World Bank Says Nigeria’s Fiscal Deficit May Widen
The World Bank has stated that fiscal deficits in Nigeria will likely widen further in 2018 due to increased pre-election spending and sustained revenue shortfalls.
It also noted that Nigeria’s 2018 budget implementation was expected to be assertive as the federal government intensifies efforts to complete projects before elections.
The Washington-based institution stated this in its Bi-annual Economic Update on Nigeria, titled, “Investing in Human Capital for Nigeria’s Future,” that was obtained yesterday.
It stressed that the Nigerian economy remains dependent on “the small oil sector (under 10 percent of GDP) for the bulk of its fiscal revenues and foreign exchange earnings.”
This, it pointed out makes Nigeria’s balance of payments and government budgets vulnerable to volatilities in oil prices, which plunged to a one-year low of $58.41 a barrel at the weekend, down more than 22 percent, following global oversupply.
Continuing, the World Bank stated, “Indeed, growth and investment in Nigeria have been negatively impacted by repeated oil-price driven boom-bust cycles. The oil price shock of late 2014 and its aftermath pushed the economy into recession and precipitated a major budgetary crisis at the national and state levels, which brought to light the longer-term trend of weak domestic revenue mobilization.
“Nigeria’s weak revenue mobilization has major implications for growth and development, including for improving its dire social service delivery outcomes. Thus, the country needs to take concrete steps to break its oil dependency to improve its economic and social outcomes,” it added.
Nigeria’s Economic Recovery and Growth Plan (ERGP) 2017-2020 aims to achieve macroeconomic stability and economic diversification and there is thus the need to accelerate its implementation progress.
But the report noted that Nigeria’s emergence from recession remains very slow as sectoral growth patterns have remained unstable.
Real Gross Domestic Product (GDP) growth strengthened from 0.8 per cent (year-on-year) in 2017, to two per cent in the first quarter (Q1) 2018 but slowed to 1.5 per cent in Q2.
The World Bank noted that a relatively tight monetary stance has kept the exchange rates stable and helped control inflation, which reached a two-year low of 12.5 per cent (year-on-year) in April.
The headline inflation declined further to 11.1 per cent in July 2018.
It stated, “However, with declining inflation, the CBN began to cut back on its liquidity draining operations from March 2018. In August, inflation increased slightly to 11.2 percent, on account of increasing food inflation.
“The recent ease in liquidity and partially-improving health of the banking sector did not however stimulate private sector lending, due to persistent risk aversion, stagnating consumer demand, and still high government security yields.
“The central bank maintained key exchange rates (particularly, the official and IEFX) stable through direct intervention and greater convergence was achieved between the interbank wholesale and retail rates on the one hand and the IEFX rate on the other hand.
It, however, argued that the divergence in exchange rates remains and continues to create “a complex scheme of implicit subsidies and distorting national accounting.”
It added, “Oil revenues are recovering with increasing oil prices, but distributions to the tiers of government are constrained by the unbudgeted fuel subsidy and other deductions.
“The fuel subsidy, no longer an explicit first line deduction from oil revenues, mostly benefits the affluent and it is also widely-known that a portion of Nigeria’s imported petrol is smuggled out to neighbouring countries where petrol is more expensive. Source:Thisday