Economic Reforms Were Tinubu’s Decisions, But We Stand By Our Recommendations – IMF

The International Monetary Fund (IMF) stands firmly behind its policy recommendations to Nigeria on removing fuel subsidies and allowing the naira to float, policies that have catalyzed inflation and raised the cost of living for many Nigerians.

Although critics have accused the Bretton Woods institutions of influencing President Bola Tinubu’s economic reforms, the IMF maintains that its advice is part of a broader framework aimed at long-term economic stability and improved living standards.

During the IMF and World Bank Annual Meetings in Washington, DC, Abebe Selassie, IMF’s Director for the African Region, clarified that the decision to remove the subsidy on petrol and adjust the exchange rate was entirely Nigeria’s domestic choice.

“It was President Tinubu’s decision. We don’t have programmes in Nigeria,” Selassie said.

This statement highlights that the IMF’s role in Nigeria is limited to advisory consultations rather than prescriptive policy directives. Selassie likened the IMF’s engagement with Nigeria to its dialogues with countries like Japan or the UK, underscoring that the organization does not control or directly impose policy choices.

However, the IMF’s influence as an advisory body remains significant. An IMF spokesperson confirmed to Premium Times, the institution’s commitment to its recommendations for Nigeria, framing them as integral parts of a comprehensive economic policy. The spokesperson stated, “Our advice is a comprehensive policy package where all elements are linked to each other. That package seeks to ensure macroeconomic stability and raise living standards in a sustainable fashion.”

This comprehensive approach, the IMF explained, includes not only the removal of fuel subsidies and a floating exchange rate but also crucial social safety measures to shield the most vulnerable Nigerians from the impacts of policy changes.

The IMF’s recent 2024 report on Nigeria, published in May, illustrates its support for Nigeria’s bold economic reforms, praising the administration’s focus on revenue mobilization, enhanced governance, and the expansion of social safety nets. The report commended these moves as necessary steps toward addressing Nigeria’s deep-rooted economic challenges.

The IMF sought to make this clarification due to escalating public outcry and calls for Nigeria to reconsider policy recommendations from Bretton Woods institutions, a sentiment fueled by widespread economic strain on Nigerians following President Bola Tinubu’s adoption of these reforms.

Many contend that advice from these institutions does not consider Nigeria’s socio-economic realities and the resilience of its citizens. They argue that policy packages designed in Washington or Europe often fall short when applied to African economies, where high levels of poverty and inadequate infrastructure mean reforms hit citizens harder than anticipated.

While the IMF’s recommendations aim for sustainable economic growth, the immediate effect has been an economic strain on Nigeria, with inflation climbing and living costs rising as a direct outcome of subsidy removal and currency adjustments.

The float of the naira, which was aimed at curbing the parallel market and stabilizing Nigeria’s foreign exchange market, has resulted in naira’s depreciation, reaching record lows and making imports considerably more expensive. This decline has strained both businesses reliant on imported goods and households across the socioeconomic spectrum.

Nigeria’s government has faced backlash from both economists and citizens, who argue that these reforms were too abrupt for a country with such economic fragility.

The IMF’s advisory stance often emphasizes macroeconomic stability, but Nigeria’s situation reveals the complexity of such policies. Some experts note that while the removal of subsidies can streamline budget allocations and promote fiscal discipline, implementing them in tandem with social support systems remains critical to avoiding severe public backlash.

The IMF has, in theory, recognized this, highlighting the need for social transfer programs to counterbalance the inflationary effects of subsidy removal. The question remains, however, whether Nigeria has the institutional capacity to roll out these social programs effectively and at the scale required.

President Tinubu’s policy agenda, intended to address Nigeria’s significant debt and fiscal deficits, has thus far yielded mixed results. While removing fuel subsidies was aimed at redirecting funds previously spent on subsidies to more productive economic sectors, Nigerians are still waiting to see tangible benefits. The subsidy removal alone was estimated to save Nigeria nearly $10 billion annually, funds, which the administration pledged would be invested in infrastructure, healthcare, and education.

However, many citizens feel that these reforms were enacted prematurely without enough protective measures in place to absorb the economic shocks that followed.