The stabilization of Nigeria’s economy can be achieved by boosting its oil revenues, according to the recommendation of the World Bank.
Nigeria’s macroeconomic stability has been undermined by the drop in oil production, resulting in a decline in GDP growth from 3.6% in 2021 to 3.3% in 2022.
Manufacturing, construction, and most services contributed to growth, while the oil sector shrank by 19.2%.
In its Macro Poverty Outlook report for April 2023, the World Bank recommended increased oil revenues as a means for the Nigerian government to restore macroeconomic stability. The report also outlined three key reforms that the government can implement to strengthen the economy.
To improve economic stability, there are three key actions recommended by the World Bank:
- Boost both oil and non-oil revenues
- Implement stricter monetary policies to alleviate inflation
- Consolidate multiple foreign exchange windows and adopt a unified, market-responsive exchange rate.
The economic outlook for Nigeria could be further weakened by growing insecurity and the adverse effects of climate change, as noted by the World Bank.
Recent Times Have Not Brought Benefits to Nigeria’s Oil Sector
The World Bank reports that although oil price surges have historically aided the Nigerian economy, this has not been the case since 2021. Current challenges to macroeconomic stability include falling oil production, expensive fuel subsidies, exchange rate imbalances, and fiscal deficit monetization. The World Bank emphasizes these issues in its statement:
“The declining economic conditions are pushing millions of Nigerians into poverty, with potential for further deterioration due to the absence of macro-fiscal reforms, demonetization of the naira, and an unpredictable external outlook.”
“Since 2015, Nigeria’s fiscal situation has worsened due to falling oil revenues and increasing expenses, leading to persistent high fiscal deficits. Despite accounting for about 90% of total exports and traditionally contributing the most to fiscal revenue, the oil sector has been underperforming since 2020.”
“Nigeria has been unable to capitalize on the recent surge in global oil prices due to decreasing oil production and the growing expense of petrol subsidies. The decline in production can be attributed to technical and security issues in the Niger Delta region, outdated infrastructure and insufficient investments in the sector, as well as delays in payment by the Nigerian National Petroleum Company (NNPC) for the government’s share of joint-venture costs.”
Data to Support the Argument
- According to the World Bank’s report, GDP growth in Nigeria decreased from 3.6% in 2021 to 3.3% in 2022. This growth was primarily driven by manufacturing, construction, and most services, while the oil sector experienced a decline of 19.2%.
- The cost of the petrol subsidy in Nigeria increased from 0.7% to 2.3% of GDP in 2022 due to low non-oil revenues and high-interest payments, which compounded fiscal pressures.
- Nigeria’s economy is expected to grow at an average rate of 2.9% annually between 2023 and 2025, which is only slightly above the population growth rate of 2.4%.
- The report projects that the number of Nigerians living below the national poverty line will increase by 13 million between 2019 and 2025.
- The fiscal deficit in Nigeria was estimated to be 5.0% of GDP in 2022, exceeding the stipulated limit for the federal fiscal deficit of 3%. This has led to a public debt stock of over 38% of GDP and pushed the debt service to revenue ratio from 83.2% in 2021 to 96.3% in 2022.