Nigeria will save as much as N3.9 trillion in 2023 just by removing subsidies and unifying the nation’s foreign exchange market, the World Bank stated.
Alex Sienaert, the chief economist at the World Bank, made the statement during the launch of the Nigeria Development Update for June 2023, themed “Seizing the Opportunity”.
This move is expected to prevent the country from experiencing a fiscal crisis.
While these reforms lay the foundation for a fresh and positive direction in Nigeria’s development journey, Sienaert acknowledged that there will be short-term consequences like a surge in inflation and the accumulation of additional debts, among other challenges.
“The recently undertaken PMS subsidy & FX reforms are historic, N3.9 trillion in savings in 2023 alone, stops Nigeria from going over a fiscal cliff and sets the stage for a new, upward investment, growth, and development trajectory,” he said.
“While inflation will be higher in 2023, it will be lower in 2024-2025 If the right policy mix is sustained,” he said.
According to his statement, the removal of subsidies is preventing further deterioration, and the savings generated from this measure can be redirected towards various pro-poor services such as healthcare, education, infrastructure, and more.
Currently, Nigeria’s social protection programs only cover 19 percent of the population, with the country spending less than $20 per person monthly.
Siernat also mentioned that Nigeria’s debt-to-GDP ratio will increase to 46 percent due to the payment of subsidy arrears to NNPCL, which will reduce the fiscal savings for 2023, along with other outstanding debts that need to be serviced.
He emphasized that if the savings from subsidy removal are not properly utilized, it could lead to over 7 million Nigerians falling deeper into poverty.
Governor Seyi Makinde of Oyo State expressed his support for the reforms, stating that they are a step in the right direction. However, he emphasized the importance of establishing social safety nets to mitigate both local disruptions and global challenges that impact Nigeria.
Makinde highlighted the need for a systematic approach to social protection programs, taking into account long-term objectives.
