As Nigeria’s economy is recovering at a faster-than-expected pace in 2021, the World Bank has revised its growth projects for the country upward. While the Bretton Woods institution initially predicted a GDP growth of 1.8% in 2021 and 2.1% in 2022, it now predicts it at 2.7% this year and 2.8% next year.
The World Bank justifies this more optimistic forecast on the back of recent growth in services and manufacturing.
“The growth of services was largely organic, albeit uneven: telecoms expanded robustly during the pandemic, while trade, transportation, and financial services also recovered,” it said in its Nigeria Development Update this month.
However, the World Bank does note that the momentum of Nigeria’s reform agenda has waned and is currently undermining the country’s long-term growth prospects. As a result, its economy continues to grow at a slower pace than that of its neighbours.
The report, titled “Time for Business Unusual,” notably says that the insufficient supply of foreign exchange (FX) issues, the unsustainable subsidy on premium motor spirit (PMS), burdensome trade restrictions, and the sizeable fiscal deficit financing by the Central Bank of Nigeria (CBN) are undermining the business environment, compounding underlying constraints on domestic revenue mobilization, foreign investment, human capital development, and the delivery of public services.
The PMS subsidy remains a major challenge for the Nigerian economy, especially at a time when the country struggles to increase oil production. While oil prices are high, Nigeria has not fully benefited from them because of lower output, at the same time when PMS subsidies are soaring.
The World Bank’s Development Update highlights urgent policy priorities that can be implemented over the next three to six months in four key areas: (1) eliminating the PMS subsidy while protecting poor and vulnerable households from any inflationary impact; (2) reducing inflation through a coordinated mix of exchange rate, trade, monetary and fiscal policies; (3) catalyzing private investment by enhancing foreign exchange management, easing trade restrictions, and fostering a better business environment; and (4) addressing fiscal pressures through enhanced domestic revenue mobilization and reducing the reliance on CBN deficit financing.