The World Bank has warned that Nigeria may fall back into recession, highlighting conditions that may drag the nation’s economy into the downturn witnessed in 2016.
The bank stated in its latest Nigeria’s Economic Update, that a decline in oil prices to the levels seen in 2016 would significantly reduce growth, potentially leading to another recession in Nigeria.
More fragile economy
Similarly, the World Bank has stated that the Nigerian economy is more fragile than it was in 2016. According to the bank, this time around, Nigeria’s fiscal and external positions are more fragile because the fiscal buffers in the excess crude account are depleted, and international reserves mask considerable amounts of foreign-held short-term government and central bank securities.
It was also stated that in this context, a negative shift in investor confidence could lead to a drop in international reserves and put pressure on the exchange rate and the public debt stock.
Meanwhile, the World Bank stated that Nigeria’s growth could be accelerated through reforms that boost tax revenues to allow for higher investment in human and physical capital, as well as efforts to improve the quality of spending and reduce barriers to trade and private sector development. For example, gradually eliminating the use of monetary policies that crowd out credit to the private sector would accelerate growth.
Growing population and unemployment
On the other hand, the World Bank stated that the 2016 recession spurred a rise in unemployment in Nigeria, but stated that some states had recently begun creating enough jobs to keep pace with their growing labour force.
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“In 2018, Nigeria created about 450,000 new (net) jobs, partially offsetting the loss of 700,000 jobs in the previous year. However, Nigeria’s labour force is growing rapidly.
“In 2018, about 5 million Nigerians entered the labour market, resulting in an additional 4.9 million unemployed people in the last year. However, the positive news is emerging from a subset of states that are now creating more jobs than the entrants to the labour market.
“In 2017, none of the 36 states in Nigeria and its Federal Capital Territory created enough jobs to absorb new labour market entrants. The situation improved in 2018, with four states—Lagos, Rivers, Enugu, and Ondo—generating more jobs than labour-market entrants, leading to a decline in unemployment in these states.”
25% of world’s poor people to be from Nigeria
With population growth estimated at 2.6% outpacing economic growth in a context of weak job creation, the World Bank disclosed that per capita incomes are falling.
The World Bank stated that an estimated 100 million Nigerians live on less than US$1.90 per day. Close to 80% of poor household is in Northern Nigeria while employment creation and income gains have been concentrated in central and southern Nigeria. The “cost of inaction” is significant.
Under a business-as-usual scenario, where Nigeria maintains the current pace of growth and employment levels, by 2030 the number of Nigerians living in extreme poverty could increase by more than 30 million, and Nigeria could account for 25% of world’s extremely poor population.
Building reform momentum is essential to mitigate risks and promote faster, more inclusive, and sustainable growth that improves living standards and reduces poverty.
The Bank noted that the vulnerability of Nigeria’s economy to oil prices has also inhibited sustained productivity gains: labour has repeatedly shifted from agriculture to services when oil prices were high, then shifted back when oil prices were low, thereby limiting the economic transformation that is needed to produce more and better-paid jobs.