By Chinwendu Obienyi
The World Bank has advised the Central Bank of Nigeria (CBN) to adopt single market-reflective exchange rate as the country’s FX keeps getting distorted.
The World Bank in a recent report ‘Nigeria Development Update (December 2022): Nigeria’s Choice.’ told the Muhammadu Buhari administration that the rate distortions are deterring investments due to the uncertainties firms face in accessing FX and related costs of doing business. The report also revealed that the Federal Government has been forced to borrow while the cost of its debt keeps surging.
According to the report, interest costs and principal repayments are rising fast, crowding out spending on productive sectors.
Listing a set of prioritised set of reforms for the short and medium term, the global bank based its reforms into Sprint, medium-distance runs and marathons.
The report said, “for the sprint, Nigeria needs to adopt a single and market-reflective exchange rate, increase non-oil revenues by raising VAT, excise rates and strengthening tax administration while trade can be facilitated by removing import and foreign exchange restrictions. For medium-distance runs, eliminate petrol subsidy by establishing a compact which also protect the poor and vulnerable, contain inflation by reducing the Federal government’s recourse to CBN financing and increase access to finance by strengthening the institutional infrastructure for financial intermediation. On the other hand, it urged Nigeria to boost its competition by embedding into the policy, reduce insecurity by strengthening the rule of law, boost power generation and facilitate transport connectivity”. The bank also added that the success of Nigeria’s growth strategies will largely depend on the establishment of a strong implementation mechanism that promotes performance and accountability.
“Implementation is the result of consensus among the political elite about the direction of policy, the allocation of fiscal resources, the role of the state and the space for private sector initiatives”, the report said.