IMF Urges Nigeria to Balance Reforms with Social Investments

The IMF urges Nigeria to balance its economic reforms with social investments, as the removal of fuel subsidies has significantly increased hardship for the poorest citizens. Despite welcoming the liberalization of foreign exchange and other reforms, the IMF warns about rising poverty. The country must enhance domestic revenue and ensure effective social protection programs to achieve inclusive growth.

Recent economic reforms in Nigeria have bolstered investor confidence and garnered accolades from international organizations, yet these changes have also intensified hardship for the nation’s poorest citizens. The International Monetary Fund (IMF) has urged the Nigerian government to mitigate the adverse effects of these reforms through targeted social investments. Gita Gopinath, the IMF’s First Deputy Managing Director, praised the government for crucial reforms like foreign exchange market liberalization and fuel subsidy removal, while emphasizing the necessity for robust social safety nets.

The elimination of fuel subsidies has been a contentious yet necessary reform, aimed at reducing unsustainable public expenditures. Nonetheless, this action has resulted in soaring living costs and an increase in the poverty rate, projected to reach 47% by 2024. Furthermore, the naira’s devaluation has attracted foreign investments but simultaneously led to rising inflation rates, particularly impacting food and imported goods.

Although Nigeria’s inflation index was adjusted down to 24% in January 2025 from 34% in December 2024, public sentiment reflects ongoing economic struggles. “Inflation at over 20 percent is still very high, and it’s no surprise that people feel the squeeze,” remarked Gopinath, underscoring the need for a stringent monetary policy to stabilize the currency and avoid fiscal deficits.

Nigeria is not alone in facing the challenges of economic reform; nations such as Egypt and Indonesia have faced similar hurdles. Both countries have effectively coupled subsidy removals and currency liberalization with social investment initiatives. For instance, Egypt introduced cash transfer programs that benefited millions, and Indonesia increased direct cash and healthcare subsidies alongside energy price reforms.

During her meeting with Gopinath, Nigeria’s Finance Minister, Wale Edun, discussed the government’s commitment to implementing a biometric-based system to enhance the efficiency and transparency of social investment programs. He also highlighted key policies aimed at improving tax reforms and domestic revenue generation, reporting an increase in crude oil production as beneficial to national revenues.

The success of these reforms and social protection strategies significantly hinges on the government’s capacity to enhance domestic revenue, currently less than 10% of GDP. Gopinath stresses the importance of efficient tax collection and reducing exemptions to unlock revenue potential. Although ongoing reforms signal progress, analysts advocate for broader tax bases to ensure equitable contributions from wealthier citizens.

Ultimately, Nigeria’s reform success will be gauged not merely by macroeconomic indicators but by tangible improvements in the lives of ordinary Nigerians. Continued investments in healthcare, education, and infrastructure, coupled with focused social protection programs, are crucial to alleviating poverty and fostering inclusive growth. “These reforms must be sustained consistently over many years to yield meaningful results,” cautioned Gopinath.

In summary, while Nigeria’s economic reforms are fostering increased investor confidence, they are also exacerbating hardships for the poorest communities. The IMF emphasizes the need for targeted social investments to mitigate these adverse effects. A successful outcome will require not only macroeconomic stability but also sustained improvements in the quality of life for Nigerians through effective social protection and infrastructure investments.

Original Source: businessday.ng