The international rating agency, Moody’s, has warned that the economic reforms of Nigeria’s President Bola Tinubucould lead to social unrest that would potentially derail progress, urging for a delicate balance between pandering to the haves and the have-nots.
Moody’s latest report titled “Inside Africa, 2023” noted that, though President Tinubu’s policy direction is commendable and crucial for the nation’s economic growth, it, however, carries significant political risks relating to a transitional period of high domestic inflation and consequent public outcry.
According to the Credit rating agency, the removal of the petrol subsidy, which had largely favoured wealthier households and was equal to the combined budget on education and health for 2019, would raise oil prices and reduce the purchasing power of citizens against a backdrop of crushing inequalities.
It was also noted that the administration’s foreign exchange (FX) unification policy would reduce market distortion but it has weakened the naira and led to higher imported inflation.
Analysts at Proshare Nigeria noted that while President Bola Tinubu’s pro-market policies have continued to receive favourable reviews from international agencies and companies, the realities in Nigerian wallets tell a different tale.
According to policy analysts, the ultimate priorities of the government should be on improving the welfare and prosperity of Nigerians, rather than pandering to foreign economic preferences.
They noted, however, for Nigeria to relieve the stress of its citizens it must attract direct foreign investors and investment (DFI) and therefore, provide a compelling reason for fresh investment funding.
Analysts believe that President Tinubu’s ambitious reform agenda holds the potential for significant long-term economic gains, particularly with a more efficient allocation of resources and improved foreign investment.
However, the short-term pains of higher cost of living, lower purchasing power, and looming social unrest present substantial risks. While intended to curb the corruption and inefficiencies associated with the subsidy regime, the oil subsidy reform could worsen social inequalities and poverty in the short term, as the palliatives would only marginally offset the large spike in costs borne by Nigerians.
The supposed FX unification, which is effectively a large depreciation of the naira, could also fuel further inflationary pressure.
However, with the various measures being put in place to cushion the hardship resulting from the reforms, it is expected that poor masses will enjoy some respite.
In a month, the government said it generated the sum of N320 billion from the difference in foreign exchange, which it claimed was being injected into the economy in line with the expectations of policy analysts.
Analysts believe President Tinubu faces a delicate balancing act of easing the pressure on Nigerians while still sustaining positive foreign investor sentiment towards Nigeria of which the foreign portfolio investment (FPI) basket has witnessed significant improvement since the inauguration of the new government.
Data from the Nigerian Exchange (NGX) shows foreign investors’ participation in the local bourse has jumped significantly since the floatation of the local currency indicating some degree of foreign investors’ confidence in the economy.
Muda Yusuf, a vocal pro-free-market campaigner and Director of the Centre for Promotion of Private Enterprise (CPPE) urged the government to strike a balance between hostile market forces and the social wellbeing and interest of the poor masses.
“I am one of those who stood for floatation of the Naira and removal of petrol subsidy, but I must tell you that government does not have to leave everything to hostile market forces. Government can still find a way to ensure that things don’t get out of hand,” the economic expert told InsideBusinessNG over the telephone.
The former Director General of the Lagos Chamber of Commerce and Industry (LCCI) is of the view thatgovernment should intervene from time to time to moderate and cushion the impact of market forces.
