IMF Urges Nigeria to Balance Economic Reforms with Social Investments
The IMF has urged Nigeria to accompany its economic reforms with social investments to mitigate the impact on the poorest citizens. While Nigeria’s reforms have restored investor confidence, the burden on vulnerable populations has increased, leading to a projected poverty rate of 47% in 2024. Effective tax reforms and investments in social protection are essential for the success and sustainability of these reforms.
Nigeria’s recent economic reforms have sparked renewed investor confidence and garnered commendation from global institutions; however, the impact on the country’s poorest citizens raises concerns. The International Monetary Fund (IMF) emphasizes the need for the Nigerian government to offset these reforms’ adverse effects with targeted social investments. During her inaugural visit to Nigeria, Gita Gopinath, the IMF’s First Deputy Managing Director, recognized the government’s essential steps, such as easing foreign exchange controls and removing fuel subsidies, yet noted that the success of these reforms could be compromised without stronger social safety nets in place.
The removal of fuel subsidies, while necessary for curtailing excessive public spending, has led to a surge in living costs, with Nigeria’s poverty rate expected to reach 47% in 2024. The devaluation of the naira also raises inflation, especially for food and imported goods. Although the National Bureau of Statistics (NBS) has adjusted inflation figures, with the rate falling from 34% to 24%, public sentiment remains skeptical amid rising costs. Gopinath stated, “Inflation at over 20 percent is still very high, and it’s no surprise that people feel the squeeze.”
Other countries, such as Egypt and Indonesia, have implemented similar reforms paired with social investment programs. For instance, Egypt’s Takaful and Karama cash transfer programs efficiently supported vulnerable populations post-subsidy cuts, while Indonesia increased direct cash transfers alongside energy price adjustments.
Finance Minister Wale Edun outlined plans in a discussion with Gopinath, announcing a transition to a biometric system aimed at enhancing transparency and efficiency in social investment programs. Furthermore, he highlighted strategies focusing on tax reforms and digitalization to bolster domestic revenue generation, noting a significant increase in Nigeria’s crude oil production as a positive sign for national revenue.
Critical to the success of Nigeria’s economic reforms is its ability to improve domestic revenue, which currently stands at below 10% of GDP—one of the world’s lowest rates. Gopinath emphasized the importance of enhancing tax collection and administrations, stating that “Transparent and efficient tax systems will be critical to unlocking higher revenues.” Despite progress in tax reforms, experts assert a broader tax base is necessary for achieving fairer contributions from wealthier segments of society.
Ultimately, the impact of Nigeria’s economic reforms will be assessed not only through macroeconomic indicators but also by their influence on the lives of ordinary citizens. To effectively break the cycle of poverty, the government must ensure ongoing investments in health, education, and infrastructure, in conjunction with focused social protection programs. As Gopinath cautioned, “These reforms must be sustained consistently over many years to yield meaningful results.”
The IMF urges Nigeria to complement economic reforms with targeted social investments to alleviate the hardships faced by vulnerable populations. The balance between fiscal reforms and social protection is crucial to ensuring that the benefits of such reforms improve the lives of ordinary Nigerians rather than exacerbate poverty. Sustained and transparent efforts will be necessary to achieve lasting economic stability and growth.
Original Source: businessday.ng
