World Bank intensifies criticism of fuel subsidy, exchange rate system, et cetera
By Jeph Ajobaju, Chief Copy Editor
Central Bank of Nigeria Governor (CBN) Godwin Emefiele has again come up for raps from the World Bank which relentless knocks a raft of his policies spanning naira exchange rate, fuel subsidy, inflation, trade, and the battle against poverty.
The latest salvo takes aim at multiple exchange rates, trade restrictions, and public deficit financing, all of which the World Bank says damage business climate.
Its report titled, “Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual”, said CBN intervention causes slides in revenue, foreign investment, human capital development, infrastructure investment, and governance.
Despite heightened risks, it added, Abuja has kept to a “business-as-usual” policy that hinders prospects for economic growth and job creation.
“Multiple exchange rates, trade restrictions, and financing of the public deficit by the Central Bank of Nigeria (CBN) continue to undermine the business environment.
“These policies augment long-standing weaknesses in revenue mobilization, foreign investment, human capital development, infrastructure investment, and governance,” the World Bank said.
“Notably, during 2020 and 2021, when oil prices were much lower, the government lost an opportunity to address one of the primary sources of fiscal vulnerability by choosing to maintain the subsidy for premium motor spirit, more commonly known as petrol – a subsidy that is unique, opaque, costly, unsustainable, harmful, and unfair.
“Due to the petrol subsidy and low oil production, Nigeria faces a potential fiscal time bomb.”
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Nigerians falling into poverty
In the view of the World Bank, an additional one million Nigerians falling into poverty because of the Russian war in Ukraine is a challenge to addressing macroeconomic vulnerabilities when
- elections encourage higher spending
- high inflation is pushing millions of Nigerians into poverty, and
- higher global interest rates deter private investment
Foreign exchange crises, high inflation, and fiscal pressures generated by fuel subsidies, according to the World Bank, distort the benefits of a growing non-oil sector and high oil prices, per Nairametrics.
It added that CBN low-interest loans undermine commercial banks that lend on a risk-adjusted pricing basis and need to be dialled down.
The 5 per cent per annum interest rate paid by the recipients of CBN intervention loans is like a subsidy as such loans normally attract 9 per cent interest rate per annum. And a 9 per cent rate is still a huge discount versus high bank rates.
But the CBN has explained that it sets intervention fund interest rate at 5 per cent to encourage growth in key sectors while allowing rate increases in other areas.
As for trade restrictions, the CBN has banned 44 import items from accessing official foreign exchange (forex).
They include rice, cement, margarine, fertiliser, milk and dairy products, maize/corn, palm kernel/palm oil products/vegetable oils, meat and processed meat products, vegetables/processed vegetable products, and poultry chicken.