By Shorunke Tunde
The World Bank has said current low crude oil prices present an opportunity for commodities-dependent economies like Nigeria to review their energy pricing policies as they look forward to the post-COVID-19 pandemic era.
The Bank said in a report published on Wednesday that energy-importing developing countries need to move away from costly subsidy schemes and allocate their limited fiscal resources to improving public health and education.
The report, titled, “Adding Fuel to the Fire: Cheap Oil during the Pandemic”, was published ahead of the release of the World Bank Group’s Global Economic Prospects report scheduled for June 8.
Since the crash in crude oil prices last March, the Nigerian National Petroleum Corporation (NNPC) has removed fuel subsidy from the pricing template for petroleum products.
The 2020 Budget was pegged on a $57 per barrel crude oil price benchmark. With the crash of crude oil prices, the benchmark was reviewed, initially to $30 per barrel, and later to about $25 per barrel.
The government has also reviewed downward the retail price for premium motor spirit (PMS), popularly called petrol, three times, in a move to end the corruption-prone subsidy scheme.
Initially, the pump price was reduced from N145 per litre (the prevailing price since 2016) to N125 per litre; N123.50 per litre, and last week to N121 per litre.
With the World Bank and the International Monetary Fund (IMF) warning of imminent global economic recession, the Minister of Finance, Budget and National Planning, Zainab Ahmed, has said the Nigerian economy would slip into another recession.
The World Bank report said deep economic recessions associated with the pandemic would likely exacerbate the multi-decade slowdown in global economic growth and productivity, which are the primary drivers of higher living standards and poverty reduction.
“The emerging and developing countries with weak health systems; those that rely heavily on global trade, tourism, or remittances from abroad, and those that depend on commodities exports would be particularly hard-hit”, the analysis report said.
In the long-term, the World Bank analysis said the pandemic would leave lasting damage through multiple channels, including lower investments; erosion of physical and human capital due to the closure of businesses and loss of schooling and jobs, and a retreat from global trade and supply linkages.
These effects, the report noted, would lower economic output and labour productivity well into the future.
“Pre-existing vulnerabilities, fading demographic dividends and structural bottlenecks will amplify the long-term damage of deep recessions associated with the pandemic.”
“Like other countries, energy-exporting emerging market and developing economies (EMDEs) face an unprecedented public health crisis, but their fiscal positions were already strained even before the recent collapse in oil revenues.
When the pandemic broke out, the report said many emerging and developing economies were already vulnerable due to record-high debt levels and much weaker growth.