Edun steers fiscal policy from money printing to debt market

Wale Edun, minister of finance and coordinating minister of the economy, is reshaping the country’s fiscal landscape in the face of several challenges.

Due to the government policies, Nigeria’s economy grew 3.46 year-on-year in the third quarter of 2024. The gross domestic product (GDP) expanded at an annual 3.46 percent in the three months through September, compared with growth of 3.19 percent in the previous quarter, according to data released by the Abuja-based National Bureau of Statistics (NBS) on Monday.

Amid economic growth, Edun is spearheading a shift from money printing to fund government expenditures to structured debt market strategies to ensure fiscal stability and economic sustainability.

A development in this shift is the Nigerian Senate’s approval of President Bola Tinubu’s $2.2 billion loan request, signalling a departure from unsustainable financing methods like the Central Bank of Nigeria’s controversial ‘Ways and Means’ facility.

A fresh start

For years, successive administrations relied on the CBN’s ‘Ways and Means’ window, a mechanism that allowed the government to borrow directly from the central bank in emergencies to finance budget shortfalls.

While this approach provided short-term solutions to cash flow problems, it came at significant macroeconomic costs, including inflation, currency depreciation, and an escalating public debt burden.

By the end of 2023, Nigeria’s Ways and Means debt had swelled to over N23 trillion, prompting widespread concern among economists. Critics have long argued that this approach, while expedient, undermines economic stability and perpetuates fiscal mismanagement.

Recognising the urgent need for reform, Edun—appointed in 2023—has championed efforts to phase out this practice.

As a financial expert with extensive experience in both the private and public sectors, Edun has prioritised a return to sustainable and transparent financing methods, including leveraging international loans and strengthening Nigeria’s relationships with global financial institutions.

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The Senate’s Approval of the $2.2bn loan

Unlike past approaches reliant on central bank financing, this loan was secured from international financial institutions and structured for long-term repayment, easing immediate fiscal pressures.

Importantly, it was presented as part of a comprehensive fiscal strategy aimed at reducing Nigeria’s dependence on short-term debt instruments like Ways and Means.

This development underscores a broader shift in Nigeria’s public financing approach. The government is now focused on raising funds through more transparent and sustainable channels, including multilateral loans, bonds, and targeted investments in key economic sectors.

Moving Beyond Ways and Means

The move away from the CBN’s Ways and Means facility represents a critical component of Edun’s reform agenda. While printing money has historically offered quick relief during fiscal crises, it has also fueled inflation, eroded the naira’s value, and increased the cost of living for ordinary Nigerians.

In contrast, loans from international financial institutions often come with stricter conditions, such as regular assessments of fiscal health and adherence to economic reforms. These loans are usually tied to specific projects, ensuring funds are allocated to tangible developmental objectives rather than temporary fiscal fixes.

This pivot is also intended to restore investor confidence. Years of economic mismanagement and declining foreign direct investment (FDI) have left Nigeria’s economy under significant pressure. By adopting more responsible and transparent financing practices, Edun aims to stabilise the economy and attract new investments.

Economic & political implications

Historically, Nigeria’s political leadership has been cautious about foreign loans, citing concerns over the country’s growing debt burden and national sovereignty. However, Edun’s balanced approach has managed to address these concerns while emphasising the urgent need for infrastructure development and economic growth.

It reflects a growing consensus within Nigeria’s leadership that quick fixes like money printing are unsustainable and that responsible fiscal management is critical to economic stability.

This shift aligns with global expectations for sound economic governance. Institutions like the World Bank have long advocated for more prudent fiscal policies in developing economies. By embracing these principles, the Bola Tinubu administration is positioning Nigeria for stronger international partnerships and better access to capital markets.

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Challenges and the Road Ahead

Despite these positive strides, significant challenges remain. The success of this new financing approach depends on the government’s ability to ensure that borrowed funds are effectively managed and invested in high-impact projects. Corruption and inefficiency have historically hindered the country’s development efforts, and addressing these issues is paramount.

Moreover, Nigeria must enhance its domestic revenue generation capabilities, experts say. Reducing dependence on oil exports, implementing tax reforms, and broadening the tax base will be critical to maintaining fiscal sustainability. Without these measures, the risk of future fiscal shortfalls remains high.

Edun has acknowledged that achieving these reforms will require sustained collaboration with lawmakers, regulators, and international partners. His commitment to maintaining a manageable debt profile and aligning public expenditure with long-term growth objectives will be essential in this regard.

A Promising Path Forward

Edun’s leadership marks a turning point in Nigeria’s fiscal governance. The Senate’s approval of the $2.2 billion loan and the shift away from Ways and Means signal a new era of responsible financing.

However, the road ahead will require transparent governance, effective fund utilisation, and continued reforms to strengthen Nigeria’s economic foundations.

While challenges persist, Edun’s initiatives and the Tinubu administration’s vision offer a promising path toward a more stable and prosperous future for Nigeria.