Nigeria’s 16th President, Bola Tinubu, wasted no time in making a significant policy announcement shortly after his inauguration. In his inaugural speech, Tinubu declared the end of the fuel subsidy regime and expressed his commitment to achieving a unified exchange rate in the country.
The fuel subsidy regime has long been a contentious issue in Nigeria, with the government spending approximately $10 billion on subsidizing petrol, also known as Premium Motor Spirit (PMS), in the previous year. However, faced with an enormous debt profile and economic challenges, Nigeria can no longer sustain these payments. Unfortunately, this move is expected to result in an increase in fuel prices and subsequent hardships for Nigerians.
Tinubu emphasized that the outgoing administration had not allocated any funds for fuel subsidy in the 2023 budget. He stated, “Given the scarcity of resources, the ever-increasing costs of subsidy can no longer be justified.” Instead, his government plans to redirect these funds towards crucial investments in public infrastructure, education, healthcare, and job creation.
Furthermore, Tinubu recognized the need for a unified exchange rate to strengthen Nigeria’s economy and external reserves, following a recommendation made by the International Monetary Fund (IMF) in September 2022. Currently, Nigeria operates under a multiple exchange rate regime, led by the Central Bank of Nigeria (CBN). However, the controlled nature of this system has led to a surge in demand for foreign exchange in the unofficial black market, resulting in a significant disparity between official and parallel market rates.
Tinubu expressed his belief in the necessity of a thorough revamping of the monetary policy, particularly considering the recent increase in the monetary policy rate (MPR) by the CBN, from 18% to 18.5%. He emphasized the importance of achieving a unified exchange rate, as it would redirect funds away from arbitrage and encourage meaningful investments in sectors such as plant, equipment, and job creation.
While Tinubu’s plans have garnered support, not everyone agrees with his approach. Financial expert Kelvin Emmanuel expressed his dissent on Twitter, stating, “Attempting to cap MPR as a monetary policy tool to slow down the acceleration of commercial lending rates and bond yields is a bad idea. The focus should be on using the planned unification of the exchange rate to restore FX liquidity.”
In summary, Tinubu’s first acts as Nigeria’s president involve ending the fuel subsidy regime and aiming for a unified exchange rate. These measures are intended to address economic challenges, redirect funds towards essential sectors, and stimulate meaningful investments in the country’s infrastructure, education, healthcare, and job market. However, opinions on the effectiveness of these policies remain divided, highlighting the complexity of Nigeria’s economic landscape.