Economist urges FG on reforms to ease fuel subsidy removal

Renowned Economist, Dr Muda Yusuf, has urged the Federal Government to address the social outcomes of its recent reforms, especially the inflationary pressure induced by the fuel subsidy removal.

Yusuf, also founder of the Center for the Promotion of Private Enterprise (CPPE), said this in the CPPE Half-Year Economic Review report in Lagos.

According to him, there is a need for urgent measures that will mitigate the soaring cost of living and the escalating operating and production costs, especially for businesses.

He stated that the Nigerian economy was impacted by diverse global and domestic variables in the first half of the year.

Some of which, he said, included the Russian-Ukrainian war, the persistent monetary tightening in the advanced economies, and a growing fragmentation of the global economy amid increasing anti-globalization sentiments.

He noted that on the domestic front, major headwinds to growth were the naira redesign policy, dysfunctional foreign exchange policy, and political transition processes.

Others, Yusuf said, include the weak recovery of oil production and the intractable challenge of insecurity in some parts of the country.

“The Gross Domestic Product (GDP) growth remained weak and fragile as it slowed to 2.31 percent in the first quarter of 2023 from 3.5 percent in the fourth quarter of 2022.

“It is laudable that the President Bola Tinubu administration is charting a new and positive course for the economy which portends bright prospects for recovery and growth.

“Already, there are clear indications of elevated investors confidence, improvement in the government fiscal space, higher prospects of exchange rate stability in the near term, and positive expectations of better economic governance.

“Meanwhile, the Tinubu administration needs to promptly deploy measures to mitigate the current headwinds inflicted by the current reforms.

“The interventions should be a mix of direct interventions, tax incentives for low-income employees and small businesses, reduction in import duty on some critical intermediate products for key sectors of the economy, import duty concessions for the transportation, health, power and energy sectors.

“The improved fiscal space created by the reforms should make these mitigating measures feasible and they have to be implemented urgently in order to give the current reforms a human face,” he said.

Yusuf projected that inflationary pressures may intensify in the near term and the exchange rate may come under pressure in the short term as demand backlog exerts pressure on the official forex window.

He, however, stated that the pressure was expected to ease before the end of the year, paving the way for an equilibrium exchange rate that would be more tolerable and sustainable.

Yusuf urged the Central Bank of Nigeria (CBN) to put in place a sustainable intervention framework to moderate the volatility in the foreign exchange market.

He said that with a better fiscal space, the outlook for a lower fiscal deficit, moderation in the growth of public debt, a reduction in the debt service burden, and an improvement in macroeconomic stability were very positive.

The economist explained that all of these would impact economic growth prospects in the second half of the year.