World Bank Gives Nigeria Conditions for Increase in Public Revenue, Spending

President, World Bank, David Malpass

The World Bank has given Nigeria conditions that would enable it increase its public revenue and spending needed to improve development outcomes.

According to the bank, Nigeria’s government urgently needs to strengthen fiscal management, create a unified, stable market-based exchange rate, phase out its costly, regressive fuel subsidy and rationalise preferential trade restrictions and tax exemptions.

The Bank’s Group President, David Malpass stated this while commenting on a new Nigeria Public Finance Review report released on Monday in Abuja.

 These conditions he stated would lay the groundwork for the increases in public revenues and spending needed to improve development outcomes.

In the report, the World Bank advised Nigeria to fix its public finances to promote inclusive, sustainable development, calling for urgent macroeconomic and fiscal reforms to lift the country’s development outcomes, which are severely constrained by inefficient use of resources.

The global institution observed that for years, a large share of Nigeria’s resources had financed inefficient and regressive subsidies for petrol, electricity, and foreign exchange, adding that not all the subsidies were accounted for in the budget, which makes them difficult to track and scrutinise.

The bank, however, noted that available data suggested that subsidies, which accounted for more than the amount spent on education, health, and social protection in 2021, benefit primarily wealthy households.

They also distort incentives, discourage investment, and crowd-out spending on pro-poor programs, thereby hindering progress in Nigeria’s social development, the new report added.

It observed that Nigeria has one of the lowest public expenditure and revenue levels in the world, thereby undermining the government’s ability to improve service delivery.

Between 2015 and 2021, total public spending in Nigeria averaged 12 percent of gross domestic product (GDP), less than half the world average of 30 percent.

The World Bank report posited that improving service delivery required more resources.

It explained that one of the most critical aspects of meeting Nigeria’s vast development needs was in raising more revenues, as the country ranks consistently among the world’s poorest-performing countries in terms of public revenue mobilisation, with total revenues averaging just seven percent of GDP in 2015-2021 — far below the global average of 24 percent.

 It noted that low tax rates and poor utilisation of tax bases, weaknesses in tax administration, and large deductions from oil revenues were constraining Nigeria’s inability to generate enough revenues.

Commenting on the new report, the World Bank Nigeria Country Director, Shubham Chaudhuri submitted that Nigeria was at a critical historical juncture and has a choice to make.

He said: “A child born in Nigeria today will be only 36 percent as productive when she grows up as she could be if she had access to effective public education and health services, and has a life expectancy of only 55 years.

“These stark indicators illustrate the urgency for action by Nigeria’s policymakers to improve the macroeconomic and fiscal framework, so as to sustainably enhance the quality of spending and public services at federal and state levels.”

 Chaudhuri noted that the World Bank had from February of 2022 to date, managed to provide about $9 billion and concessional financing for a variety of development needs.

His aspiration, he pointed out, was to witness a situation where the World Bank was not just seen as a financier, but as a true partner, who is trusted as credible in helping Nigeria move forward and meeting the various challenges it faces in various ways.

Nigeria, he stated, was in a position where it cannot afford to do things sequentially, adding “and we’ve been saying this for the last two years.

 “It may seem like no Nigeria will muddle through, but it has really come to a point where all hands should be on deck.

“The elephants in the room have to be dealt with, all other measures and parallel, have to be taken and there is effort to really ensure that government programmes deliver and public funds are used in the most cost effective, high-value ways possible,” he said.

According to ThisDay, the Chief Economic Adviser to President, Dr. Doyin Salami  while reacting to the report, said, it was very clear that fuel subsidy was not the best way of spending resources.

” I think now, there’s a national consensus around the need for subsidies to go and so I don’t expect in all honesty that by the end of next year, we should still have subsidies.

“The second point to make is that the government (as I am aware, has been looking at a number of things to do to reduce the cost of the subsidies even now,” he said.

As an economist, Salami said removing subsidies in one fell swoop would come with a number of other challenges, adding that “we would have to think through how best to take out subsidies.”

Also speaking, the Director-General of the Debt Management Office (DMO), Ms. Patience Oniha, said it was true that debt had grown a bit faster in the past few years. But she said there were some deliberate strategies around that, adding that in 2015, crude oil prices crashed while the country slipped into a recession in 2016.

She explained: “So the issue is we’ve been borrowing and borrowings have grown but we haven’t seen the required revenues to service the debt.

“Continuous borrowing is not the solution. Somehow, we have to hit revenue and we still need to look at expenditure,” she added.

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