About 25 million adults in Nigerian households did not eat for an entire day in 2020, a signal of how poverty is eating deep into Africa’s largest economy.
The World Bank estimated the number to be less than 10 million in 2019 and about 13 million in 2018. The harsh economic condition in Africa’s most populous nation highlights the need for immediate and sustained actions.
The short-term priority for Africa’s largest economy should be to reduce inflation and protect the poor, the Washington-based lender said.
Nigerians have progressively grown poorer on account of slow economic growth that has failed to create sufficient opportunities for a rapidly rising population.
With economic growth rate below the rate of population growth, per capita incomes will continue to decline, the World Bank’s ‘Resilience Through Reform’, a Nigeria Development Update (NDU) report released Tuesday, noted.
With the high cost of living in Nigeria and a declining per capita income that has been trending downwards since 2015, Nigerians are three times more miserable than they were some five years ago. Nigeria’s misery index, an indicator that is used to determine how economically well off the citizens of a country are, jumped to 50.48 percent in March 2021 from 14.75 percent in 2015.
According to Marco Hernandez, World Bank lead economist for Nigeria, high inflation is reducing Nigerians’ purchasing power.
“In the last one year, food inflation has accounted for about 70 percent of the inflation rate. Falling purchasing power is expected to have pushed about 7 million more Nigerians into poverty,” Hernandez said at the virtual launch of the update report.
While one in every three Nigerians is unemployed, those that have been able to pin a job spend about 65 percent of their income on food, the main driver of the country’s inflation rate (18.17% in March). Food prices accelerated to the highest level in 15 years at 22.95 percent in March but slowed in April to 22.72 percent.
Nigeria’s inflation rate has been accelerating since September 2019. It slowed in April to 18.12 percent after accelerating to four-year high of 18.17 percent in March 2021.
Since 2017, when oil-dependent Nigeria emerged from its economic recession, not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining Nigeria’s ability to provide job for its youthful population.
Nigeria’s unemployment rate rose to 33.3 percent in the fourth quarter of 2020, translating to some 23.2 million unemployed people. The figure jumped from 27.1 percent recorded in the second quarter amid Nigeria’s lingering economic crisis made worse by the coronavirus pandemic.
A high unemployment rate in a country like Nigeria whose economy is described as one that is stagflated (a blend of high inflation rate and slow economic growth) means poor Nigerians will become poorer in real terms, and the middle class will get thinned out.
“Between 2020 and 2022, Nigerian would lose on average about N42,000 compared to pre-pandemic projections. Per capita GDP is expected to be negative in 2021-2022,” the World Bank said, adding that the cumulative loss of GDP per capita in 2020-2022 is equivalent to 13 pecent of current GDP per capita.
To reduce inflation while protecting the poor and supporting economic recovery, the World Bank suggested that Nigeria should pay urgent attention to the following six policy areas.
Exchange rate management
It recommended that Nigeria should communicate an exchange rate management strategy that makes the NAFEX rate (now the anchor) more flexible as it would boost Nigeria’s competitiveness while helping to reduce inflation.
“Enhance the FX auction process, for instance by using pre-defined exchange rate bands to control possible immediate overshooting,” World Bank said.
The CBN recently adopted the NAFEX exchange rate, months after the market government and market players started using the rate.
“Further clarity and predictability in exchange rate management and access to FX would boost investors’ confidence,” the World Bank said.
MSMEs and job creation
Identify criteria for enabling MSMEs to access appropriate forms of equity financing and launch a scoping exercise to enrol and screen eligible MSMEs, develop parameters for debt restructuring, and create performance indicators for viable delinquent MSMEs, it said.
Social protection
The international financial institution also recommended that Nigeria should provide targeted cash transfer support to poor households using the National Social Safety Nets Programme (NASSP I and II) while expanding the Rapid Response Register of vulnerable beneficiaries in urban and peri-urban areas.
Monetary policy
Signal a commitment for price stability as the primary monetary policy objective, the World Bank said, adding that Nigeria should consider resuming naira-denominated open-market operation (OMO) with a clear schedule for issuing securities.
“Reduced CBN lending to medium and large corporates under its subsidized schemes. Phase-out the reliance on the cash reserve ratio (CRR) as a liquidity taxes financial savings,” it said.
Fiscal policy
Nigeria was advised to establish mechanisms to monitor the Federal Government’s stock of CBN overdrafts (i.e., the historical stock of accumulated ways and means), the flow of the overdrafts facility (i.e., its monthly use), and its servicing cost (i.e., internal payments).
Trade
The World Bank said Africa’s largest economy should fully reopen its land borders to trade.
It said it should also facilitate imports of staple foods and medicine by removing them from the list of FX restrictions.
“Review FX restriction and import ban currently applied to nonfood goods,” it said.
According to the lender, sustaining reform momentum is critical to ensure a robust recovery beyond 2021. Beyond the immediate need, the World Bank said two policy areas were critical to ensure robust and sustained growth – Power and revenues.
Source: Business Day NG
