The World Bank has cautioned that inflation in Nigeria could push an additional 7.1 million people into poverty if no compensatory measures are put in place.
The Nigeria Development Update released on Thursday by the World Bank reveals that social protection programs in the country currently cover only 19 percent of the population.
The report highlights the urgent need for a social compact to mitigate the impact of inflation on household finances and shield poor and vulnerable households. The World Bank recommends temporary cash transfers as a crucial element of this compact to provide timely and targeted support to those affected.
Currently, Nigeria spends only 0.7 percent of its GDP on social safety nets, leaving a large portion of the population without adequate protection against economic shocks. The World Bank urges the Nigerian government to invest in a robust social protection system to provide support during times of crisis, such as the recent increase in fuel prices due to subsidy removal.
The World Bank emphasizes the social and economic benefits of effective social protection programs, including improved human capital investment, better education and health outcomes, and increased trust in the government. By providing support to vulnerable households, social protection programs can contribute to sustainable reform efforts and greater social cohesion.
To sustain and deepen FX policy reform, the World Bank recommends removing FX restrictions from the list of 43 items and promoting a unified, market-reflective, and transparently determined exchange rate. To address inflation, the report suggests reducing subsidized CBN lending to medium and large firms, ending government borrowing from the Central Bank of Nigeria, and replacing import and FX restrictions with tariffs in line with the ECOWAS Common External Tariff.
Regarding the removal of the PMS subsidy, the World Bank suggests keeping prices deregulated, fostering fair competition, and curbing commercial malpractices to ensure efficiency gains benefit consumers.
In addition to these economic measures, the World Bank recommends improving tax administration to ensure the successful collection of newly introduced excises on telecommunications, single-use plastics, and high-polluting vehicles. Adopting a data-driven approach to tax audits and simplifying turnover tax on small and medium-sized enterprises at the state level are also suggested to enhance tax compliance and revenue generation.
The World Bank’s recommendations underscore the importance of timely and targeted interventions to mitigate the impact of economic challenges and foster sustainable economic growth and development in Nigeria.
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