World Bank urges Nigeria to rethink fuel subsidy, multiple exchange rates

The World Bank Group has urged Nigeria to rethink its fuel subsidy regime and multiple exchange rates policy.

The president of the World Bank Group, David Malpass, made the call on Wednesday during a media briefing at the ongoing World Bank/International Monetary Fund Spring Meetings in Washington DC.

The World Bank boss said that resources being expended on the subsidy could be channeled to other sectors of the economy to accelerate growth.

Mr Malpass explained that generalised subsidies have significant negatives effects on any system, and the ripple effect isn’t healthy for the economy.

“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,” he said.

“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,” he said.

The Senate last week approved N4 trillion for petrol subsidy in 2022, following two separate requests by the Nigerian president to the National Assembly.

Last month, Nigeria’s Minister of State for Petroleum Resources, Timipre Sylva, described the controversial subsidy regime as “a criminal enterprise.”

Mr Sylva, who lamented the controversies surrounding the amount of petrol that the nation consumes daily, said the subsidy policy encourages criminal activities like smuggling which in turn impact negatively on the nation’s oil resources.

“Multiple Exchange Rates”

Aside from an opaque subsidy regime, Nigeria operates multiple exchange rates, which analysts have blamed for the nation’s investment challenges and weak currency.

Mr Malpass noted that multiple exchange rate system 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 said.

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

He urged the Nigerian government to improve on this so as to help the country and its people move forward and grow the economy.

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Speaking on the impact of insecurity on the state of he economy, the World Bank boss noted that the situation is “challenging”.

“I take note of the complicated situation that they face where there are weapons flowing into northern Africa that find their way into to none Nigerians that create violence in Nigeria,” he said.

“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.

“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.”