Since assuming office in May 2023, President Bola Tinubu has introduced a series of market-oriented reforms aimed at addressing Nigeria’s long-standing fiscal challenges.
The liberalization of the foreign exchange market and the removal of petrol subsidies stand out as the most significant measures.
While proponents hail these steps as essential to stabilizing the economy, improving fiscal capacity, and promoting long-term growth, the reforms have also brought severe hardships to ordinary Nigerians, raising questions about the efficiency of their implementation.
Economists argue that Nigeria’s economic structure, long reliant on subsidies and artificially fixed exchange rates, was unsustainable. For instance, the World Bank reported that in 2022 alone, Nigeria spent ₦5.2 trillion on foreign exchange subsidies and ₦4.5 trillion on petrol subsidies.
Combined, these accounted for about $15 billion or 5% of the country’s GDP, placing immense pressure on Nigeria’s foreign reserves and limiting investments in critical infrastructure and social services.
The removal of petrol subsidies, a measure praised for its fiscal prudence, has improved government revenues, boosted foreign reserves, and made Nigeria’s exports more competitive.
Similarly, the liberalized foreign exchange regime sought to dismantle arbitrage opportunities that thrived under the previous system, which allegedly created billionaires overnight without productive contributions to the economy.
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However, these reforms have not come without costs. The abrupt removal of subsidies and the shift to a free-floating exchange rate have led to skyrocketing inflation, with food prices, energy bills, and transportation costs surging.
Household incomes have plummeted, and many Nigerians are grappling with an unprecedented cost-of-living crisis.
“The reforms were necessary to prevent economic collapse,” noted Dr. Amina Yusuf, an economist at the University of Lagos. “But the implementation lacked sequencing and cushioning measures to ease the inevitable shocks on the population.”
Experts contend that the process of implementing these reforms left much to be desired. By opting for “shock therapy,” where multiple subsidies were removed simultaneously, the government exacerbated the economic pain. Critics argue that the reforms should have been phased, allowing citizens and businesses time to adjust.
For example, the removal of foreign exchange subsidies coincided with declining oil production and stagnant non-oil exports, creating a supply-demand imbalance in the foreign exchange market. This has led to the naira’s sharp devaluation, further eroding purchasing power.
Similarly, the government’s delay in rolling out relief measures, such as the compressed natural gas (CNG) initiative and wage adjustments compounded the suffering.
Although a minimum wage increase was eventually agreed upon, it came almost a year after the subsidy removal, by which time many households had already been pushed to the brink.
Nigeria’s reform challenges are not unique. Around the world, governments are grappling with tough fiscal decisions amid global economic headwinds.
In the United Kingdom, for example, the government recently raised taxes, cut winter fuel payments for pensioners, and removed VAT exemptions for private schools to meet NATO defense spending commitments. Such trade-offs are often necessary, but the effectiveness of reforms lies in their design and execution.
While the reforms have set Nigeria on a path to fiscal rebalancing, the government must act swiftly to mitigate their adverse effects. This includes expediting promised measures such as food import duty exemptions, scaling up social safety nets, and improving communication strategies to build public trust.
“Nigerians need to see that the sacrifices they are making will lead to tangible improvements in their lives,” said policy analyst Abdulrahman Suleiman. “The government must bridge the gap between reform intentions and the realities faced by its citizens.”