THE World Bank has projected that Nigeria's
economic outlook would remain difficult in the
short run due to the persistent low price of crude
oil in the international market.
The World Bank in its Nigeria Economic Report 3,
released recently in Abuja, stated that for the
country's economy to survive within this period,
fiscal adjustment will be of critical importance,
warning that even if oil prices recover, government
oil revenues should continue to decline in the
medium term relative to the size of the Nigerian
The World Bank, in the report presented by its
Lead Economist for Nigeria, Mr. John Litwack,
however, noted that investors are currently willing
to bring considerable investment to Nigeria if they
receive credible signals from the new government
of commitments to policy directions and
regulations consistent with strong private sector
The World Bank said, "Sharp declines in oil prices
since the second half of 2014 can be associated
with slower growth, falling budgetary revenues,
and pressures on the Naira. The short-term
outlook for the Nigerian economy continues to be
modest in the light of the difficult adjustment to
lower oil prices.
"Nigeria has the opportunity to build a foundation
to support growth and rapid development over the
medium and longer term." The World Bank further
called on the Federal Government to remove the
subsidy on petroleum products, stating that the
uncertainty about the fuel subsidy, in addition to
its negative impact on Nigeria's economy, has
strongly discouraged investment in domestic oil
It added that the best time to remove fuel subsidy
is now when global crude oil price is at its lowest
level, noting that the Bank foresaw continuous
decline in global crude oil price.
The report stressed that scraping fuel subsidy at
this period when the price of crude oil is low would
not push retail pump price beyond an average of
N100 per litre, or generate the kind of pressure
that would negatively impact on the people beyond
what they are currently facing.
The World Bank put the fiscal cost of fuel subsidy
to the country at $35 billion, about N7 trillion,
between 2011 and 2014, stating that the cost of fuel
subsidy in 2015, is expected at 18 per cent of all of
the country's oil revenues to the country, which is
equivalent of 25 per cent of the federal budget.
Other costs of fuel subsidy to the country,
according to the report, include the fact that the
report of widespread fraud in the scheme is costly
to the reputation of the government.
It further blamed the perennial fuel scarcity
currently witnessed across the country on the fuel
subsidy scheme, stating that attempts to crack
down on fraud in the scheme had always led to
reduced supply, while it added that price
distortions encourage overconsumption of fuel.
To this end, the World Bank said, "The benefits of
the fuel subsidy in Nigeria appear quite limited,
while the costs are high. For given fixed domestic
fuel prices, the burden of the fuel subsidy, that is,
its share of government oil revenues, will likely
increase over time regardless of whether oil prices
remain low or recover."