The World Bank has said that Nigeria is in a worsening situation, with economic performance becoming weaker as inflation persists.
The Washington-based bank said this in its newly released Nigeria Development Update, which was launched in Abuja on Thursday alongside the Nigeria Country Economic Memorandum.
The NDU report noted, “Nigeria is in a challenging and deteriorating economic situation. Nigeria’s economic performance has weakened since the previous Nigeria Development Update was published in June 2022 under the title of ‘The Continuing Urgency of Business Unusual’.”
The financial institution also cut Nigeria’s 2022 growth forecast to 3.1 per cent from a previous forecast of 3.8 per cent.
It said that the revision was due to slow economic growth in the third quarter from a year earlier, dragged down by the oil sector and a weak performance in other areas of the economy.
The bank further forecast growth to slow by 2.9 per cent in 2023.
The report read, “Nigeria’s economic output growth has slowed and the World Bank is lowering its growth projections. Real gross domestic product at market prices growth in the third quarter of 2022 was 2.4 percent year-on-year, on the back of a continued contraction in oil output (-22.7 per cent y-o-y) and slowing non-oil growth (4.3 per cent y-o-y, down from 4.8 per cent y-o-y in Q2 2022). The World Bank now projects that real GDP will grow by 3.1 per cent in 2022 and 2.9 per cent in 2023–24, 0.3 of a percentage point lower than the previous projections at the time of the June 2022 NDU.”
Wages lose 35% value
During his presentation of the reports, the World Bank Lead Economist for Nigeria, Alex Sienaert, noted that the Nigerian minimum wage, which was worth N30,000 in 2019, could be valued at N19,355 today.
This means that there had been a loss of 35.48 per cent value between 2019 and 2022 as inflation erodes Nigerians’ purchasing power.
Sienaert noted, “The cumulative inflation between 2019 and 2022 was 55 per cent.”
He said that the rising inflation had led to a slump in the purchasing power of Nigeria.
In the NDU report, it was noted that consumer price inflation had heightened, making it one of the highest in the world.
The report noted that although CBN was making efforts to curb the rising inflation by increasing interest rates, its funding of fiscal deficit through the ways and means advances had made things difficult.
Multiple challenges
The report read, “The rate of consumer price inflation has surged and is currently one of the highest globally. The consumer price index, already increasing at a high rate, accelerated in 2022 through October, to be up 21.1 per cent y-o-y, a 17-year high.
“High inflation has been persistent in Nigeria for the past two decades, but since 2019 inflation has increased substantially, driven by the multiple exchange rates and exchange rate depreciation in the parallel market, intensified trade restrictions, and the monetization of the public deficit by the Central Bank of Nigeria.
“In 2022, this has been exacerbated by the spike in global food and energy prices due to the war in Ukraine and global supply disruptions. Since May 2020, CBN has responded by tightening monetary policy, increasing the policy rate by 500 basis points and increasing the cash reserve requirement by 500 bps. However, the disinflationary impact of these measures has been weakened by continuing monetization of the fiscal deficit, sector-specific subsidized credit provisions, and imported food and energy cost increases.”
The report also noted that Nigeria’s exchange rate policy settings are stifling business activity, investment and growth, and amplifying macroeconomic risks.
More 5m poor Nigerians
The World Bank also noted that inflation pushed five million Nigerians into poverty between January and October this year.
The report read, “As many as 5 million Nigerians have been pushed into poverty as a result of inflation in 2022. The World Bank estimates that between 2020 and 2021, inflation pushed about eight million more Nigerians below the poverty line, increasing the total number of poor people to about 90 million. Higher inflation in 2022 is estimated to have pushed an additional five million Nigerians into poverty between January and September 2022, mainly through higher prices of local staples, such as rice, bread, yam, and wheat, especially in non-rural areas.”
The Washington-based bank also said Nigeria’s economy was highly vulnerable to shocks.
It warned that if inflation and unemployment continued to trendhigh, insecurity would worsen in the country.
The report read, “Nigeria’s economy will remain highly vulnerable to both external and domestic shocks, and shocks will be exacerbated in the absence of urgently needed policy reforms to reduce inflation, increase fiscal revenues, and shift toward a market-responsive exchange rate.
“If inflation and unemployment remain high, this will exacerbate domestic security risks, which in turn could further reduce economic growth.”
According to the bank, high inflation had deteriorated in Nigeria since 2020, corroding citizens’ purchasing power and increasing poverty.
“Nigeria’s chronic, high inflation has worsened since 2020, eroding the purchasing power of Nigerians and increasing poverty. Since October 2019, Nigeria’s inflation has been persistently high. Inflation accelerated after the closure of Nigeria’s land borders in October 2019, and increased steadily throughout 2020 due to domestic supply constraints related to the Covid-19 pandemic. In 2021, at an average of 17 percent, inflation was above that of the previous four years and among the highest rates in the world.”
“During the course of 2020 and 2021, inflation was mainly driven by higher food prices, especially for staples such as bread and cereals, potatoes, yams, and other tubers, meat, fish, fruits, and oils and fats. The pace of price increases eased somewhat in 2021 as the economy reopened and domestic manufacturing and agricultural production increased, but inflation remained high at an average of 17 percent y-o-y,” the report added.
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