The World Bank’s Nigeria Development Update reveals that inflation could push an additional 7.1 million Nigerians into poverty if no compensation is provided. Currently, only 19 percent of the population is covered by social protection programs, making it crucial to implement a social compact that includes temporary cash transfers to support vulnerable households. The World Bank urges the Nigerian government to invest in a robust social protection system to provide timely and targeted support during shocks like the increase in PMS prices due to subsidy removal.
The World Bank emphasizes the social and economic benefits of social protection programs, such as human capital investment, improved education and health outcomes, increased trust in the government, and greater support for reform efforts. To achieve this, Nigeria should allocate more resources to social safety nets, as the current spending of 0.7 percent of GDP falls short. The World Bank proposes delivering cash transfers through a transparent and digitally-based targeting method.
Additionally, the World Bank offers macro-fiscal policy recommendations for the next six months, including the removal of FX restrictions for 43 items, clear communication about the new FX policy with a unified and market-reflective rate. These measures aim to sustain and deepen FX policy reform and seize opportunities for economic growth.
The World Bank advises Nigeria on tackling inflation by taking several measures. To begin, the country should continue reducing subsidized lending to medium and large firms from the Central Bank of Nigeria, cease government borrowing from the same source, and replace import and foreign exchange (FX) restrictions with tariffs based on the ECOWAS Common External Tariff.
To sustain the removal of PMS subsidy, the World Bank suggests keeping prices deregulated, promoting fair competition, and clamping down on any commercial malpractice to ensure that efficiency gains benefit consumers.
Furthermore, the World Bank encourages Nigeria to enhance tax administration to effectively collect newly introduced excises on telecommunications, single-use plastics, and high-polluting vehicles. This can be achieved through adopting a data-driven approach to tax audits, linking residential property with personal income tax returns, and implementing a simplified turnover tax for small and medium-sized enterprises (SMEs) at the state level, replacing various existing fees and levies.
