A modest inquiry into Nigeria’s macroeconomic developments post military era1999 is momentous. In spite of the high expectations of economic growth targeted to translate into meaningful development, the country is still grappling with recurrent setbacks.
However, one act that has never been in short supply is the initiative to reform. Space will not permit us to list all reforms carried out by the Nigerian state. However, worth mentioning is the reform in job creation, power, oil and gas, agriculture, and public services.
In our view, reforms initiated or undertaken are aimed at managing scarce resources, achieve optimum benefits and sustain a nation’s finances.
The general elections held in February and March 2023 brought about another democratic transition of power. The ruling All Progressives Congress (APC) was able retain the presidency, majority seats in the National Assembly, governorship and states assemblies in a tension soaked electoral contest.
Consequently, there are high expectations for meaningful economic progress from Senator Bola Ahmed Tinubu having been sworn in as the 16th President of Nigeria. Tinubu’s government is taking over power at a very challenging time, marked by global oil prices uncertainty, surging core and food inflation, fattening corruption and continuing violence in the country’s North-west, North-east and North-central. This perhaps has created a difficult context for the new administration, as well as its current reform of the nation’s financial sector.
The Tinubu government, as part of its response to the challenges on ground, has taken actions on several long delayed policies often against vocal opposition. Notably, the government floated the naira and unified the foreign exchange rates, removed fuel subsidies, adjustment of electricity tariffs towards cost reflectiveness, began a process to enhance debt management and increase public sector transparency.
As if the foregoing were not enough, President Tinubu is to reform the nation’s budgetary process. The president stated this in Lagos when he was hosted by Governor Babajide Sanwo-Olu, at the Lagos House, Marina. The president declared: “We have to re-engineer the financial system of the country and see that our economic planning and budgetary process is transparent enough to cater for all Nigerians”.
He restated that he had to remove fuel subsidy in order to stop the bleeding in the nation’s finances. “We must re-engineer the effectiveness of control and management of our resources in order to meet the obligations owed to Nigerians by politicians”, he said. This was also in addition to his promise to “operate an open-door policy and work together with the state governors to achieve true federalism”.
Financial system reforms began in Nigeria with the deregulation of interest rates in August 1987. Since then, far-reaching policy measures including the chartering of new banks, reform of the capital market and a move from direct to indirect monetary control have been undertaken. However, in recent time the federal government carried out reforms such as Government Integrated Financial and Management Information System (GIFMIS), Treasury Single Account (TSA), Integrated Personnel Payroll Information System (IPPIS), International Public Sector Accounting Standards (IPSAS) implementation.
And of note is the Finance Act 2021, that brought about amendment to the Capital Gains Tax Act, Company Income Tax, FIRS Establishment Act, Personal Income Tax, Stamp Duties Act and Tertiary Education Act, Value Added Tax, Insurance Act, Police Trust Fund and the Fiscal Responsibility Act. These are financial reform’s to domestic revenue mobilisation, transparent tax administration, tax equity and, improving public financial management processes with a goal to help government maximise funds.
The financial reforms were to serve as an engine of growth for the economy. However, many of these reform initiatives as critical as they were, were not without there own gaps and weakness. This raises the question regarding whether reforms do really work or are sufficient to be embarked on. Interestingly for us, the answer has two major parts. The first part turns to the problem or challenge that necessitates reforms.
For instance, over the years, the country has had to deal with the problem of multiple taxation and the government responded to the challenge with the Finance Act 2021. Meanwhile, the issues of multiple taxation is still very much around, particularly at the subnational level.
The second answer is about the understanding of the cost implications of reforms, financial wise, human resources and goal intention. Essentially, reforms are cost intensive, we can’t rule out that. But the cost must relate effectively with intended goals – short-term, medium term, and long term. This means that reforms must have a sustained result. In our case, it has not materialised to this point.
A good example is the reform of the electricity sector, that has not given us a sustained positive result, even when the intended goal of reforming the sector was a target of 10,000 megawatts of electricity.
This brings to bear the concerns over President Tinubu’s reforms’ target of the financial system and budgetary processes. This, for us, is important, prompting to the following questions: what is wrong with our current financial system? What solution is President Tinubu adopting for transparent budgetary processes? What form of financial system re-engineering is he undertaking? What procedure of budgetary process is to be implemented? How would the economy fare under this reform? To many, these questions may not be necessary.
However, these questions are important for any critical mind, chiefly because the flip side of reform as stated earlier, acknowledges reform as bold initiatives in key areas of a nation’s economy targeted to break the cycle of low growth, high poverty, slow job creation, and fragility.
Across the world, there is no country that is free from daily problems of managing her economic affairs and the well-being of citizens, without initiating reforms where necessary. Sadly, the difference is that here in Nigeria we are not result oriented. Instead, our mindset is tilted towards fault-finding, personal interest and wealth accumulation to the detriment of accelerated national economic growth and development.
President Tinubu’s quest of reforming the financial system and budgetary processes, by our understanding, is driven by his patriotism and loyalty to the fatherland. The challenge before Tinubu is having a workable and actionable solution to the existing problems and plan against unforseen ones. This cannot be without reforms suitable for result.
Ours is a contribution to the thinking pot of national development, with critical censures. We draw the government’s attention to the fiscal, monetary, and trade policies crucial to restore macroeconomic stability, and lift Nigeria’s growth potential. These have been projected upwards at 3.3% in 2023, 3.7% in 2024, and 4.1% in 2025.
The role of global shocks making this a reality or not are with us. Nevertheless, how President Tinubu deploys domestic policies would eventually determine Nigeria’s economic resilience against the shocks.
What then are our options? It is important for the Tinubu government to learn from previous reforms that ended up as pervasive government intervention in the financial system, resulting in corruption and resource misappropriation. Our advice is to build on the immediate, major reforms, and seize the opportunity to correct errors that affected such reforms potential. Again, it is imperative for the government to ensure a mix of fiscal, monetary and trade policies, as government’s economic fighting toolkit against high inflation, de – production and poverty.
In this piece, we devoted our attention to this because of its relevance moving forward. Our anticipation is for Tinubu to get it right.
Olamilekan, political economist, writes from Abuja via
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