Nigeria could save up to N3.9 trillion or $5.10 billion this year alone after reforms to its foreign exchange market and the removal of a petrol subsidy, the World Bank said on Tuesday, but warned of growing inflationary pressures in the short term.
Nigerian President Bola Tinubu is embarking on the countryโs biggest reforms in decades, including scrapping the popular, but expensive petrol subsidy and unifying the countryโs multiple exchange rates.
The World Bankโs lead economist for Nigeria Alex Sienaert said during a presentation in the capital, Abuja, that savings from the reforms did not amount to a fiscal windfall.
โThey stop Nigeria from going over what you might call the fiscal cliff.โ โThey really set the stage for a new and an upward trajectory in terms of Nigeriaโs development path,โ Sienaert said.
Nigeriaโs economy was expected to grow 3.3 percent this year and 3.7 percent next year, he said.
The World Bank and International Monetary Fund (IMF) had for years called on Nigeria to remove the petrol subsidy, which cost $10 billion last year, and free its exchange rate.
To deepen foreign exchange reforms, Siernaet said Nigeria should remove restrictions on a list of 43 items, including sugar and flour, that the central bank says cannot be funded from official dollar sales.
Tinubuโs monetary policy advisor Wale Edun said the naira, which has weakened to record lows after forex restrictions ended, was expected to stabilise just below 700 to the dollar.
Inflation, which hit 22.41 percent in May, would rise further following the reforms, Siernaet said, adding that some four million more Nigerians may have been driven into poverty in the first five months of this year due to high prices.
Labour unions are pressing Tinubuโs government to raise the monthly minimum wage more than sixfold to cushion workers against the impact of the fuel subsidy removal.
Nigeria has the second-largest population of poor people in the world and is one of the least developed countries globally, the World Bank says.
Source:Global Finance Digest