By Bassey Udo
Rising global fuel and food prices as a result of the impact of the Russia-Ukraine conflict likely to escalate Nigeria’s worsening inflation rate, the World Bank said on Tuesday.
The prediction was contained in the highlights of the latest edition of World Bank Nigeria Development Update (NDU) report, titled “The Continuing Urgency of Business Unusual.”
At the presentation of the report in Abuja, the World Bank noted that inflation in Nigeria, already one of the highest in the world prior to the Russia-Ukraine war, was likely to increase further as a result of the spiraling global fuel and food prices caused by the conflict.
The National Bureau of Statistics (NBS) report on the latest consumer price index (CPI), which measures the rate of change in prices of goods and services in the economy, said inflation rose to 16.82 percent in April 2022 (year-on-year), about 0.9 percent points higher than the 15.92 percent recorded in the previous month.
The rising inflation was attributed to the increase in energy and food prices across the country, as the country grapples with challenges associated with low generation of electricity and inadequate food production due to escalating insecurity in parts of the country.
The latest inflation rate is the highest rate attained since August 2021.
The World Bank report said the impact of the Russia-Ukraine war, which has seriously affected the source of supply of energy in Europe and other advanced economies, was likely to push an additional one million Nigerians into poverty by the end of 2022.
Experts forecast had put the population of Nigerians already at the verge of being pushed into poverty this year at about six million due to escalating prices, particularly food prices.
But the latest report by the Bank said inflationary pressures as a result of growing energy supply and food crises would be compounded by the fiscal pressures the Nigerian economy would likely face this year, as a result of high subsidies on petroleum products amid declining crude oil production capacity.
Last Sunday, another systems collapse, the six so far since the late last year, was reported, to effectively cut down available capacity from about 3,628.6 megawatts to less than 10MW.
To remedy the fast deteriorating situation in the economy, the World Bank called for the adoption of a ‘Business Unusual’ approach, saying this was more urgently needed to reduce inflation, lessen fiscal pressures, and attract fresh investment for jobs creation.
Reviewing the country’s economic performance, the World Bank said Nigeria was in a paradoxical situation, with growth prospects improving compared to six months ago, although inflationary and fiscal pressures have intensified considerably, exposing the economy to more vulnerabilities.
The World Bank said Nigeria, for the first time since its return to democracy in 1990, and alone amongst major oil exporters, was unlikely to benefit fiscally from the windfall opportunity created by higher global crude oil prices, as rising fuel subsidies are primed to wipe out all excess earnings from crude oil exports.
“When we launched our previous Nigeria Development Update in November 2021, we estimated that Nigeria could stand to lose more than N3 trillion in revenues in 2022 because the proceeds from crude oil sales, instead of going to the federation account, would be used to cover the rising cost of gasoline subsidies that mostly benefit the rich. Sadly, that projection turned out to be optimistic,” the World Bank Country Director for Nigeria, Shubham Chaudhuri, said.
“With oil prices going up significantly, and with it, the price of imported gasoline, we now estimate that the foregone revenues as a result of gasoline subsidies will be closer to N5 trillion in 2022. And that N5 trillion is urgently needed to cushion ordinary Nigerians from the crushing effect of double-digit increases in the cost of basic commodities, to invest in Nigeria’s children and youth, and in the infrastructure needed for private businesses small and large to flourish, grow and create jobs.”
Nigeria’s growing macroeconomic challenges in 2022, the report said, highlight the continuing urgency of a departure from business as usual, and the need for consensus around a package of robust reforms.
The Report highlights three policy priorities, namely reducing inflation through a sequenced and coordinated mix of exchange rate, trade, monetary, and fiscal policies including the adoption of a single, market-responsive exchange rate; addressing mounting fiscal pressures at the federal and sub-national levels by phasing out the petrol subsidy (estimated to cost up to N5 trillion in 2022), and redirecting fiscal resources to investments in infrastructure, education, and health services; increasing “pro-health taxes”, and improving tax compliance; and catalyzing private investment to boost job creation by improving the transparency of key government-to-business services and eliminating trade restrictions.
Despite the better-than-expected performance of the services and agriculture sectors and higher oil prices stemming from the war in Ukraine, the report said Nigeria was experiencing a curious case of lower fiscal revenues.
This, it said, was limiting the government’s ability to expand basic services, support the economic recovery, and protect the poor during this difficult time” the World Bank Lead Economist for Nigeria and co-author of the Report, Marco Hernandez, said.
Beyond assessing Nigeria’s economic situation, the report also casts a spotlight on the unintended effects of Nigeria’s trade restrictions; the importance of investing in adolescent girls to defuse Nigeria’s demographic time bomb; and the imperative of bringing Nigeria’s out-of-school children back to school.