PREVIEW
The new government sets out tough market-oriented policies on exchange rates and subsidies but questions loom over implementation
Peppering his inaugural speech on 29 May with promises of big economic changes, Nigeria's new President Bola Tinubu skirted questions about his health, the legitimacy of his election and the country's mounting debt obligations (AC Vol 64 No 7, Tinubu faces legitimacy challenge). Tinubu had campaigned on 'consolidating the gains' of outgoing President Muhammadu Buhari's government but his earliest pronouncements amount to a wide-ranging ditching of its macro-economic and security policies.
Conspicuously absent were any pledges to stop or even reduce grand corruption in business and the political system. Businessman and co-investor in the Eko Atlantic project, Gilbert Chagoury, a financial advisor to military leader General Sani Abacha and his family, was seated next to Tinubu's son Seyi at the inauguration.
The most dramatic policy shift was Tinubu's announcement that the country's fuel subsidies (running at over US$10 billion a year) are 'gone' without explaining how his government would manage the economic fall-out (AC Vol 64 No 8, Asiwaju Tinubu the taxman cometh). Within hours of Tinubu's speech, petrol stations across the country had tripled or quadrupled the retail price of fuel.
Those increases, unjustified because the outlets are selling fuel that they bought at the subsidised rates, will quickly push up prices of food and transport across the economy. A World Bank credit of $800 million, announced last month, to cushion the inflationary effect of ending the fuel subsidy falls far below what would be required to provide relief for the over 133 million citizens reckoned by the Nigeria Bureau of Statistics to be living in extreme poverty.
Tinubu's government will struggle with the government's deepening financial crisis. The treasury in Abuja did not budget for a fuel subsidy beyond the end of June. And it lacks the resources to finance it and meet other urgent government commitments.
Bills for the subsidy are still coming in. Mele Kyari, managing director of the state oil company says the federal government owes it over $6bn to finance the subsidy.
Tinubu's other promised move, to unify the country's multiple exchange rates into a market-driven exchange rate, will also drive up inflation. This followed his statement that the central bank required 'house cleaning', a reference to policies pursued by central bank governor Godwin Emefiele.
Advisors to Tinubu have predicted that Emefiele, who has defended the multiple exchange rate policy and launched an elaborate currency reissue at the start of the election campaign, would be an early casualty of the new government. Under the constitution, the central bank governor has tenure unless the National Assembly backs a resolution for dismissal (AC Vol 64 No 11, Tinubu struggles to control the Assembly).
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