In 10 short years, Nigeria may be home to a quarter of the world’s population of poor people in unless viable economic policies are put in place, the World Bank said on Monday. “Under a business-as-usual scenario, where Nigeria maintains the current pace of growth and employment levels, by 2030 the number of Nigerians living in extreme poverty could increase by more than 30 million,” the bank said in its Nigeria Economic Update report.
Nigeria currently has the largest population of poor people in the world, overtaking India (despite having population five times the size of Nigeria’s) in early 2018, according to Brookings Institution. “At the end of May 2018, our trajectories suggest that Nigeria had about 87 million people in extreme poverty, compared with India’s 73 million,” Brookings Institution noted in a report published in June 2018. “What is more, extreme poverty in Nigeria is growing by six people every minute, while poverty in India continues to fall.”
More than a year later, the World Bank is warning that Nigeria faces significant costs if the government does not take necessary steps. The bank said the removal of fuel subsidies and trade restrictions, increase in internally generated revenue and improved economic predictability can significantly help the country’s economy. It also advised the government to reduce central bank lending to some sectors.
President Muhammadu Buhari said by the end of his second term in 2023, his administration would have spent eight years working on the road map of “policies, programs and projects” that will lift the bulk of Nigerians out of poverty. Removal of fuel subsidies is a contentious subject in Nigeria. “Our Administration’s eight years will have laid the grounds for lifting 100 million Nigerians out of poverty in 10 years,” Buhari said. Top chiefs of the then opposition party, All Progressives Congress, railed against the partial removal of fuel subsidies in 2012 by the then President Goodluck Jonathan. Buhari, also of APC, has kept the policy in place despite describing it as “fraud” and the considerable strains it puts on Nigeria’s purse.
His government earmarked N305 billion for the subsidies in the current year. The 2020 spending plan shows that N450 billion has been budgeted for the same. “To the detriment of socio-economic developments, Nigeria has spent nothing less than N10 trillion on petrol import subsidy between 2006 and 2018,” BudgIT, a civic tech organisation said in April. “Let it be known: Nigeria is dancing on the edge of a razor blade by continuing its subsidy regime.” And while Buhari critics have campaigned for the economy to be opened up, the president shut down the country’s land borders.
Government officials, including the governor of Nigeria’s central bank, said it was in the best interest of the country’s economy to check unregulated influx of goods from neighboring countries like the Republic of Benin, Cameroon and Niger. The government also said the closure will help grow agriculture, especially rice farming, and cut illegal exportation of fuel to those countries, which are benefitting off the fuel subsidy courtesy unscrupulous Nigerian businessmen. But the closure is hurting both ways.
While International Monetary Fund’s Abebe Selassie said in October that the closure has impacted Benin and Nigeria, figures released last month by Nigeria’s statistics office showed that rising prices of food pushed inflation to 11.61% in October, the highest since May 2018. NBS’s food index showed that inflation jumped from 13.51% in September to 14.09% in October. “This rise in the food index was caused by increases in prices of meat, oils and fats, bread and cereals, potatoes, ham and other tubers, fish and vegetables,” the statistics office said in its report. Nigeria relies on the importation of some of these items. “The rise in food inflation does suggest that border closures may have played a part in temporarily pressuring prices higher,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered told Reuters.
The World Bank warning preceded more economic bad news after it emerged that Nigeria’s budgetary provisions for debt servicing could rise to N3 trillion if the Federal Government goes ahead with its $29.96 billion loan request. President Buhari had last Thursday re-submitted a request to the Senate seeking approval for a $29.96 billion loan. The 8th Senate had in November 2018 unanimously thrown out the request, saying the letter conveying it was not accompanied by a borrowing plan.
With the loan, budgetary provisions for debt servicing would mount from a yearly average of N290 billion to N870 billion. Besides raising the country’s total obligations above $113 billion (about N34 trillion), the yearly debt service provision in the budget would near N3.2 trillion, with worsening budget deficit, unless the revenue base increases significantly.
Currently, the Federal Government estimated N2.45 trillion for debt servicing in the soon-to-be approved 2020 budget. This would cater to interest payments of $83.88 billion worth of obligations. The planned loan is equal to 35% of this total. Also, 35% ($30 billion) of Nigeria’s total debt, on average, accounts for more than N800 billion of the N2.45 trillion in the 2020 budget. This proves that the new debt will pressure the weak revenue once it is sealed.
Particularly, the Lagos Chamber of Commerce and Industry (LCCI) and Manufacturers Association of Nigeria (MAN) have expressed concerns about the Federal Government’s ability to service its debts, describing the new request as troubling.
They lamented that the debt profile grew from N12.6 trillion in 2015 to N25.7 trillion in the second quarter of 2019, an increase of 104 per cent. They also noted that in the 2020 budget, debt service commitment and recurrent spending are beginning to crowd out capital expenditure. This trajectory, according to them, is not consistent with the country’s national aspiration to build infrastructures and a competitive economy.