and overall gain in competitiveness and economic diversification”.

He said that, with the reforms, Nigeria’s economy was expected to grow at an average annual rate of 3.5% in 2023-2026, or 0.5% points higher than without the reforms.

The government still needed to remove remaining import restrictions, despite lifting a forex ban on 43 items, improve infrastructure and pursue clear, consistent trade policies, Siernaert said.

Nigeria’s central bank should tighten monetary policy, build market confidence around free foreign exchange pricing, phase out “ways and means” advances to the government and discontinue its development finance initiatives, part of a series of unorthodox policies used by former central bank Governor Godwin Emefiele.

New central bank Governor Olawale Cardoso has already begun rolling back Emefiele’s policies.

He adopted an inflation-targeting policy, ended all direct interventionist programmes, which he said blurred the lines with monetary policy, and begun clearing foreign exchange backlogs, estimated at $7 billion, that were owed to banks.

“We will be using inflation-targeting and we will ensure that the use of monetary policy actually cascades down and has an impact,” Cardoso said in response to Siernaet’s call.

The central bank, under Cardoso, has also restarted its Open Market Operations (OMO) to rein in money supply.

Despite unifying its multiple exchange rates, Nigeria has struggled with low oil revenue and foreign exchange shortages, which has dampened investor sentiment and hindered growth.

Finance Minister Wale Edun said the government would scrutinize revenue from oil, its main export and source of foreign currency earnings, and aim to boost output of the commodity ahead of plans “to spend even more”.

“What is spent as a proportion of GDP is much lower than in some African countries where government spending as a portion of GDP goes as far as 50% to 60%,” Edun said. “If you are willing to do that, you need revenues and the first source of revenue is oil revenue.”

REUTERS