…Suggests subsidy reform
By Emma Ujah, Abuja Bureau Chief
The World Bank has predicted a wider fiscal deficit beyond the N1.95 trillion stated in the 2018 budget of the federal government of Nigeria.
In its ‘Nigeria bi-annual Economic Update’, released yesterday, the Breton Woods Institution opined that the pressure to spend more money on projects, especially with elections in just a few months, combined with sustained low revenues would push up deficit beyond its planned figure for the fiscal year which overruns by six months into 2019.
“The fiscal deficits will likely widen in 2018 due to increased pre-election spending and sustained revenue shortfalls. The 2018 budget implementation is expected to be assertive, with a rush to complete projects before elections.
“Spending will normalize post-election, limited by a lack of revenue growth. Over-optimistic budget revenue targets, combined with delayed approval of external borrowing plan will likely increase the reliance (and the cost) on domestic borrowing.
“Public debt will rise steadily but remain relatively low (under 25% GDP). The current account balance is expected to remain positive, benefitting from a rising value of oil exports and limited growth of non-oil imports. The capital account faces significant uncertainty, as external portfolio investors may seek safety elsewhere during the upcoming elections, despite rising domestic security rates,” it said.
Post-recession economy sluggish
The Bank noted that the nation’s economy remained sluggish, post-recession and that actions must be taken to boost it.
It stated: “Nigeria’s emergence from recession remains very slow, and sectoral growth patterns are unstable. Real GDP growth strengthened from 0.8% (year-on-year) in 2017, to 2.0 percent in Q1 2018, but slowed to 1.5 percent in Q2. The oil sector, which pushed the country into recession in 2016 and lifted it back into growth in 2017, contracted by 4.0 percent in Q2 2018.”
The Bank regretted that agriculture which had remained the most resilient sector had faced unprecedented, combined challenges of insecurity in the North East and conflicts between herders and farmers in the Middle Belt, leading to disruption of agricultural activities in the affected areas.
According to the organization, “Usually-resilient agricultural growth slowed significantly to 1.2 percent in Q2, impacted by the insurgency in the North-East and farmer-herdsmen clashes in the Middle-Belt. The conflicts led to the destruction of assets, decreased food security, disrupted economic activity and by April 2018 internally displaced of 1.9 million persons.”
Oil subsidy reform
According to the World Bank, the current oil subsidy regime was benefiting only the affluent and some corrupt members of the society who smuggled the imported commodity to neighbouring countries.
The global body, therefore urged the federal government to undertake necessary reforms to address the subsidy problem, which it said was robbing the tiers of government the full benefits of oil revenues.
It said, “Oil revenues are recovering with increasing oil prices, but distributions to the tiers of government are constrained by the unbudgeted fuel subsidy and other deductions.
“The fuel subsidy, no longer an explicit first line deduction from oil revenues, mostly benefits the affluent and it is also widely-known that a portion of Nigeria’s imported petrol is smuggled out to neighboring countries where petrol is more expensive.”
1.9 % GDP growth
The Bank maintained its overall annual growth projections of “around 1.9% in 2018, undermined by the slowdown in agriculture and oil sector growth, gradually rising in the medium-term with reduced political uncertainty and returning consumer confidence.”
Given the clearly challenging economic backdrop, the Bank suggested key policy reforms including “acceleration of the economic diversification agenda, improvements in the domestic revenue (particularly non-oil) to reduce volatilities in government revenues and increased investment in human capital for a truly sustainable growth.”