The “Economic Emergency Plan’’

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May 29, 2024/CSL Research

Based on news reports, Wale Edun, the Minister of Finance and Coordinating Minister of the Economy announced plans by the Federal Government to unveil an ‘economic emergency plan’ aimed at stabilizing the nation’s economy and fostering continued growth.

According to Edun, the plan, which is pending the President’s approval, is part of a broader mandate to restore the Nigerian economy through macroeconomic reforms. He further highlighted that the Federal Government’s revenue base has been completely revamped and strengthened, enabling the government to meet its financial obligations.

Notably, the government is servicing its debt without resorting to ways and means borrowings, with both international and domestic debt obligations being paid on schedule.

Following a change in administration in May 2023, the country has embarked on bold reforms, including the elimination of the petrol subsidy and foreign exchange (FX) reforms that have unified exchange rates at the various FX windows, resulting in a market-reflective exchange rate.

These measures have led to significant increases in the prices of petrol, electricity, and food, causing a sharp rise in the cost of living while disposable income growth remains subdued. To mitigate the inflationary impact of these reforms on the most vulnerable, the government has implemented temporary cash transfers reaching 15 million households.

However, these efforts are insufficient compared to the dramatic rise in living costs. Additionally, measures are being taken to tighten monetary policy and refocus the Central Bank of Nigeria (CBN) on its core mandate of maintaining price stability.

Despite the CBN employing aggressive monetary policy actions, to control the Nation’s rising inflation by increasing the monetary policy rate (MPR) by a cumulative 775 basis points since May last year, these have not successfully stemmed inflation as the country’s inflation rate remains driven by supply-
side factors, rising to 33.69% in April 2024.

Consequently, more Nigerians were pushed below the poverty line in 2023. Data from the World bank showed that 14.2 million Nigerians became poor in 2023 and the numbers are expected to have risen further. The World Bank believes that targeted measures, including cash transfers, could mitigate short-term adjustment costs to the poor and vulnerable and mitigate their risk of falling into intergenerational poverty traps.

We however believe that structural solutions such as tackling insecurity to encourage food production in rural areas, lowering taxes, increasing funding for socioeconomic programs, and lowering borrowing costs could help lift citizens out of poverty.

Since 2012, Nigerian consumers have faced severe economic pressure. Partial fuel subsidy removals, a significant devaluation of the naira, border closures, and insecurity in food-producing regions, compounded by two recessions and a pandemic, have driven inflation to record-breaking levels.

,As a result, many consumers have resorted to cheaper alternatives to cope with rising living costs amidst generally low-income levels. The impact of recent reforms has pushed even more Nigerians below the poverty line.

While we await details of the new economic plan, it is clear that without complementary efforts from fiscal authorities to establish a structural foundation for effective monetary policies, the social conditions of many Nigerians are unlikely to improve.

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