Economy

Inflationary Pressures to Compound Nigeria’s Fiscal Challenges – World Bank

Rising cost of goods and services is expected to compound Nigeria’s high cost of subsidizing fuel and eventually impede the nation’s ability to wriggle out of possible recession.

Published

1 year ago

June 23, 2022

Samed Olukoya

Rising cost of goods and services is expected to compound Nigeria’s high cost of subsidizing fuel and eventually impede the nation’s ability to wriggle out of possible recession.

The World Bank disclosed this in its latest report titled “The Continuing Urgency of Business Unusual” obtained by Investors King.

According to a recent report from the Nigerian National Petroleum Company (NNPC), fuel subsidy gulped N947.53 billion in the first four months of the year while the national oil firm is yet to make any remittance to the Federation Accounts Allocation Committee (FAAC) so far this year.

The same firm said about N874.50 billion, N503.31 billion for April and N371 billion in arrears, would be debited from May 2022 proceeds expected to be shared at June FAAC Meeting.

Explaining the multilateral financial institution position, Shubham Chaudhuri, World Bank Country Director for Nigeria, said “When we launched our previous Nigeria Development Update in November 2021, we estimated that Nigeria could stand to lose more than 3 trillion Naira in revenues in 2022 because the proceeds from crude oil sales, instead of going to the federation account, would be used to cover the rising cost of gasoline subsidies that mostly benefit the rich. Sadly, that projection turned out to be optimistic”.

In the same vein, the bank estimated that in 2022 Nigeria will spend over $9 billion or almost 2% of its GDP on fuel subsidies despite its low crude oil production. The bank, therefore, revised upward the nation’s fiscal deficit from 5.3 to 5.8% of GDP.

“Due to the petrol subsidy and low oil production, Nigeria faces a potential fiscal timebomb,” the World Bank declared.

“With oil prices going up significantly, and with it, the price of imported gasoline, we now estimate that the foregone revenues as a result of gasoline subsidies will be closer to 5 trillion Naira in 2022. And that 5 trillion is urgently needed to cushion ordinary Nigerians from the crushing effect of double-digit increases in the cost of basic commodities, to invest in Nigeria’s children and youth, and in the infrastructure needed for private businesses small and large to flourish, grow and create jobs.”

However, the bank noted that despite better than expected performance recorded in the services and agriculture sectors, lower fiscal revenues continue to limit the government’s ability to expand its basic services, enhance economic recovery and protect the poor during a period like this.

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Zambia’s Finance Minister Faces Dual Challenge in Upcoming Budget Address

Published

17 hours ago

September 29, 2023

Samed Olukoya

As Zambia’s Finance Minister, Situmbeko Musokotwane, prepares to present the nation’s budget, he finds himself at a pivotal crossroads.

The second-largest copper producer in Africa is grappling with two pressing concerns: debt sustainability and soaring living costs.

Debt Restructuring Dilemma: Musokotwane’s foremost challenge is finalizing the $6.3 billion debt-restructuring deal with official creditors, led by China and France.

Delays have hindered disbursements from the International Monetary Fund (IMF) and left private creditors in limbo.

To reassure investors, a memorandum of understanding with the official creditor committee is urgently needed.

President Hakainde Hichilema emphasizes the importance of sealing these transactions to signal closure on this tumultuous chapter.

Plummeting Tax Revenue: The key copper-mining industry, which accounts for 70% of Zambia’s export earnings, is in turmoil.

First-half mining company taxes and mineral royalty collections have nosedived, adding to economic woes.

This, in turn, has depreciated the local currency, exacerbating imported inflation, particularly in fuel prices.

Rising Food Inflation: Musokotwane faces mounting political pressure to combat soaring living costs, with annual inflation reaching an 18-month high of 12%. Corn meal prices, a staple in Zambia, have surged by a staggering 67% in the past year.

Neighboring countries’ demand for corn has led to smuggling and further price spikes, raising concerns about food security.

Currency Woes: The kwacha’s value has been a barometer for the nation’s economic health. It depreciated by 16% since June 22, the worst performance among African currencies, reflecting the ongoing debt-restructuring uncertainty.

In his budget address, Musokotwane faces the daunting task of striking a balance between debt management, economic stability, and alleviating the burden on Zambia’s citizens.

The international community will keenly watch to see if his fiscal measures can steer the nation toward a path of recovery and prosperity.

Economy

IMF Urges Sub-Saharan African Nations to Eliminate Tax Exemptions for Fiscal Health

Published

2 days ago

September 28, 2023

Samed Olukoya

Sub-Saharan African countries have been advised by the International Monetary Fund (IMF) to tackle their fiscal deficits by focusing on eliminating tax exemptions and bolstering domestic revenue rather than resorting to fiscal expenditure cuts, which could hamper economic growth.

The IMF conveyed this recommendation in a paper titled ‘How to avoid a debt crisis in Sub-Saharan Africa.’

The IMF’s paper emphasizes that Sub-Saharan African nations should reconsider their overreliance on expenditure cuts as a primary means of reducing fiscal deficits. Instead, they should place greater emphasis on revenue-generating measures such as eliminating tax exemptions and modernizing tax filing and payment systems.

According to the IMF, mobilizing domestic revenue is a more growth-friendly approach, particularly in countries with low initial tax levels.

The paper highlights success stories in The Gambia, Rwanda, Senegal, and Uganda, where substantial revenue increases were achieved through a combination of revenue administration and tax policy reforms.

The IMF also pointed out that enhancing the participation of women in the labor force could significantly boost Gross Domestic Product (GDP) in developing countries.

The IMF estimates that raising the rate of female labor force participation by 5.9 percentage points, which aligns with the average reduction in the participation gap observed in the top 5% of countries during 2014-19, could potentially increase GDP by approximately 8% in emerging and developing economies.

In a world grappling with the weakest medium-term growth outlook in over three decades, bridging the gender gap in labor force participation emerges as a vital reform that policymakers can implement to stimulate economic revival.

Economy

Pipeline Vandalism Costs NNPC N34.47 Billion in 18 Months

Published

2 days ago

September 28, 2023

Samed Olukoya

The Nigerian National Petroleum Company Limited (NNPCL) has revealed that it spent nearly N34.47 billion in the past 18 months to combat the persistent issue of pipeline vandalism in the country.

The latest Oil and Gas Report from the Nigerian Extractive Industries Transparency Initiative covering 2021 disclosed that N22.05 billion was allocated to pipeline repairs and maintenance alone.

During the first half of 2021, NNPCL reported a distressing 350 pipeline points vandalized, highlighting the urgent need for countermeasures. In response, NNPCL has been actively collaborating with local communities and stakeholders to mitigate pipeline vandalism.

NNPCL’s CEO, Mele Kyari, attributed recent improvements to the introduction of Operation White and the Automated Downstream Operations and Financial Monitoring Centre.

These innovations have enabled NNPCL to enhance its monitoring capabilities and reduce illicit activities such as oil theft and cross-border smuggling of petroleum products, which previously led to supply disruptions and significant revenue losses.

Also, in January 2021, NNPCL received interest from 96 companies to participate in the rehabilitation of downstream facilities via the Build, Operate, and Transfer financing model.

However, despite the substantial investments, NNPCL continues to grapple with significant losses. The company disclosed that it loses 470,000 barrels per day of crude oil, amounting to $700 million monthly, due to oil theft.

In a related development, 10 individuals accused of vandalizing NNPCL’s pipeline on the high seas faced charges of conspiracy and willful tampering. They were ordered to be remanded in the Nigerian Correctional Service by Justice Akintoye Aluko of the Federal High Court in Lagos.

As pipeline vandalism remains a significant challenge, the Nigerian government and NNPC are determined to safeguard their critical infrastructure while exploring new ways to combat this menace.