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Nigeria’s reform fatigue drives economic stagnation, urgent action needed, says expert

By DailyTimesNGR 12 January 2025 220 No comment

BY MOTOLANI OSENI

Nigeria’s ambitious 18-month economic reform programme has produced mixed results, revealing deep cracks in implementation and policy prioritisation. While the reforms aimed to revitalise the economy, they have instead exacerbated its challenges, plunging the nation further into stagflation.

The most profound impact has been the naira’s dramatic devaluation from N450 to over N1,700 per US dollar, triggering a cost-push effect that has worsened inflation.

The removal of fuel subsidies, intended as a fiscal relief measure, has instead slashed household purchasing power and driven up borrowing costs for businesses. Social intervention programmes, designed to cushion these shocks, have failed to deliver meaningful relief, leaving Nigerians grappling with rising poverty.

Adding to these woes, the nation’s debt profile has surpassed $100 billion, with annual debt servicing costs doubling from N8 trillion in 2024 to a staggering N16.3 trillion in the proposed 2025 budget. This unsustainable debt burden now dwarfs combined allocations for critical sectors such as defence, infrastructure, health, and education, which total just N14 trillion. Instead of channelling savings from subsidy removal into growth-stimulating capital expenditure, the funds are being consumed by debt repayments.

Money supply has surged by 50 per cent year-on-year, reaching a historic N108 trillion, further undermining the Central Bank of Nigeria’s (CBN) efforts to curb inflation, which remains well above its 24 per cent target for 2024. Meanwhile, foreign direct investment has plummeted to an all-time low of $29 million in the first half of 2024, a far cry from the robust inflows seen in the past.

The broader economic picture is bleak. Nigeria’s GDP has shrunk to $195 billion, marking a $300 billion decline over the last decade. Once Africa’s largest economy, the country now ranks fourth, trailing South Africa, Egypt, and Algeria, as prolonged policy inconsistencies and mismanagement erode its economic standing.

To reverse this decline, Adetilewa Adebajo, CEO of CFG Advisory, underscores the need for urgent reforms. Selling down joint venture oil assets could raise $30–50 billion, providing much-needed funds to reduce the debt burden, stabilise the naira, and restore investor confidence. Additionally, boosting oil and gas investments—currently at $3 billion, compared to $22 billion a decade ago—is critical to driving growth in this vital sector.

While the government projects inflation to drop to 22 per cent by the end of 2025, with potential interest rate cuts by 2026, these outcomes hinge on decisive policy action. Failure to address the nation’s debt crisis, boost productivity, and implement coordinated fiscal, monetary, and trade policies could see the naira weaken beyond N2,000 per dollar, further destabilising the economy.