Since May 2023, Nigeria has undertaken substantial economic reforms aimed at stabilizing its economy. These efforts have led to modest growth, improved fiscal health, and increased foreign exchange reserves. However, the reforms have also brought short-term challenges for households and businesses. The World Bank's Nigeria Development Update Report, titled "Staying the Course: Progress Amid Pressing Challenges," emphasizes the importance of maintaining these policies while addressing structural issues to combat inflation and promote long-term investment, growth, and job creation.
The report indicates that early signs of positive outcomes from these reforms are emerging at the macroeconomic level. Output growth has been modest but showed improvement through mid-2024 as oil sector output stabilized and activity in some services remained strong. The Federal Government's fiscal deficit narrowed to 4.4% of GDP in the first half of 2024 from 6.2% in the same period of 2023, reducing debt-related risks. Foreign exchange reserves increased from $32.9 billion at the end of 2023 to over $38.8 billion by mid-October 2024. Despite these gains, inflation remains high due to recent gasoline price hikes and flooding.
The report advocates for sustaining current macroeconomic policies, including the Central Bank of Nigeria’s tight monetary policy stance. It suggests complementing these with measures to address structural constraints for faster progress against inflation and boosting investment, growth, and employment opportunities needed in Nigeria.
Ndiame Diop, World Bank Country Director for Nigeria stated: “Nigeria took the bold and courageous move to undertake difficult but critical reforms... If these reforms were not done, Nigeria would have fallen into a serious fiscal crisis.” He emphasized consolidating fiscal improvements while supporting vulnerable households.
The report outlines key policy recommendations:
1. Maintain a tight monetary policy until sustained disinflation is achieved.
2. Ensure a unified exchange rate reflecting market conditions.
3. Focus on removing fuel subsidies, increasing transparency in the oil sector, enhancing non-oil revenues through better tax policies, cutting government waste while directing spending towards poverty programs.
4. Protect vulnerable groups by expanding cash transfer programs.
5. Address long-standing structural constraints.
Alex Sienaert, World Bank Lead Economist for Nigeria commented: “Recent reforms are starting to restore macroeconomic stability... GDP is projected to grow by 3.3% in 2024.” He noted that headline inflation is expected to peak at an average annual rate of 31.7% in 2024 but should decrease significantly by 2027 if current policies continue.