• Wednesday, July 24, 2024
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BusinessDay

Turning the corner: Nigeria’s ongoing path of economic reforms

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Over the years, the number of Nigerians living below the poverty line has risen from 70 million in 2010 to an estimated 109 million in 2023 – one of the world’s largest poor populations. Nigeria ranked 161 out of 193 countries on the Human Development index (HDI) in 2022. Despite these staggering development challenges, the average Nigerian continues to be resilient in their bid to excel and create better economic outcomes, from the thriving markets in the commercial cities of Lagos, Kano and Aba, to the unicorn startups that are providing cutting edge fintech solutions, and the buzzing creative industry that is making waves globally. The promise of Nigeria rising to its potential is still on the near horizon.

Read also: Economic reforms: building momentum on the early signs of a turnaround

Accelerating Nigeria’s development progress has become urgent given the enormous and growing scale of its development challenges, especially against the backdrop of rising poverty, insecurity and fragility, and intensifying climate-change related risks.

Since May 2023, Nigeria has embarked on far reaching and long-overdue reforms aimed at stabilizing the economy and setting the country towards the path to growth. The Central Bank of Nigeria unified the multiple official exchange rates, fostered a market-determined official rate, cleared the verified foreign exchange (FX) backlog, and tightened monetary policy. As a result of the reforms, the supply of foreign exchange has improved, which is good for businesses, consumers, and economic growth. The previous, large gap between the official and parallel market exchange rates has also been eliminated, improving transparency and putting a stop to corrupt practices and “round tripping. The government also sharply adjusted gasoline prices to begin to phase out the gasoline subsidy, which had cost the country over 8.6 trillion naira (US$22.2 billion) from 2019 to 2022 with empirical evidence showing it did not benefit the poor but rather benefitted relatively better off consumers and resulted in large-scale black market and out-smuggling.

Implementing reforms often comes with a high cost, especially the short- to medium-term effect on citizens. The unwinding of the large previous distortions, such as addressing the artificially suppressed price of gasoline and the rationing of FX at official rates, have added to the already high cost-of-living pressures on households with inflation rising to 33.7 percent in April 2024, impeding the purchasing power of citizens. To cushion the effect on citizens, especially the poor and vulnerable, the government announced a cash transfer program to provide 15 million households with 75,000 naira for a period of three months. This initiative is being supported by the World Bank through the Nigeria Social Safety Net Program-Scale Up. The program is a good example of how macro-fiscal reforms need to be accompanied by concerted measures to help absorb temporary price shocks. Nigeria still needs to accelerate the delivery of the program and consider expanding its reach to cover even more households.