Opinion
Before We Tighten Our Belts
The Finance Minister
and the Coordinating Minister of Nigeria’s Economy, Dr. Mrs. Ngozi Okonjo-Iweala, harped on Nigerians recently to tighten their belts. The sudden pronouncement of an economic adjustment programme for the country has become quite a talking point.
The federal government had on 16 November 2014 announced a package of austerity measures as part of fiscal adjustments to mitigate the negative impact of lower global oil prices on the Nigerian economy.
Unveiling the measures, Dr. Okonjo-Iweala said the belt-tightening initiative was the first of other policies the government would implement if the fall of oil prices persisted. Oil prices have declined by more than 30 percent since mid-June this year. Recent forecasts indicate that the lower prices may well continue into 2015. This is also in addition to the fact that the price of the Nigeria’s premium oil, Bonny Light, has dropped.
An immediate result of the sliding oil prices is a six percent downward revision of the 2015 budget to $73 per barrel from the earlier $78 on which the budget was drawn. The new benchmark is based on the 2015-2017 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper. Nigeria is expected to produce 2.27 million bpd next year with projected revenue of N6.8 trillion.
The austerity measures the government reeled out include a restriction on foreign trips by public officials, while local trips will be curtailed drastically. Exceptions apply only to absolutely necessary travels. Also, taxes on luxury goods will be reviewed upwards. Nevertheless, the government has been so gracious enough to exclude salaries of civil servants as well as key initiatives in education, health and other critical areas vital to the development of the country.
Since oil proceeds account for over 70 percent of Nigeria’s fiscal revenue, a shortfall in the projected benchmark inevitably affects revenue projections. For instance, financial records for the second quarter of this year show that government’s retained revenue decreased to N864bn from N912bn in the first quarter.
The bad news for Nigeria is that both the present and successive governments have not been prudent enough to save for the “rainy day”. Neither were they able to build external buffers in times of dwindling revenue to the nation. How can one explain a situation where the government was unable to save anything while oil boom lasted for several years and now we are asked to tighten our belts?
However, if the austerity measures must be, extreme caution and deep introspection must characterise their implementation in order not to imperil the well-being of the people.
Indeed the volatility in the global oil market gives one a cause for concern, especially for countries like Nigeria which entirely depends on oil for their sustenance. This is a wake-up call for us to diversify the economy through alternative and additional sources. It is time to channel energy to non-oil sectors as potential revenue earners. Agriculture and solid minerals are two vital sectors that need to be better explored than is being done now.
Before the austerity measures commence, the belt-tightening must begin with government and its top officials, who should be more prudent and financially disciplined. The situation also presents an opportunity to curb wastages in government.
While the austerity measures may seem like the most viable option in the circumstances, the authorities have to desist from pressing the panic button that could erode confidence in the economy or introduce measures that could end up as an exercise in futility.
That is why the federal government’s plan to increase taxes through the Federal Inland Revenue Service (FIRS) as one of the means to fund the budget deficit should be well thought-out given the low tax compliance of many companies in the country.
The truth is that the tempers of the times require government’s absolute commitment to the bailing out of the nation’s economy in the shortest possible duration and this has to be done with a human face. Utmost caution must be employed here because austerity could further enrich the affluent while impoverishing the average citizens thus leading to mass protest.
Austerity can also weaken aggregate demand, deflate an already fatigued economy such as ours and lead to the closure of industries with attendant job losses. These are situations we can still avoid at these critical times that general elections are only about two months away.
Prudent management of resources as well as renewed focus on the non-oil sectors have become imperative to build a future with less dependence on oil as the main source of government revenue.
Arnold Alalibo
From all indications, Nigeria possesses enough human and material resources to become a true economic powerhouse in Africa. According to the National Population Commission (NPC, 2023), the country’s population has grown steadily within the last decade, presently standing at about 220 million people—mostly young, vibrant, and innovative. Nigeria also remains the sixth-largest oil producer in the world, with enormous reserves of gas, fertile agricultural land, and human capital.
Yet, despite this enormous potential, the country continues to grapple with underdevelopment, poverty, unemployment, and insecurity. Recent data from the National Bureau of Statistics (NBS, 2023) show that about 129 million Nigerians currently live below the poverty line. Most families can no longer afford basic necessities, even as the government continues to project a rosy economic picture.
The Subsidy Question
The removal of fuel subsidy in 2023 by President Bola Ahmed Tinubu has been one of the most controversial policy decisions in Nigeria’s recent history. According to the president, subsidy removal was designed to reduce fiscal burden, unify the foreign exchange rate, attract investment, curb inflation, and discourage excessive government borrowing.
While these objectives are theoretically sound, the reality for ordinary Nigerians has been severe hardship. Fuel prices more than tripled, transportation costs surged, and food inflation—already high—rose above 30% (NBS, 2023). The World Bank (2023) estimates that an additional 7.1 million Nigerians were pushed into poverty after subsidy removal.
A Critical Economic View
As an economist, I argue that the problem was not subsidy removal itself—which was inevitable—but the timing, sequencing, and structural gaps in Nigeria’s implementation.
- Structural Miscalculation
Nigeria’s four state-owned refineries remain nonfunctional. By removing subsidies without local refining capacity, the government exposed the economy to import-price pass-through effects—where global oil price shocks translate directly into domestic inflation. This was not just a timing issue but a fundamental policy miscalculation.
- Neglect of Social Safety Nets
Countries like Indonesia (2005) and Ghana (2005) removed subsidies successfully only after introducing cash transfers, transport vouchers, and food subsidies for the poor (World Bank, 2005). Nigeria, however, implemented removal abruptly, shifting the fiscal burden directly onto households without protection.
- Failure to Secure Food and Energy Alternatives
Fuel subsidy removal amplified existing weaknesses in agriculture and energy. Instead of sequencing reforms, government left Nigerians without refinery capacity, renewable energy alternatives, or mechanized agricultural productivity—all of which could have cushioned the shock.
Political and Public Concerns
Prominent leaders have echoed these concerns. Mr. Peter Obi, the Labour Party’s 2023 presidential candidate, described the subsidy removal as “good but wrongly timed.” Atiku Abubakar of the People’s Democratic Party also faulted the government’s hasty approach. Human rights activists like Obodoekwe Stive stressed that refineries should have been made functional first, to reduce the suffering of citizens.
This is not just political rhetoric—it reflects a widespread economic reality. When inflation climbs above 30%, when purchasing power collapses, and when households cannot meet basic needs, the promise of reform becomes overshadowed by social pain.
Broader Implications
The consequences of this policy are multidimensional:
- Inflationary Pressures – Food inflation above 30% has made nutrition unaffordable for many households.
- Rising Poverty – 7.1 million Nigerians have been newly pushed into poverty (World Bank, 2023).
- Middle-Class Erosion – Rising transport, rent, and healthcare costs are squeezing household incomes.
- Debt Concerns – Despite promises, government borrowing has continued, raising sustainability questions.
- Public Distrust – When government promises savings but citizens feel only pain, trust in leadership erodes.
In effect, subsidy removal without structural readiness has widened inequality and eroded social stability.
Missed Opportunities
Nigeria’s leaders had the chance to approach subsidy removal differently:
- Refinery Rehabilitation – Ensuring local refining to reduce exposure to global oil price shocks.
- Renewable Energy Investment – Diversifying energy through solar, hydro, and wind to reduce reliance on imported petroleum.
- Agricultural Productivity – Mechanization, irrigation, and smallholder financing could have boosted food supply and stabilized prices.
- Social Safety Nets – Conditional cash transfers, food vouchers, and transport subsidies could have protected the most vulnerable.
Instead, reform came abruptly, leaving citizens to absorb all the pain while waiting for theoretical long-term benefits.
Conclusion: Reform With a Human Face
Fuel subsidy removal was inevitable, but Nigeria’s approach has worsened hardship for millions. True reform must go beyond fiscal savings to protect citizens.
Economic policy is not judged only by its efficiency but by its humanity. A well-sequenced reform could have balanced fiscal responsibility with equity, ensuring that ordinary Nigerians were not crushed under the weight of sudden change.
Nigeria has the resources, population, and resilience to lead Africa’s economy. But leadership requires foresight. It requires policies that are inclusive, humane, and strategically sequenced.
Reform without equity is displacement of poverty, not development. If Nigeria truly seeks progress, its policies must wear a human face.
References
- National Bureau of Statistics (NBS). (2023). Poverty and Inequality Report. Abuja.
- National Population Commission (NPC). (2023). Population Estimates. Abuja.
- World Bank. (2023). Nigeria Development Update. Washington, DC.
- World Bank. (2005). Fuel Subsidy Reforms: Lessons from Indonesia and Ghana. Washington, DC.
- OPEC. (2023). Annual Statistical Bulletin. Vienna.
By: Amarachi Amaugo