By Chinwendu Obienyi
The promise by President Bola Tinubu, to fix an economy that currently contests with South Africa to be the continent’s largest could end up being a mirage amid the raging nationwide protests tagged #EndBadGovernance by its citizens.
What started as somewhat “unserious” has now turned ugly, evoking the past scenes of #EndSARS movement in October 2020 where a number of institutions, companies and most especially retail outlets were massively looted. Reports around states in Nigeria revealed that the widespread looting happened in states like; Borno, Jigawa, Kano and Kaduna with about 13 people reportedly dead.
Tinubu, 72, has struggled to jump-start the economy and remains extremely far from his “Renewed Hope” agenda, which was greeted with so much fanfare and pomp during his inauguration in May last year. Also, his bold reforms, particularly in the area of fuel subsidy and exchange rate stability which started on a “not-so-good note” is finally causing a lot of discomfort to masses who are now at their wit’s end.
Similarly, his speech on Sunday, did little to calm the minds of Nigerians. Rather than mapping out plans to douse the tension, the President insisted that the removal of the fuel subsidy and the unification of the foreign exchange (FX) rates were crucial decisions for the progress and development of the nation’s economy.
According to him, the policies were “painful but necessary” as the duo were a noose around the jugular of Nigeria’s economy. “These decisions I made were necessary if we must reverse the decades of economic management that did not serve us well. Yes, I agree that the buck stops on my table. But I can assure you that I am focused fully on delivering the governance to the people – good governance for that matter”, the President stated.
Although, during the eight years of Tinubu’s predecessor, Muhammadu Buhari, Nigeria’s Gross Domestic Product (GDP) shrank in per capita terms as he pursued ineffective economic policies with an interventionist theme.
According to Tinubu, the past 14 months of his administration has made significant strides to rebuild the economy. However, critics say the reforms taken by his administration is a return to the shock therapy of the 80’s and 90’s that will impoverish millions in pursuit of market purity. They also added that the recent anti-tax protests in Kenya are a warning of what could happen if the government pushes citizens too far.
But, staunch supporters of Tinubu say it is the jolt the economy needs after years of stagnation, corruption and insider dealings. Hence, the challenge of rebuilding Nigeria’s economy remains puzzling but can be realized.
Monetary Policy Reforms
So far, the inflation-targeting mechanism adopted by the Central Bank of Nigeria (CBN), has clearly not worked on bringing inflation down despite positive impacts of the reforms undertaken by the apex bank to sanitise the country’s FX market.
Although, analysts had said they see inflation moderating to a certain level in the second half (H2) of 2024, the CBN needs to slow down on its hikes of interest rates, control money supply without stifling economic growth. Speaking during a programme monitored by Daily Sun, the Founder, Cowry Asset Management Limited, Johnson Chukwu, noted that Nigeria’s economy has faced significant challenges over the past two years, resulting in a dramatic decrease of 56 per cent in the purchasing power of its citizens.
Chukwu added that the apex bank will need to make careful re-evaluations and adjustments in its policies for the market.
Fiscal policy adjustments
According to the Debt Management Office (DMO), the country’s total public debt currently stands at N121.67 trillion (around $91.46 billion) in three months of 2024. The debt-to-GDP ratio is standing at 52.9 per cent and raises concerns about sustainability of the economy.
Furthermore, a significant portion of Nigeria’s budget is allocated to recurrent expenditure, such as salaries and debt servicing, leaving limited funds for capital projects. For instance, in the 2023 budget, recurrent expenditure accounted for about 70 per cent of the total budget. A significant portion of revenue is spent on debt servicing. For example, in the first quarter of 2023, debt servicing consumed about 73 per cent of the government’s revenue, leaving limited fiscal space for other expenditures.
To make it worse, revenue generation in the form of tax has been challenging. But the Federal Government said it is targeting an increase of its revenue-to-GDP ratio up to 30 per cent within the next two to three years in a bid to broaden the tax net.
Chairman, Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, said proper management and utilization of government assets can be a significant revenue source and the FG is looking at improving fiscal governance, increasing revenue through better structures and administration and facilitating economic growth by creating a favorable environment for business and investment.
Structural reforms
Nigeria’s revenue is highly dependent on oil, contributing about 50 per cent of government revenue and over 90 per cent of export earnings. Fluctuations in oil prices significantly impact the country’s fiscal stability. Despite efforts to diversify, non-oil revenue remains low. The non-oil sector’s contribution to revenue is around 4-5 per cent of GDP, indicating a heavy reliance on oil and a need for stronger revenue collection mechanisms in other sectors.
Similarly, ongoing security challenges, particularly in the North-East region, affect economic activities and revenue generation. The conflict with insurgent groups has led to disruptions in agriculture and trade, further straining fiscal resources, with food inflation high by 40 per cent.
There also has to be policy consistency and coherence across different levels of government whilst establishment of robust mechanisms for monitoring and evaluating the impact of reforms can be looked at by the present administration.
Conclusion
Revitalizing Nigeria’s economy in the face of inflationary pressures involves comprehensive reforms across various sectors. A coordinated effort between the government, private sector, and international partners is essential to achieve sustainable economic growth and development.