世界发展银行-Nigeria-Development-Update,-June-2021---Resilience-through-Reforms_86页_1mb

Nigeria Development Update June 2021 Summary

Core Content

The Nigeria Development Update (NDU) June 2021 edition outlines the economic and social developments in Nigeria during the previous six months and provides insights into the country's medium-term outlook and development challenges. The report highlights the importance of reforms in fostering resilience and sustainable growth in the face of ongoing economic and social pressures.

Main Points

Economic Recovery and Outlook

• 2020 Recession: Nigeria experienced its deepest recession in four decades, with a contraction of 1.8%.
• 2021 Growth: The economy is expected to grow by 1.8% in 2021, though this is below the average for Sub-Saharan Africa and oil-producing countries.
• Recovery Factors: The recovery was driven by eased pandemic restrictions, recovered oil prices, and government reforms.
• Risk Scenario: If reforms are not sustained, growth could fall to 1.1% in 2021, and inflationary pressures could worsen.

Inflation and Poverty

• Inflation Trends: Inflation has been a major concern, with food prices driving the surge. In March-April 2021, headline inflation reached its highest level since March 2017.
• Poverty Impact: Rising inflation is exacerbating poverty, with an estimated 7 million Nigerians pushed into poverty due to price shocks alone in 2020.
• Food Insecurity: Food insecurity has increased, with 56% of households reporting meal skipping in the 30 days prior to November 2020.

External Sector

• Current Account Deficit (CAD): The CAD widened in 2020 due to falling oil exports and remittances, but import declines helped keep the deficit narrower than peers.
• Exchange Rate Management: The Central Bank of Nigeria (CBN) has been managing foreign exchange (FX) reserves and applying demand-management strategies.
• FX Reforms: The NAFEX rate is now the anchor rate for all formal FX transactions, and efforts are underway to unify it with the parallel market rate.

Fiscal Policy

• Fiscal Challenges: Despite rising oil prices, Nigeria's fiscal position remains tenuous.
• Fuel Subsidy: The fuel subsidy is a key issue, with the government having started to eliminate it.
• Debt Dynamics: Debt service consumes most of the fiscal revenue, and reforms are necessary to improve fiscal sustainability.

Financial Sector

• Credit Crunch: Nigeria avoided a credit crunch, but the banking system is showing signs of stress.
• Non-Performing Loans (NPLs): NPLs have not yet reflected the impact of the pandemic, and regulatory forbearance may be a contributing factor.
• Reforms Needed: The financial sector needs reforms to improve liquidity management and risk-adjusted lending.

Monetary Policy

• Monetary Stability: Price stability is the primary goal of monetary policy.
• Open-Market Operations (OMOs): The CBN has resumed naira-denominated OMOs to control banking system liquidity.
• Exchange Rate Flexibility: The report recommends making the NAFEX rate more flexible to reduce real exchange rate misalignments.

Key Policy Recommendations

Short-Term and Medium-Term

• Exchange Rate Management: Make the NAFEX rate more flexible to narrow the spread with the parallel market rate and boost competitiveness.
• Trade Policy: Fully reopen land borders, remove staple food and medicine from FX restrictions, and replace import bans with tariffs aligned with ECOWAS.
• Fiscal Policy: Eliminate the fuel subsidy, establish mechanisms to monitor CBN overdrafts, and rationalize tax expenditures.
• Monetary Policy: Define monetary priorities, resume OMOs with transparent issuance, and phase out reliance on the cash-reserve ratio.
• Social Protection: Expand the National Social Safety Nets Program (NASSP), complement it with the National Home-Grown School Feeding Program (NHGSFP), and implement the COVID-19 Action Recovery and Economic Stimulus program.

Spotlights

Power Sector Reform

• Access to Electricity: About 43% of the population lacks access to the electricity grid, which is the largest energy-access deficit in the world.
• Sector Challenges: The power sector is unbundled and privately owned, but faces technical, commercial, and collection losses of 50%.
• Tariff Reforms: The government raised electricity tariffs to 80% of cost in 2020, moving to a service-based tariff regime.
• Reforms Needed: Financial and policy interventions upstream and technical, operational, and investment interventions downstream are necessary to deepen reforms and improve sector performance.

Domestic Revenue Mobilization

• Tax-to-GDP Ratio: Nigeria has one of the lowest tax-to-GDP ratios in Africa at 4%.
• Revenue Gaps: The tax system needs reforms to mobilize non-oil revenue without affecting economic recovery.
• Reforms to Consider:
  • Increase "sin taxes" on alcohol and cigarettes.
  • Charge fees for electronic money transfers.
  • Rationalize tax expenditures.
  • Improve tax compliance through disciplined revenue administration.
  • Remove loopholes in tax laws.

Conclusion

The Nigeria Development Update emphasizes the importance of reforms in driving economic resilience and growth. It highlights the need for a sequenced approach to reform the power sector and mobilize domestic revenues, while addressing inflation and poverty through targeted policy interventions and social protection. The report serves as a comprehensive guide for policy makers, business leaders, and analysts to understand the current economic landscape and foster sustainable development.