Fiscal Reforms Pay Off: World Bank Endorses Nigeria's Progress

Nigeria Makes Progress on Fiscal Front

“This surge in revenues is largely due to the removal of the implicit forex subsidy that was happening...”

Nigeria on Track: World Bank praises President Tinubu's economic reforms, citing reduced fiscal deficit & enhanced foreign exchange.

Nigeria is finally seeing the fruits of its labor after implementing major policy reforms to address the fiscal crisis of 2020. The World Bank announced on October 17 that these reforms are yielding positive results, but emphasized the importance of sustained commitment to maintain progress.

President Bola Tinubu's administration has been driving these reforms, focusing on revitalizing the economy through strategic measures. Key reforms include eliminating the long-standing petrol subsidy and devaluing the currency to stimulate output, which had been stagnant for nearly a decade. These bold moves aim to breathe new life into Nigeria's economy.

The numbers are already showing promise. According to Alex Sienaert, the World Bank's lead economist for Nigeria, the country's fiscal deficit has decreased significantly - from 6.2% of Gross Domestic Product (GDP) in the first half of last year to 4.4% in the same period this year. Sienaert attributes this improvement to the reforms, which have spurred:

Significant growth in service sectors

• Stabilization of the oil industry
• Enhancement of the foreign exchange market

These reforms have been far-reaching, including unifying exchange rates, tightening monetary policy, and phasing out gasoline subsidies. While implementing reforms can be costly, especially in the short term, the Nigerian government has introduced initiatives to cushion the impact on citizens, such as cash transfer programs supported by the World Bank.

Sienaert, during a presentation in the capital Abuja said, “We are seeing a fiscal consolidation underway with the fiscal deficit shrinking and that's driven by a combination of expenditure being roughly constant in real terms, and revenues which are surging.

“This surge in revenues is largely due to the removal of the implicit forex subsidy that was happening before, which was even larger than the petrol subsidy, which we talk a lot about,” he added.

Nigeria's economy is poised for growth, with the World Bank projecting a 3.3% expansion this year and a further increase to 3.6% in 2025. This positive outlook is a welcome respite for a country that has faced significant economic challenges in recent years, including two recessions in the past eight years. The root causes of these challenges are complex, but economic mismanagement and policy inconsistencies have played a major role.

To address these issues, the government has implemented various reforms aimed at achieving price stability and establishing a unified, market-reflective exchange rate. These efforts have been crucial in preventing further economic decline, but they've also had the unintended consequence of driving up inflation. The Central Bank of Nigeria has been instrumental in implementing these reforms, which include addressing duplication of functions in public service, ensuring prudent management of government assets, and introducing a spending framework for subsidy removal and forex reform windfall.

Reforms Driving Growth:

Price Stability: Efforts to control inflation and maintain stable prices

Unified Exchange Rate: Establishment of a market-reflective exchange rate to boost trade and investment 

Fiscal Discipline: Measures to reduce duplication of functions and ensure prudent management of government assets 

Despite the challenges, Nigeria's economy is showing signs of resilience, and the projected growth is a testament to the effectiveness of these reforms. As the country continues on its path to recovery, it's essential to maintain momentum and build on the progress made so far.

“The ultimate purpose here, of course, is jobs and opportunities,” Sienaert said.