Business
Kill subsidy, cut CBN loans, raise ‘sin’ taxes… 7 things World Bank wants Buhari to do in 2022
The World Bank on Tuesday released its November 2021 Nigeria Development Update, which showed — among other things — that eight million Nigerians fell into poverty in less than two years as a result of inflation shocks.
The report also revealed that Nigeria no longer benefits from high oil prices, with record low revenues, and exorbitant fuel subsidies, which makes Nigeria the only country in the world granting universal price petrol subsidies.
Also, the report reiterated that Nigeria has the worst revenue-to-GDP ratio among 115 countries monitored by the World Bank. Worse than Haiti.
To address the grim picture of Nigeria’s economy going into the future, the World Bank has recommended a number of policy decisions for the Muhammadu Buhari administration and the Central Bank of Nigeria (CBN) starting from the year 2022.
The Cable brings you a summary of the policy recommendations from the 112-paged Nigeria Development Update.
RAISE TAXES ON SINFUL GOODS
The World Bank recommended that the government raises taxes on what it referred to as “sinful goods,” including cigarette, alcohol, sugary drinks.
The bank said FG has “accelerated efforts to diversify its revenue stream; however, risks to the implementation of these reforms remain high”.
“These reforms include improving tax administration, especially for VAT, while also undertaking some significant policy reforms, such as implementing a levy on electronic money transfers, and additional excise taxes on alcohol and tobacco
“While these reform efforts are expected to generate additional revenues of over ₦ 3 trillion a year, they may be challenging to politically implement in the run up to the national elections, planned for 2023.”
Despite the perceived difficulties, the bank advised that FG increase these taxes in order to generate adequate revenue.
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KILL FUEL SUBSIDIES
Fuel subsidy removal has been a recurrent recommendation in World Bank/IMF policy briefs for Nigeria for more than a decade, but little has been done about this.
In this report, the World Bank has asked the government to remove subsidies, again. The bank argues that the poorest Nigerians do not benefit much from the subsidy regime.
“Nigeria is the only country in the world with a universal price subsidy that applies exclusively to PMS. Universal price subsidies for liquid fuels are almost always regressive, as the rich consume far more fuel than the poor,” the report read.
“PMS subsidies are especially regressive because PMS is used primarily in light- and medium-duty motor vehicles, which are rarely owned by the poor. Since raising PMS prices tends to have minimal adverse effects on poor households, governments worldwide have typically prioritized eliminating PMS subsidies over those that apply to other fuels.
“However, Nigeria has done the opposite—eliminating all subsidies for liquid fuels other than PMS. Moreover, the Nigerian PMS subsidy is exceptionally generous, and in October 2021 the PMS pump price was the seventh-lowest among 168 economies surveyed at just ₦495 per liter”
The bank said the poorest 40 percent of Nigerians consume less than 3 percent of the total PMS consumption in Nigeria.
CUT LOANS FROM CBN
The World Bank said in its projections for Nigeria, that if current debt accumulation levels are maintained, the country’s debt-to-GDP ratio will hit 40 percent by 2025.
The bank, therefore, advised that the Buhari-admin cut back on its request for overdrafts from the CBN through the Ways and Means financing system. The bank asked FG to keep overdrafts to levels stipulated by law.
“Faced with a widening budget deficit, policymakers have increasingly turned to costly CBN overdrafts (also known as Ways and Means financing), which are not properly integrated into the fiscal accounts.
“While Nigeria’s debt burden remains manageable for the time being, maintaining sustainable debt dynamics will require curbing the use of CBN financing for the deficit and addressing fiscal pressures to break the cycle of low growth and rising public debt.”
FIX FOREX POLICY
“The current mix of monetary, fiscal, foreign exchange (FX), and trade policies also plays a prominent role as a driver of inflation,” the World Bank said. The bank recommended that fixing inflation will need some solution from forex management.
“Trade and FX restrictions, including the closure of land borders starting in August 2019, have increased prices for food and consumer goods, and imports of over 40 goods, including many staple foods, are currently ineligible for FX through formal windows.
“Nigeria’s exchange-rate management has resulted in the rise of parallel rates, which are closely linked to food-price dynamics.”
To address inflation, the bank recommended enhancement of the “flexibility and predictability of exchange rate management”. It also asked that all land borders be fully open for trade.
BUILD THE DIGITAL ECOSYSTEM
“One leading barrier is Nigeria’s underdeveloped fixed broadband infrastructure, which is partly attributable to burdensome Federal and State regulations,” the World Bank diagnosed.
“This weak infrastructure base creates a ripple effect across the economy, contributing to low levels of financial inclusion, and persistent geographic and gender gaps in access to and use of digital technologies.
“Conflicts, particularly in the north, exacerbate these challenges, due to heightened security risks. By investing in its digital infrastructure and strong foundational ID systems, Nigeria can promote economic development, security, governance, and efficient delivery of services, thereby accelerating progress toward an inclusive digital economy.”
The bank advised Nigeria to build digital public platforms, digital financial services, digital entrepreneurship, digital skills, and digital infrastructure.
PROTECT THE POOR
When subsidies are removed, the World Bank forsees some inflation, which would affect the poor and vulnerable. The bank is therefore calling on the government to fix this by protecting the poor.
“Implement a large-scale (covering 25% to 50% of the population) and time-bound targeted cash-transfer program to mitigate impacts of high inflation and the PMS subsidy removal,” the bank said.
It also called on government to “redirect savings from PMS subsidy to finance primary health, basic education, and rural connectivity projects”.
The bank said that the government in 2022 has planned to spend ~N3,000 per person per year on health while fuel subsidies could cost N13,000 per person per year in the same year”.
It called on the government to rearrange its priorities to shield the poor from bearing the burden of the subsidy removal.
SPEED UP PORT CLEARANCE
The World Bank advised that the government “reduce delays in border and port clearance by simplifying and harmonizing
documents, streamlining, automating procedures, and introducing risk-based customs interventions.”
This would entail spending up the processes of import at the popular Apapa Port, which is the busiest in the country, and one of the least efficient on the continent.
The Cable
Business
PH refinery: 200 trucks will load petroleum products daily, says Presidency
PH refinery: 200 trucks will load petroleum products daily, says Presidency
No fewer than 200 trucks are set to load petroleum products at the government-owned Port Harcourt Refinery, the presidency has said.
A presidential spokesperson, Sunday Dare, made this known in a statement through his official X handle on Tuesday.
Newstrends had reported that the Nigerian National Petroleum Company on Tuesday announced that Port Harcourt Refinery has resumed operations and crude oil processing after years of inactivity.
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Reacting, Dare said, “200 trucks are expected to load products daily from the refinery, Renewing the Hopes of Nigeria.”
He added that “the Port Harcourt refinery has two wings.
“The Old Refinery comes on stream today with an installed production capacity of 60, 000 barrels per day of crude oil.”
PH refinery: 200 trucks will load petroleum products daily, says Presidency
Business
Breaking: CBN increases interest rate to 27.50%
Breaking: CBN increases interest rate to 27.50%
The Central Bank of Nigeria (CBN) has raised the lending interest to 27.50 per cent from 27.25 per cent.
This latest increase in the Monetary Policy Rate came after a meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Monday and concluded Tuesday.
The Monetary Policy Rate measures the benchmark interest rate.
The CBN Governor, Yemi Cardoso, announced this in Abuja on Tuesday after the MPC meeting, last for the year, held at the apex bank’s headquarters.
He said the MPC voted unanimously to raise the MPR by 25 basis points from 27.25% to 27.50%; and retain the Cash Reserve Ratio (CRR) at 50% for Deposit Money Banks and 16% for Merchant Banks.
The CBN governor also said the MPC retained the Liquidity Ratio (LR) at 30% and Asymmetric Corridor at +500/-100 basis points around the MPR.
Business
Nigeria’s unemployment rate dropped to 4.3% in Q2 – NBS
Nigeria’s unemployment rate dropped to 4.3% in Q2 – NBS
Nigeria’s unemployment rate stood at 4.3 per cent in the second quarter of 2024, the National Bureau of Statistics (NBS) has said in its latest report.
The report released on Monday said the unemployment rate decreased compared to the 5.3 per cent recorded in the Q1 of 2024.
The NBS defined the unemployment rate as the share of the labour force (the combination of unemployed and employed people) who are not employed but actively searching and are available for work.
“The unemployment rate for Q2 2024 was 4.3%, showing an increase of 0.1 percentage point compared to the same period last year,” the report stated.
“The unemployment rate among males was 3.4% and 5.1% among females.
“By place of residence, the unemployment rate was 5.2% in urban areas and 2.8% in rural areas. Youth unemployment rate was 6.5% in Q2 2024, showing a decrease from 8.4% in Q1 2024.”
Report also said the unemployment rate among persons with post-secondary education was 4.8 per cent; 8.5 per cent among those with upper secondary education, 5.8 per cent for those with lower secondary education, and 2.8 per cent among those with primary education in Q2 2024.
Employment rate – 76%
The report showed that the employment-to-population ratio, which measures the number of employed workers against the total working-age population, increased to 76.1 per cent in Q2 2024.
“In Q2 2024, 76.1% of Nigeria’s working-age population was employed, up from 73.1% in Q1 2024,” the report stated.
Self-employment – 85.6%
The report further showed that Nigeria’s labour market saw a notable shift as the proportion of self-employed individuals increased in Q2 2024.
It stated, “The proportion of persons in self-employment in Q2 2024 was 85.6%.”
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