World Bank says CBN’s naira redesign hampered country’s economic growth, sparked poverty

The World Bank said that naira scarcity which was created by the implementation of the CBN’s naira redesign policy hampered the country’s economic growth and poverty reduction efforts, adding that about 13 million Nigerians would become poor between 2019 and 2025.

This disclosure is contained in the Macro Poverty Outlook for Nigeria; April 2023 released by the World Bank.

According to the report, “Nigeria is in a more fragile position than before the late 2021 global oil price boom. Growth and poverty reduction have further been affected by cash scarcity in the context of the Naira redesign. The economy is projected to grow by an average of 2.9 percent per year between 2023 and 2025, only slightly above the population growth rate of 2.4 percent. Growth will be driven by services, trade, and manufacturing. Oil production is projected to remain subdued in part because of inefficiencies and insecurity.

“With Nigeria’s population growth continuing to outpace poverty reduction and persistently high inflation, the number of Nigerians living below the national poverty line will rise by 13 million between 2019 and 2025 in the baseline projection.”

The World Bank says that the Nigerian government spent 96.3% of its revenue on debt servicing in 2022 with the constant fiscal deficit worsening the country’s public debt stock.

The report partly states: “The fiscal position deteriorated. In 2022, the cost of the petrol subsidy increased from 0.7 percent to 2.3 percent of GDP. Low non-oil revenues and high-interest payments compounded fiscal pressures. The fiscal deficit was estimated at 5.0 percent of GDP in 2022, breaching the stipulated limit for federal fiscal deficit of 3 percent. This has kept the public debt stock at over 38 percent of GDP and pushed the debt service to revenue ratio from 83.2 percent in 2021 to 96.3 percent in 2022.”

The World Bank also said that the worsening economic environment in the country had pushed millions of Nigerians into poverty.

The bank added, “Oil price booms have previously supported the Nigerian economy, but this has not been the case since 2021. Instead, macroeconomic stability has weakened amidst declining oil production, costly fuel subsidies, exchange rate distortions, and monetization of the fiscal deficit. The deteriorating economic environment is leaving millions of Nigerians in poverty. Risks are tilted to the downside given the lack of macro-fiscal reforms, the naira demonetization, and an uncertain external outlook.”

The Bretton wood institution noted that multiple forex rates, high and increasing inflation, rising fiscal pressures and declining forex reserves have considerably weakened the macroeconomic stability.

It pointed out that Nigeria’s fiscal position has deteriorated since 2015 due to declining oil revenues and rising expenditures, resulting in persistently high fiscal deficits.

The bank also said that Nigeria’s chronically high inflation has been on the rise since 2019, especially for food items, eroding the purchasing power of poor and vulnerable Nigerians and increasing poverty.

It said that inflation reached an annual average of 18.8% in 2022, a 21-year high, with food inflation in 2022 estimated to have pushed 5 million Nigerians into poverty.

Recall that The CBN in a report released in January 2023 revealed that the Federal Government spent a whopping $14.37 billion in 8 years under President Muhammadu Buhari’s administration to settle the International Monetary Fund (IMF) among other foreign debt obligations amid fears that debt service and payments are constituting a major threat to Nigeria’s economy.

The data from the CBN showed that from 2015 to 2022, the amount paid on foreign debts has continued to increase with 2022 hitting the second highest in the period under review.