THE World Bank says the Nigerian government has implemented major reforms which are politically difficult to embark upon.
In an article seen by Economy Post, Chief Economist and Senior Vice-President for Development Economics at the World Bank, Mr Indermit Gill, said Nigeria’s economic transformation must be allowed to succeed and any attempt to reverse them would set back the cause of reform across the sub-Saharan Africa (SSA).
“No large-scale reform process is ever perfect, but this one must be allowed to succeed — Africa’s future hinges on its success. An economic turnaround in a country with more people in poverty than almost any other would be a game-changer for market-orientated reforms across the continent. Consider the scale of the reforms implemented so far,” he said.
As reported by BusinessDay, Mr Gill explained that Nigeria now has a market-determined exchange rate, noting that previously, the government had been losing an equivalent of 38 cents for every $1 of government oil export proceeds.
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“This benefited some local elites, who acquired dollars cheaply at the government’s expense,” he said, noting that the politically difficult steps taken would yield positive results.
“The unification also got rid of a hefty implicit tax on agricultural and manufactured exports. Costly and regressive petrol subsidies are also being cut. This will help to strengthen Nigeria’s historically shaky public finances and restore the naira as a credible currency. Implementing such far-reaching change is impossible without political commitment from the top. The price of petrol in Nigeria has quintupled since the subsidy cuts, imposing terrible hardship across society,” he explained.
He said to boost confidence in the naira and anchor inflation expectations, the Central Bank of Nigeria (CBN) had had to raise its policy rate by 850 basis points in the last nine months, which was encouraging.
“Central-bank financing of fiscal deficits has finally ended. Yet the hard part has only just begun. Nigeria will need to stay the course if it is to become an engine of growth in Sub-Saharan Africa. Although the historical record isn’t encouraging — previous reforms have been rolled back by the elite — policymakers will need to focus on three critical areas in particular. First, they should prioritise non-oil growth,” he noted.
He further said that the CBN policy required a competitive exchange rate, which Nigeria now has.
He counselled that to protect the poor and maintain competitiveness, the central bank must maintain its focus on inflation and resist the lure of volatile short-term capital inflows that might push up the naira’s value too quickly and stifle non-oil growth in the process. Also, the bank should rebuild foreign-exchange reserves as a cushion against oil-price and exchange-rate volatility.
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“Second, Nigeria must help vulnerable households cope with inflation, which is still high. The government is rolling out a large-scale targeted, temporary cash transfer programme. It should also establish a cost-effective safety net to protect the most vulnerable. The third and final priority is to establish a climate in which private businesses can flourish. Nigeria’s need for jobs is immense. Today, less than 14 per cent of working Nigerians enjoy a predictable, fixed wage. In the next 10 years, the number of Nigerians entering the workforce is set to increase by more than 12mn.”
“Generating the requisite number of good jobs will depend on sparking large-scale domestic and foreign private investment in the non-oil sector. Nigeria’s government deserves the world’s support in this endeavour. Failure in Nigeria would set back the cause of reform across Africa, besides ruining the prospects of yet another generation of young Nigerians. The country’s elites must forge a political consensus in support of these reforms, because their long-term interests lie in a broadly prosperous and stable society. For its part, the international community should do everything in its power to help the government succeed.”
What are these politically difficult reforms?
The critical question is, what are these politically difficult reforms? First is the removal of petrol subsidies. The World Bank and the International Monetary Fund (IMF) have consistently asked Nigeria to end the petrol subsidies regime in order to free money for infrastructure, health, education and other essential sectors.
Nigeria spent N13.7 trillion to finance fuel subsidy between 2025 and 2021, according to the Nigeria Extractive Industries Transparency Initiative (NEITI). Presidents Muhammadu Buhari and Bola Ahmed Tinubu spent N3.6 trillion on petrol subsidy in 2023. President Tinubu was prepared to increase the expenditure to N5.4 trillion in 2024 until the deregulation of the downstream sector began.
“Glad to see President Bola Tinubu taking concrete steps to scrap Nigeria’s harmful government subsidies and multiple exchange rates. These are important steps toward currency stability, lower inflation, and reduced corruption in Africa’s most populous country,” said former president of the World Bank, Mr David Malpass, on June 2023, three weeks after President Tinubu’s inaguration and partial fuel subsidy removal.
However, with the deregulation of the downstream sector, petrol prices are now extremely high, with a litre of premium motor spirit selling at over N1000 from less than N200 per litre before President Tinubu came to office.
Many motorists told Economy Post they have parked their cars due to the high cost of petrol, while commuters said transport costs have risen by over 30 percent since July 2024. Between July and October 2024, petrol price has risen from N620/litre to over N1,000/litre.
The second politically difficult reform is the removal of foreign exchange subsidies. The CBN used to subsidise the foreign exchange market by providing dollars to make up for demand shortfalls. However, this has been theoritically scrapped, with the dollar rates now determined by demand and supply forces.
The World Bank said on Wednesday, October 23, that Nigeria lost N13.2 trillion because foreign exchange subsidies between 2021 and 2023.
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However, the politically difficut reform has weakened the naira by over 70 percent since President Tinubu came to power on May 29, 2023. Naira sold for N1,653/$ at the official NAFEM market on October 23, 2024, as against N815/$ in the corresponding period of 2023.
“These reforms are good and can set the economy on the right path if properly implemented,” said a Lagos-based economist, Mr David Ogunye.
“But they lack the human face. What do you do to ensure that people get out of poverty and hunger ravaging our land today? The World Bank and the IMF have paid less attention to this important area but have trumpted these reforms in a way that appears to suggest they do not understand what the people of Nigeria are going through. What is President Tinubu doing to increase food supply in Nigeria?
“Has the food import bill he signed since June 2024 been implemented by the Ministry of Finance and the Customs? What is he doing about security of farms and farmers? What is he doing to subsidise production for struggling local manufacturers?” he asked.