Global financial institution, the World Bank has warned in its latest ‘Africa’s Pulse’ report, a biannual analysis of the near-term regional macroeconomic outlook, that Nigeria’s increasing fuel subsidy could pose debt sustainability concerns for the country.
The warning comes on the heels of the national assembly approval of President Muhammadu Buhari’s request to earmark N4 trillion for petrol subsidy.
The Bretton Woods institution noted that the rising cost of subsidies could also weaken the country’s public finance.
According to the report, “Risk remains high on increasing fuel subsidies, which could weigh heavily on public finance and pose debt sustainability concerns.
“Nevertheless, public debt as a percentage of GDP is currently moderate.”
The Washington-based institution added that the country’s soaring military spending and debt servicing costs could prey on the country’s debt sustainability level.
“Persistent fuel subsidies, increasing military spending for security purposes, and rising debt servicing costs weigh heavily on public finance to keep public debt at a sustainable level in Nigeria,” the report added.
“The fiscal balance deteriorated considerably in several Sub-Saharan African countries as governments scaled-up spending to mitigate the prolonged effects of the pandemic on firms and vulnerable households.”
On sub-Saharan Africa’s recovery, the bank noted that it is multi-speed, with wide variation across countries.
“The recovery of the three largest economies in the region — Nigeria, South Africa, and Angola — will continue to be sluggish,” it said.
“High oil prices will support growth in Nigeria and Angola.
“Excluding Angola, Nigeria, and South Africa, growth is projected at 4.1 per cent in 2022—higher than the growth of the region as a whole.
“Non-resource-rich countries are projected to be adversely affected by rising commodity prices, dragging down growth in the region.
“The opposite occurs with resource-rich countries whose growth would be propelled by favourable terms of trade.”
The bank further said the war in Ukraine would further improve the economic performance of resource-rich countries (especially their extractive sector) and decelerate the economic activity of non-resource-rich countries as their import bills soar.
“Given limited trade exposure, the impacts of the Russia-Ukraine conflict are expected to be negligible,” the bank added.
It projected a 2.7 per cent growth for Nigeria in 2022.
“Of the region’s three largest economies, South Africa’s growth is expected to decline by 2.8 percentage points in 2022, dragged by persistent structural constraints, while Angola and Nigeria are projected to continue with the momentum of 2021, up by 2.7 and 0.2 percentage points, respectively, thanks partly to elevated oil prices and good performance of the non-oil sector,” the bank said.
According to World Bank, growth in Nigeria is forecast to increase to 3.8 per cent in 2022 and stabilise at 4 per cent from 2023 to 2024.
“Real GDP growth was revised up by 1.2 percentage points for both periods compared with the previous forecast. Nigeria’s economy is still dependent on the oil sector,” it said.
“Oil-related revenue contributes 40 to 60 per cent of fiscal revenue, while oil and gas account for 80 to 90 per cent of total exports. Weak oil production, below the OPEC quota, held back the recovery process.
“Although at a slower pace than the average 7 per cent during the boom period, growth prospects for the Nigerian economy are somewhat bright thanks to high oil prices coupled with reforms initiated by the passing of the Petroleum Industry Act and the completion of the Dangote refinery expected in 2023.”