The removal of subsidy by the Nigerian government amid the COVID-19 crisis is an important step to accelerate structural reform the World Bank has said.
This was contained in the bank’s ‘Africa Pulse’ report titled ‘Charting the road to recovery’ where it stated that countries in sub-Saharan Africa were seizing the opportunity created by the crisis to accelerate the structural reform agenda.
“The COVID-19 crisis is not being wasted among countries in the region… In Nigeria, the government has taken important steps to reform its subsidy regime,” it said.
According to the World Bank, the Nigerian government had removed the petrol subsidy and created a market-based pricing mechanism with no price ceilings. “The gasoline (petrol) price is set monthly by the Petroleum Products Pricing Regulatory Agency from market-based costs. When international petroleum product prices start to recover, the PPPRA will allow price increases accordingly.”
It will be recalled that on September 8 the Federal Government’s removal of the petrol subsidy and the increase in electricity tariff were in line with reforms being sought by the International Monetary Fund and the World Bank.
Reuters in a report on August 17 quoted sources as saying that the World Bank was unlikely to approve a much-needed $1.5bn for Nigeria in August as planned due to concerns over desired reforms.
Reuters stated that fuel subsidies and electricity tariffs were also being discussed, adding that a banking source said the loan could not be approved until October.
In fact, the World Bank on Thursday predicted a 3.3 percent contraction of sub-Sahara Africa’s real GDP this year, after expanding by 2.4 percent in 2019.
It said, “In Nigeria, after expanding 1.9 percent year-on-year in 2020 Q1, real GDP contracted by 6.1 year-on-year in 2020 Q2, with growth in the oil and non-oil sectors falling. The near-term outlook is subject to considerable uncertainty as the economy continues to grapple with the effects of the pandemic.”
The report said activity data suggested that the rebound in activity that started in Q3 2020 might have stalled. In addition, “Investment remains weak amid high uncertainty. Growth is projected to fall by 4.1 percent in 2020 and remain subdued at 0.3 percent in 2021”.
As said by the World Bank, although Nigeria’s public debt level is projected to rise, it is expected to remain below 30 percent of GDP in 2020.