PREMIUM TIMES NG
Not even a month after Nigerian President Bola Ahmed Tinubu’s inauguration on 29 May, he’d carried out major economic reforms advocated for by public analysts and international financial institutions.
There are however deep structural issues to be addressed before Nigeria’s economy can deliver prosperity for Nigerians. The reforms also mustn’t come at the cost of citizens’ wellbeing or the rule of law.
Tinubu inherited a sputtering Nigerian economy, with gross domestic product (GDP) growth rates for 2022 at 3.1 per cent and for the first quarter of 2023 at 2.31 per cent. Nigeria’s recovery from COVID-19-induced trade deficits has also been slow. The 2022 trade surplus at only $2.85 billion pales in comparison to 2014’s $54.1 billion.
Foreign direct investment into Nigeria’s economy fell from $2.2 billion in 2014 to $0.47 million in 2022. The budget deficit has risen by 370.54 per cent from 2016 to 2023, and the cost of debt servicing has exceeded public revenues as public debt has grown tenfold in a decade. Total public debt as of June 2013 was N7.93 trillion. It’s now at around N77 trillion.
During this period, external debt grew by 473 per cent and domestic debt by 7 029 per cent. The Central Bank of Nigeria’s (CBN) undisciplined lending to the federal government is argued to have contributed to high inflation rates – 22.41 per cent this May.
These pressures, as well as insecurity, have contributed to higher food prices, while 63 per cent of the country live in multidimensional poverty. The unemployment rate was 33.3 per cent in 2020 and KPMG estimates this to climb to 40.6 per cent this year.
During a public engagement held by Tinubu during his campaign, he promised to ‘hit the ground running’ if elected president. He has – announcing two major economic reforms in his inaugural speech. These include ending the debilitating petrol subsidies and the unification of the naira’s multiple exchange rates.
The petrol subsidies strained Nigeria’s public accounts, contributing to a situation where higher global oil prices hurt rather than help the economy. Removing them should free up public resources for allocation to growth and recovery. But it has raised the petrol price by 200 per cent.
According to the World Bank, subsidy reforms could push seven million more Nigerians into poverty.
Tinubu is also keeping his promise to ‘float’ the naira. Under former CBN governor Godwin Emefiele, the official exchange rate from naira to dollars was mostly fixed, rather than determined by market forces. The CBN however couldn’t meet the demand for dollars at this rate, contributing to a thriving forex black market and dampening investor confidence.
The CBN governor has since been dismissed and banks have been instructed to ‘trade the naira freely’ at rates determined by demand and supply. This should free up the resources the CBN used to ‘defend’ the naira, reduce the budget deficit, and attract more foreign investment.
But the reform has implications. Recalculations based on the new rates will increase Nigeria’s external debt, import duties and electricity tariffs, raising transport, energy and consumer goods costs. Rule-of-law concerns have also been raised around Emefiele’s suspension.
