Nigeria’s sweeping economic reforms have rekindled investor confidence and earned commendation from global financial institutions, but the rapid implementation has left the nation’s poorest citizens grappling with severe economic hardship.
As Africa’s largest economy navigates a path towards fiscal stability, the International Monetary Fund (IMF) has issued a cautious note, urging the government to accelerate social investments to cushion the impact of these reforms.
During her first official visit to Nigeria, Gita Gopinath, the IMF’s First Deputy Managing Director, applauded the government for taking bold steps, including the liberalisation of the foreign exchange market and the removal of fuel subsidies—measures long deemed necessary to rein in unsustainable public spending.
However, Gopinath warned that without swift deployment of social protection programs, the benefits of these reforms could be eroded by a surge in poverty.
“The removal of fuel subsidies, while necessary, has exacerbated hardship for many Nigerians, with the poverty rate rising to 47% in 2024,” Gopinath stated. “The government needs to rechannel the savings from subsidy removal into social safety nets for vulnerable households.”
The decision to eliminate fuel subsidies, which had cost the government billions of dollars annually, was seen as an unavoidable step to curb rising fiscal deficits.
However, the immediate fallout has been a sharp increase in the cost of living, the most severe in a generation, pushing more Nigerians below the poverty line.
Similarly, the naira’s devaluation, a consequence of the liberalisation of the foreign exchange market, has attracted foreign investment but also triggered higher inflation, particularly for food and imported goods.
Despite the socioeconomic challenges, investor sentiment has brightened. Nigeria’s crude oil production has risen from 1.2 million to between 1.7 and 1.8 million barrels per day, significantly boosting national revenue.
This, coupled with ongoing tax reforms aimed at improving revenue collection and reducing tax waivers, has reinforced optimism about the country’s fiscal future.
Wale Edun, Nigeria’s Minister of Finance and Coordinating Minister of the Economy, outlined a series of policy measures designed to enhance transparency and efficiency in social investment programmes during a meeting with the IMF’s Gopinath in Abuja.
Central to these efforts is a transition to a biometric-based system intended to ensure that support reaches the most vulnerable households. Edun also highlighted the government’s focus on tax reforms, revenue assurance mechanisms, and digitalisation to expand the tax base and improve domestic revenue generation.
“A critical factor that will determine the success of Nigeria’s balancing act for reforms and social protection is the government’s ability to raise domestic revenue,” Gopinath emphasized. “Transparent and efficient tax systems will be critical to unlocking higher revenues.”
Analysts note that the ongoing tax reforms, which include automation of tax administration and a reduction in tax waivers, represent a significant step forward.
However, they caution that much more needs to be done to broaden the tax base and ensure that wealthier Nigerians contribute their fair share. With government revenue standing at under 10 percent of GDP—one of the lowest in the world—the fiscal space for large-scale social programs remains constrained.
The IMF’s endorsement of Nigeria’s reforms has bolstered foreign investor confidence, reflected in increased portfolio inflows and a rebound in the capital market. However, the urgency of addressing rising poverty levels cannot be overstated.
Experts argue that the sustainability of these reforms depends on the government’s ability to balance macroeconomic stability with targeted social investments.
“Inflation at over 20 percent is still very high, and it’s no surprise that people feel the squeeze,” Gopinath observed. “Tight monetary policy will be essential, along with efforts to stabilize the currency and avoid central bank financing of fiscal deficits.”
