The IMF urges Nigeria to complement its economic reforms with targeted social investments to alleviate the burden on the nation’s poorest citizens. While reforms have improved investor confidence, they have also raised the poverty rate significantly. The IMF highlights the successful examples from other countries that balanced reforms with social support. A focus on increasing domestic revenue and enhancing social safety nets is pivotal for sustainable growth in Nigeria.
Nigeria’s recent economic reforms have bolstered investor confidence and earned international acclaim, yet they have adversely affected the nation’s poorest citizens. The International Monetary Fund (IMF) has urged the Nigerian government to mitigate the negative impacts of these reforms through targeted social investments. IMF First Deputy Managing Director Gita Gopinath acknowledged the government’s progress with reforms like foreign exchange market liberalization and subsidy removal, but stressed the importance of strengthening social safety nets as poverty has increased to 47% in 2024 after subsidy removal.
The elimination of fuel subsidies, seen as a crucial step to decrease public expenditure, has led to soaring living costs, resulting in a significant decline in living standards. Additionally, the liberalization of the naira has attracted foreign investment, but it has also contributed to rising inflation, particularly affecting food and imports. Despite the National Bureau of Statistics adjusting Nigeria’s inflation rate, high inflation still burdens citizens, necessitating tight monetary policy to stabilize the economy.
Other nations facing similar economic challenges, such as Egypt and Indonesia, have successfully balanced reforms with social programs. Egypt implemented significant cash transfer initiatives post-subsidy removal, while Indonesia developed direct cash transfer systems alongside energy reforms. Nigeria now considers adopting similar initiatives to support vulnerable populations during this turbulent transition.
During her discussions in Abuja, Gopinath encouraged Finance Minister Wale Edun to pursue transparency in social investment through a biometric-based system, thereby ensuring aid reaches those most in need. Edun shared that Nigeria aims to enhance domestic revenue generation through tax reforms and digitalization, as increasing oil production has begun to elevate revenue.
A pivotal factor for Nigeria’s success will hinge on enhancing domestic revenue, currently under 10% of GDP — one of the lowest globally. Gopinath highlighted the necessity of effective tax collection, reduction of exemptions, and tax administration improvement as key tools to boost revenues. Analysts believe ongoing tax reforms need to broaden the tax base and ensure equitable contributions from wealthier citizens.
In conclusion, Nigeria’s economic reforms should not only aim for macroeconomic stability but also strive to uplift the lives of everyday Nigerians. Sustained investment in essential areas like healthcare, education, and infrastructure, alongside tailored social protection initiatives, is critical to alleviating poverty. Gopinath cautions that the long-term success of these reforms will depend on maintaining consistent efforts to produce substantial societal benefits.
Overall, the IMF emphasizes the necessity of integrating social safety measures into Nigeria’s economic reforms to protect the most vulnerable citizens. Addressing the dual imperatives of fiscal recovery and social equity is essential for achieving sustainable growth and improving living standards in Nigeria. The commitment to enhance revenue through tax reforms and targeted social investments will play a crucial role in the nation’s future stability.
Original Source: businessday.ng
