The World Bank has cautioned the Federal Government on the fiscal risks that may be associated with borrowing to finance budget deficit in two years’ time.The bank sounding the note of caution at the launch of the Nigeria Economic Report, NER, in Abuja yesterday. It submitted that if fuel subsidy was maintained at N97 per litre, cash call to the Nigerian National Petroleum Corporation, NNPC, remained at 3 per cent of Gross Domestic Product, GDP, and Federation Account distributions increased annually at 3 per cent in real terms, Nigeria may borrow to finance budget deficit in 2015.Making the presentation, the lead economist of the World Bank, Country Office in Nigeria, Mr. John Litwack, pointed out that the current balance of the Excess Crude Account, ECA, may only be sufficient to pull Nigeria through one year following a sharp decline in oil prices. He cautioned that unless Nigeria can manage to accumulate a strong fiscal reserve, macroeconomic stability faces major external risks.The report stated that the world economic situation was still highly volatile, and an associated macroeconomic crisis would imply high inflation, currency depreciation and increased hardship for a large part of the population.While not outrightly canvassing the removal of fuel subsidy, the Breton Woods institution however presented some sets of assumptions, in which it said that subsidy represented a high and growing opportunity cost to the country. In the absence of the fuel subsidy from 2013 to 2015, under the maintained assumptions, the ECA would, already have accumulated to over $20 billion in 2013 and to well over $40 billion in 2015.“Thus, in the absence of fuel subsidy, under the first two scenarios, the country could succeed in both accumulating a sufficient reserve to protect itself from oil price volatility, and in realising strong increases in distributions to budgets of oil revenues,” the bank stated Under another scenario, the Economic Report states that “without fuel subsidy, the fiscal gap by 2015 would also be re-duced to less than $6 billion, which is a generally manageable situation, given Nigeria’s current strong debt position.”The report noted that Nigeria’s short-term macroeconomic outlook looks generally
strong with the likelihood of higher growth, lower inflation and reserve accumulation, adding however that the growth has not automatically translated into better economic and social welfare for Nigerians.According to the report, “poverty reduction and job creation have not kept pace with population growth, implying social distress for an increasing number of Nigerians”.Liwack, who relied on statistical figures produced by the National Bureau of Statistics, NBS, to support his points, lamented that between 2004 and 2010 poverty increased in Nigeria to 75 million people.To translate the potential benefits of Nigerian federalist system to national competitive advantage, the Report stated that the federal and state governments needed to improve cooperation and policy coordination in a few key areasThese key areas are, macroeconomic management (counter-cyclical fiscal policy), coordinated policies to enhance market connectivity and improve public services, and the realisation of national standards in public financial management and disclosure. The NER suggested that the significant degree of autonomy and financial independence of Nigerian states could be potentially advantageous for rapid development in the country, but that this process is currently hindered by too little market connectivity, weak coordination in fiscal policy, and problems in governance.