World Bank urges Nigeria to rethink fuel subsidies and multiple exchange rates

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the World Bank Group urged Nigeria to rethink its fuel subsidy regime and multiple exchange rate policy.

World Bank Group President David Malpass made the call Wednesday during a press conference at the World Bank and International Monetary Fund Spring Meetings in Washington DC.

The World Bank boss said resources from the grant could be channeled to other sectors of the economy to boost growth.

Mr. Malpass explained that generalized subsidies have significant negative effects on any system and that the ripple effect is not healthy for the economy.

“The first is that they are expensive because they go to everyone and are often used by higher income people than lower income people, so they are not targeted,” said he declared.

“Thus, we encourage that where there is a need for a subsidy, whether for food or fuel, it is carefully targeted to those who need it most. And so, we encouraged Nigeria to rethink its grantmaking effort,” he said.

The Senate last week approved N4 trillion for the gasoline 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 scheme as “a criminal enterprise”.

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

“Multiple exchange rates”

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

Malpass noted that the multiple exchange rate system is “complicated and not as efficient as it would be if there was a single exchange rate”.

“The most useful thing for developing countries is to have a single market-based exchange rate that is stable over long periods of time because 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 this to help the country and its people move forward and develop the economy.

READ ALSO: ANALYSIS: The economics and politics of fuel subsidy removal in Nigeria

Speaking on the impact of insecurity on the state of the economy, the head of the World Bank noted that the situation is “difficult”.

“I take note of the complicated situation they are facing, where weapons are circulating in North Africa and not reaching any Nigerian who is creating violence in Nigeria,” he said.

“It is a very difficult situation that the government is facing. I think people everywhere should have an understanding of the fragility that many parts of the world face, but in particular, the Sahel and the region of sub-Saharan Africa where weapons coming from outside the Africa weigh heavily on the governments of the continent.

“Nigeria has huge opportunities because of its natural resources and its people, and I think I could see its growth accelerating with policy improvements.”


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