The International Monetary Fund (IMF) has lauded the economic reforms undertaken by President Bola Ahmed Tinubu’s government, stating that they have played a crucial role in restoring economic stability in Nigeria. Notably, the reforms, such as foreign exchange deregulation and the removal of fuel subsidies, have been pivotal in strengthening the value of the naira, which had suffered significant losses in recent years.
Gita Gopinath, the IMF’s First Deputy Managing Director, shared her thoughts on the Nigerian economy during a recent interview on Arise TV. Gopinath acknowledged that the reforms initiated by the Tinubu administration were bold and much-needed to address deep-rooted economic challenges.
“These reforms have been difficult decisions, but they were absolutely necessary,” Gopinath stated. “Reforms such as foreign exchange deregulation and fuel subsidy reforms have brought stability to macroeconomic indicators, particularly the strength of the naira.”
Nigeria’s economy has long been grappling with numerous issues, including high inflation, a fluctuating naira, and unsustainable government spending. For years, the country faced a deepening economic crisis, characterised by a weak currency, insufficient foreign reserves, and high dependency on oil revenues.
The previous administration’s attempts at stabilising the economy through currency controls and fuel subsidies had proven ineffective in the long term. These measures were often criticised for distorting the market and creating artificial exchange rates that undermined investor confidence.
When Bola Tinubu assumed office in May 2023, he inherited a country struggling with inflation, an overstretched budget, and a currency that was losing value at an alarming rate. To address these challenges, Tinubu’s government embarked on a series of economic reforms aimed at liberalising key sectors of the economy, including the foreign exchange and energy sectors.
One of the most notable actions taken by the Tinubu administration was the deregulation of the foreign exchange market. This move allowed the naira to float freely, leading to a more accurate reflection of its value against other currencies. In addition, the removal of fuel subsidies, which had drained the country’s finances for years, was seen as a necessary step to reallocate government resources to other critical sectors.
During her interview, Gita Gopinath highlighted the importance of these reforms in bringing much-needed stability to Nigeria’s macroeconomic environment. She noted that while these reforms were difficult, they were essential for the long-term health of the economy.
“The government has undertaken bold reforms, reforms that were much needed in terms of foreign exchange deregulation and fuel subsidy reforms,” Gopinath explained. “These were important and had to be done. There is recognition that these reforms have brought stability to macro indicators, such as the strength of the naira.”
For Nigeria, the strengthening of the naira is a critical milestone. The naira had faced a sharp depreciation in recent years, which resulted in skyrocketing inflation and reduced purchasing power for many Nigerians. The IMF’s recognition of these reforms highlights the success of Tinubu’s administration in stabilising the currency, even as it continues to face challenges.
While the IMF acknowledged the positive impact of the reforms, Gopinath also highlighted the importance of clear communication with the public. She stressed that Nigerians needed to understand the long-term benefits of these reforms and how they would positively affect their lives.
“It is very important to communicate to the public not just that reforms take time, but also to communicate what exactly is being done and how it’s going to help them,” Gopinath said. “If you don’t bring people along with you, there won’t be patience for difficult reforms.”
The communication of the reform process has been a challenge for the Tinubu administration. While many experts agree on the need for the reforms, there has been public discontent, especially regarding the removal of fuel subsidies, which has led to an increase in petrol prices. As a result, it is crucial for the government to effectively convey the long-term benefits of these difficult decisions to Nigerians, especially those who are directly impacted by rising costs of living.
In addition to supporting the government’s efforts in currency regulation and fuel subsidy reform, Gopinath identified the need for Nigeria to focus on increasing its domestic resource mobilisation. According to the IMF, government revenues as a share of Gross Domestic Product (GDP) are currently very low—approximately 10%, which is well below the average for countries in the region.
One of the IMF’s key recommendations was for Nigeria to increase efforts in generating domestic revenue through improved tax collection and other non-oil income sources. This would help reduce the country’s reliance on oil revenue and create a more sustainable fiscal environment.
“Doing more on the front of domestic resource mobilisation will give confidence to markets,” Gopinath said. “Nigeria’s government revenues are too low compared to its peers, and improving in this area will help ensure long-term economic stability.”
Improving revenue generation is particularly important for Nigeria, given its dependence on oil exports. The global volatility of oil prices means that Nigeria cannot rely solely on oil revenue to fund its national budget. By enhancing tax collection and expanding its revenue base, Nigeria can better weather external shocks and reduce its budget deficits.
Beyond fiscal reforms, Gopinath highlighted the importance of addressing broader structural issues within the Nigerian economy, such as improving security, power supply, and the ease of doing business. These factors play a crucial role in supporting sustainable economic growth and encouraging foreign investment.
“Improving security, power, and the ease of doing business are going to be super helpful,” Gopinath said. These are areas where Nigeria has faced significant challenges, but addressing them will create an environment conducive to business growth and job creation.
Security remains a major issue in parts of Nigeria, with frequent reports of kidnapping, banditry, and insurgency. These security concerns create uncertainty and deter investment. Additionally, the power sector continues to struggle, with unreliable electricity supply hindering industrial growth and productivity.
Addressing these issues will require concerted efforts from both the government and the private sector, but their resolution could significantly boost Nigeria’s economic growth potential.
While the IMF has praised the progress made under Tinubu’s administration, it is clear that Nigeria still faces numerous challenges. Economic reforms, particularly those involving deregulation and subsidy removal, are just the beginning. The country must continue to work on improving domestic revenue mobilisation, tackling infrastructure issues, and addressing security concerns.
Nigeria’s economic future hinges on its ability to diversify its revenue base, implement sound fiscal policies, and build a more competitive and resilient economy. If these reforms are successful, Nigeria has the potential to emerge as a stronger, more diversified economy in the coming years.
As Gopinath pointed out, “The journey is long, and reforms take time, but the foundation for growth is being laid, and the future looks promising if Nigeria continues on this path.”
