Nigeria needs to deepen economic reforms and boost government revenues in order to have a sustained recovery after a coronavirus-induced oil price shock that slashed income and weakened its currency, the World Bank’s country director told Reuters on Friday.
Shubham Chaudhuri said Nigerians are aware they cannot simply wait for oil prices to recover as happened during the last crisis in 2016 to rebuild the economy, particularly with the health crisis caused by the pandemic.
Africa’s largest economy faces a situation similar to the 1980s when it rationed foreign currency amid shortages caused by a recession and currency weakness.
Nigeria’s current case is worsened by revenues of around 5% of GDP, which is one of the lowest in the world for similar size countries. The ratio stood at 8% last year before the pandemic.
Chaudhuri said the World Bank is considering a $3 billion budget support loan for Nigeria, which would cover around half of the country’s external financing shortfall. He added that approval was expected within the next three to four months.
“To wait for oil prices to recover will be shortsighted and I think the government recognises this. It helps us make the case for providing the kind of financing the government has requested,” he told Reuters by phone in Abuja.
Nigeria plans to spend 3% of its GDP to stimulate its economy this year, similar to what most sub-Saharan African countries are doing but far less than the G-20 countries, due to low buffers.
Chaudhuri said the government had demonstrated transparency by disclosing how big a deficit it was expecting this year unlike in previous spending plans, which is a step in the right direction.
Also, a decision to move gasoline and electricity prices to more market-reflecting tariffs is welcomed and would help free up funds for healthcare and infrastructure, Chaudhuri said, adding that more needs to be done.
On the currency, the World Bank welcomed moves by the central bank to unify its multiple exchange rate which Chaudhuri said would be supportive of reforms and help attract foreign investment to boost sustainable recovery.
“Now is the time for political courage to be displayed in making the right trade-offs. We see the policy intent and commitment and we are hopeful,” he said.