World Bank to Nigeria: Rethink fuel subsidy, address multiple exchange rates

*The World Bank Group urges the Nigerian Government to carefully target subsidy, either food or for fuel, at those most in need of it, encouraging the authorities to rethink its subsidy effort in view of distorted global trade and capital flows in several economies of the world

Isola Moses | ConsumerConnect

Against the backdrop of the trade barriers distorting global trade and capital flows in several economies around the world in recent times, the World Bank Group has urged Nigeria to rethink its fuel subsidy regime and multiple exchange rates policy.

ConsumerConnect reports Mr. David Malpass, President of the World Bank Group, stated this Wednesday, April 20, 2022, at a media briefing at the World Bank/International Monetary Fund Spring Meetings, in Washington D.C., United Stares (US).

President Muhammadu Buhari, GCFR

The World Bank Chief noted that resources being expended on the fuel subsidy alone could be channelled into other productive sectors of the economy in order to fast-track development.

The World Bank President also explained that generalised subsidies have significant negatives effects on any system, and the ripple effect is not healthy for the economy.

Malpass further said: “One is that they are expensive because they go to everyone and they are often used by people with upper incomes than by people with lower incomes so they are not targeted.

“So, we encourage that when there is need for subsidy, either food or for fuel, that it should be carefully targeted at those most in need of it. And so, we have encouraged Nigeria to rethink its subsidy effort.”

This publication had reported the Nigerian Senate recently approved N4trillion for petrol subsidy in 2022, following two separate requests by President Muhammadu Buhari to the National Assembly (NASS), in Abuja, FCT.

In the same vein, H.E. Chief Timipre Sylva, Honourable Minister of State for Petroleum Resources, reportedly described the controversial subsidy regime as “a criminal enterprise.”

The Minister as well lamented the controversies surrounding the amount of petrol that the country consumes daily.

According to Sylva, the subsidy policy encourages criminal activities like smuggling which, in turn, impact negatively Nigeria’s oil resources.

Address ‘ineffective’ multiple Exchange Rates

Besides an opaque subsidy regime in the economy, Nigeria operates multiple exchange rates, which analysts have blamed for the country’s investment challenges and weak currency.

Multiple exchange rate system, Mr. Malpass further said, is “complicated and is not as effective as it would be if there were a single exchange rate.

“The most useful thing for developing countries is to have a single exchange rate that is market-based, that is stable over long periods of time as that attracts investment and so that would help.”

He noted that the West African country also faces trade barriers that continue to distort trade and capital flows.

The World Bank President, therefore, urged the Nigerian Government to improve on this efforts towards supporting the country and the citizenry to move forward and grow the economy.

In terms of impact of pervasive insecurity on the state of the economy, Malpass stated that the situation is “challenging”.

He said: “I take note of the complicated situation that they face where there are weapons flowing into northern Africa that find their way in, causing violence in Nigeria.

“This is a very challenging situation that the government faces. I think all over the world, people should have an understanding of the fragility that is facing several parts of the world, but in particular, the Sahel and the Sub-Saharan Africa area where the weapons flow from outside of Africa are putting a great burden on governments around the continent.”

He addedL “Nigeria has huge opportunity because of its natural resources and because of its people, and I think I could see its growth accelerate with improvements in policy.”

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