According to the World Bank, Nigeria’s ongoing budget deficit has increased the country’s overall public debt, with 96.3 percent of tax income expected to go toward debt service. According to the bank’s short Macro Poverty Forecast for Nigeria: April 2023, this was the case.
The report read in part, “The fiscal position deteriorated. In 2022, the cost of the petrol subsidy increased from 0.7 per cent to 2.3 per cent GDP. Low non-oil revenues and high-interest payments compounded fiscal pressures. The fiscal deficit was estimated at 5.0 per cent of GDP in 2022, breaching the stipulated limit for federal fiscal deficit of 3 per cent. This has kept the public debt stock at over 38 per cent of GDP and pushed the debt service to revenue ratio from 83.2 per cent in 2021 to 96.3 per cent in 2022.”
The bank also said that the cash scarcity created by the CBN’s naira redesign policy hampered the country’s economic growth and poverty reduction efforts, adding that about 13 million Nigerians would become poor between 2019 and 2025.
It noted, “Nigeria is in a more fragile position than before the late 2021 global oil price boom. Growth and poverty reduction have further been affected by cash scarcity in the context of the Naira redesign. The economy is projected to grow by an average of 2.9 per cent per year between 2023 and 2025, only slightly above the population growth rate of 2.4 per cent. Growth will be driven by services, trade, and manufacturing. Oil production is projected to remain subdued in part because of inefficiencies and insecurity.
“With Nigeria’s population growth continuing to outpace poverty reduction and persistently high inflation, the number of Nigerians living below the national poverty line will rise by 13 million between 2019 and 2025 in the baseline projection.”
The World Bank also said that the worsening economic environment in the country had pushed millions of Nigerians into poverty.
The brief read, “Oil price booms have previously supported the Nigerian economy, but this has not been the case since 2021. Instead, macroeconomic stability has weakened amidst declining oil production, costly fuel subsidies, exchange rate distortions, and monetization of the fiscal deficit. The deteriorating economic environment is leaving millions of Nigerians in poverty. Risks are tilted to the downside given the lack of macro-fiscal reforms, the naira demonetization, and an uncertain external outlook.”
The Washington-based bank said that numerous FX rates, high and growing inflation, increased budgetary constraints, and dwindling forex reserves have all significantly harmed macroeconomic stability.
According to the report, Nigeria’s fiscal situation has gotten worse since 2015 as a result of decreased oil income and growing spending, which has led to continuously large budget deficits.
The bank also noted that since 2019, food prices have seen a significant increase in Nigeria’s persistently high inflation rate, which has a negative impact on the buying power of Nigerians who are poor and vulnerable and hastens the spread of poverty.
According to the lending organization, food inflation in 2022 is thought to have forced five million Nigerians into poverty as yearly inflation hit a 21-year high of 18.8%.
It added that multiple FX windows, the central bank’s provision of development finance at subsidized rates, and monetization of the fiscal deficit compromise the effectiveness of monetary policy in the country.
The brief also stated, “Persistent structural economic issues (volatile growth, low private investment, low and inefficient public spending, due to low revenue collection, and low social development outcomes leading to low productivity) have prevented any meaningful acceleration of growth. Insecurity remains widespread, with more violent conflict events occurring across the country, adversely impacting private investment and growth.”
