World Bank Urges Govt to Implement Reforms and Fiscal Discipline
The World Bank has urged the Federal Government to sustain the momentum of its economic reforms by tightening fiscal and monetary policies, enhancing transparency in public finance, and consolidating gains from recent measures such as fuel subsidy removal and foreign exchange unification.
In its latest Nigeria Development Update report released on Wednesday, the Bretton Woods institution acknowledged Nigeria’s “substantial stabilisation progress” since 2023 but warned that the reforms’ early benefits could be undermined without disciplined implementation, credible communication, and stronger institutional accountability.
The October 2025 edition of the report, titled ‘From Policy to People: Bringing the Reform Gains Home,’ outlines a series of fiscal, monetary, and structural recommendations aimed at ensuring Nigeria’s fragile recovery translates into sustained growth and inclusive development.
The World Bank advised the Central Bank of Nigeria to maintain a tight monetary stance by ensuring positive real interest rates and avoiding the monetisation of fiscal deficits.
“Maintain reliance on the Monetary Policy Rate to control naira liquidity, complemented by open market operations and standing facilities,” the report recommended. “Publish monthly statements of assets and liabilities, particularly to indicate no monetisation of fiscal deficits.”
The bank also encouraged the apex bank to maintain flexibility in the foreign exchange market, describing it as a “shock absorber” critical to Nigeria’s resilience against external shocks. “Implement and communicate a clear exchange rate policy and a systematic framework for FX intervention,” it added.
On fiscal policy, the World Bank advised Nigeria to boost non-oil revenue by modernising tax administration and introducing reforms to reduce leakages. The bank specifically recommended implementing e-invoicing, strengthening tax audits, and adopting modern property tax frameworks at the subnational level.
To expand the country’s revenue base, the report called for an increase in health-related taxes and a gradual hike in Value Added Tax rates to align with ECOWAS regional standards. It also urged the government to clear the backlog of federal audits between 2022 and 2024 to improve fiscal transparency.
Additionally, the bank recommended a comprehensive forensic audit of the Nigerian National Petroleum Company Limited and a review of laws governing public procurement and auditing.
“The deregulation of the petroleum sector should be maintained to ensure competitiveness,” the World Bank said, adding that the government should finance outstanding electricity subsidy arrears and adopt a cost-reflective tariff supported by a universal subsidy for low-income households.
The global lender also called for fiscal prudence and better budget planning. It urged the Federal Government to “adopt realistic budget assumptions, cut non-essential spending such as vehicle purchases and training, and reduce ad-hoc deductions at FAAC to ensure subnational fiscal stability.”
This advice echoes the government’s recent decision to review deductions and retention practices by key revenue-generating agencies. In August, President Bola Tinubu directed the Ministry of Finance to halt the practice where certain agencies deduct operating costs at source, describing it as unsustainable and opaque.
In one of its most striking revelations, the World Bank criticised the excessive funding retained by Nigeria’s revenue-generating agencies compared to their peers across Africa. It cited agencies such as the Federal Inland Revenue Service, the Nigeria Customs Service, the Nigerian Upstream Petroleum Regulatory Commission, and the Niger Delta Development Commission as examples of entities whose budgetary autonomy has grown disproportionately.
According to the report, the FIRS currently retains four per cent of all non-oil gross revenues, including VAT, corporate income tax, and electronic money transfer levies, as well as oil revenues excluding royalties. The NCS retains seven per cent of customs and excise revenues and two per cent of VAT collections, while the RMAFC receives 0.5 per cent of non-oil revenues. The NUPRC, it added, retains four per cent of royalties from upstream petroleum operations, while the NDDC receives three per cent of gross VAT revenues.
Even more significantly, both the NNPCL and the Frontier Exploration Fund are entitled to 30 per cent of Production Sharing Contract revenues, a model the World Bank described as “fiscally inefficient and opaque.”
By contrast, peer countries operate leaner structures. For example, Kenya’s Revenue Authority receives between one and two per cent of approved annual revenue targets, and may earn an additional three per cent only if it exceeds the set target. Revenue agencies in Uganda, Ghana, and South Africa are funded directly through parliamentary appropriations, ensuring greater oversight and accountability.
“The current Nigerian system, where multiple agencies draw directly from revenue collections, undermines transparency and budget discipline,” the World Bank warned.
The World Bank further analysed Nigeria’s foreign exchange market, noting that while reforms have improved liquidity and transparency, the naira’s long-term stability remains vulnerable to external shocks due to the country’s narrow export base and reliance on short-term capital inflows.
It called for a shift toward sustainable inflows from oil, remittances, and particularly non-oil exports. “The government must focus on attracting longer-term foreign exchange inflows and diversifying the export base,” it said.
The report noted that reforms such as the unification of exchange rates, clearing of FX backlogs, and digitisation of the interbank trading system have helped restore confidence. The CBN’s decision to allow the naira to depreciate modestly during oil price volatility in April 2025 was cited as a sign of increased flexibility and policy maturity.
By mid-2025, the current account balance had improved significantly, posting a six per cent surplus of GDP in the first quarter, driven by higher exports, reduced fuel imports, and the resumption of local refining activities. However, remittances declined slightly due to global economic headwinds.
Despite these gains, the bank cautioned that inflationary pressures and high interest rate differentials with the United States could erode competitiveness if not managed properly. It called for consistent communication from the CBN on its FX intervention policies and prudent management of foreign reserves.