By Kehinde Olatunji
Increased pre-election expenditure and sustained revenue shortfalls may further widen Nigeria’s fiscal deficit this year, the World Bank has warned.
The Washington, United States-based institution in its bi-annual Economic Update on Nigeria, titled, “Investing in Human Capital for Nigeria’s Future,” yesterday noted that the country’s 2018 budget implementation was to be assertive as the Federal Government intensifies efforts to complete projects before the 2019 polls.
It pointed out that the economy remains dependent on small oil sector (under 10 per cent of the GDP) for the bulk of its fiscal revenues and foreign exchange earnings.
This, the global lender stated makes Nigeria’s balance of payments and government budgets vulnerable to volatilities in oil prices, which plunged to a one-year low of $58.41 a barrel on Saturday, down more than 22 per cent, following global over-supply.
The report reads in part: “Indeed, growth and investment in Nigeria have been negatively impacted by repeated oil-price driven boom-bust cycles. The oil price shock of late 2014 and its aftermath pushed the economy into recession and precipitated a major budgetary crisis at the national and state levels, which brought to light the longer-term trend of weak domestic revenue mobilisation.
“Nigeria’s weak revenue mobilisation has major implications for growth and development, including improving its dire social service delivery outcomes. Thus, the country needs to take concrete steps to break its oil dependency to improve its economic and social outcomes.”
Though the nation’s Economic Recovery and Growth Plan (ERGP) 2017-2020 targets macroeconomic stability and economic diversification, the World Bank, however, said Nigeria’s emergence from recession remains very slow as sectoral growth patterns have maintained unstable outlook.
Real Gross Domestic Product (GDP) growth strengthened from 0.8 per cent (year-on-year) in 2017 to two per cent in the first quarter of 2018, but slowed to 1.5 per cent in the second quarter.
The Bretton Woods organisation averred that a relatively tight monetary stance had kept the exchange rates stable and helped control inflation, which reached a two-year low of 12.5 per cent (year-on-year) in April.
The headline inflation declined further to 11.1 per cent in July 2018.
It stated: “However, with declining inflation, the CBN (Central Bank of Nigeria) began to cut back on its liquidity draining operations from March 2018. In August, inflation increased slightly to 11.2 per cent on account of increasing food inflation.
“The recent ease in liquidity and partially-improving health of the banking sector did not, however, stimulate private sector lending, due to persistent risk aversion, stagnating consumer demand and high government security yields.”
The global financial body argued that the divergence in exchange rates remains and continues to create “a complex scheme of implicit subsidies and distorting national accounting.”