Last week, Dr Ngozi Okonjo-Iweala, Director-General of the World Trade Organisation, WTO, made a powerful intervention on President Bola Tinubu’s economic reforms. After a courtesy visit to the president, Okonjo-Iweala told the media that the Tinubu administration “has to be given the credit for the stability of the economy,” saying that Tinubu’s economic reforms “have been in the right direction.” 

Coming from a two-time Minister of Finance and former Coordinating Minister of the Economy, the intervention was significant, yet open to misinterpretation. A group called “Tinubu Media Force” seized on the comments as a seal of approval, and hailed Okonjo-Iweala for her “objective and fact-based” analysis. 

But as the controversy over her comments raged, Okonjo-Iweala twitted to clarify what she said. In a tweet on August 15, she said she told President Tinubu during their meeting that “whilst my perception is that the ongoing reforms are in the right direction and the economy is now stabilising, there is a need to focus on building more social safety nets and growing the economy.” She added that she told the president that “Nigerians are experiencing hardship from the reforms and helping people, especially poor and vulnerable people, manage the hardship is very important”.

To be sure, Okonjo-Iweala’s comments were qualified and nuanced, but that was lost in the ensuing controversy. The controversy stemmed from the words she used, perhaps out of politeness, at the State House. She said President Tinubu’s reforms had “delivered much-needed stability” and that he should be “given the credit” for the “stability” of the economy. Surely, as a renowned economist, Okonjo-Iweala knows what economic stability entails. Thus, to describe Nigeria’s economy, in its current state, as “stable” is a misnomer, far removed from how the IMF, the World Bank and the WTO define economic stability.

Take the IMF. In one paper, it said a country can be in one of three economic situations. The first is instability and disequilibrium; the second is stabilisation, where a country is transitioning from instability to stability; and the third is stability, where a country’s macro-economic fundamentals are strong and stable, with strong and stable growth, low and stable inflation, low and stable interest rates, low levels of fiscal deficits and public debt, low unemployment rate, low levels of poverty and inequality, and a high human development index, as measured by people’s living standards, education, healthcare and social progress.

Now, everyone knows that during President Muhammadu Buhari’s eight-year presidency, Nigeria was under the worst economic situation: instability and disequilibrium. There are two sources of economic instability. One is exogenous or external, such as the collapse of world oil prices; the other is endogenous or domestic, notably self-induced disequilibrium caused by poor macro-economic management. Nigeria faced both sources of instability under the Buhari administration: there were shocks to world oil prices, and the economy was acutely mismanaged through the deliberate choice and adoption of damaging policy instruments.

For eight years, President Buhari refused to withdraw the fuel subsidy, which cost Nigeria about $10bn annually, and fuelled massive corruption through subsidy scams. For eight years, Buhari pegged the naira to the dollar, which forced the government to defend the naira from scarce foreign reserves and drove massive corruption through arbitrage. For eight years, Buhari borrowed and spent excessively to fund unproductive infrastructure projects, thus misallocating resources and eroding the stability of the economy. Put simply, Buhari’s macroeconomic policy stance and policy instruments engendered acute economic instability, leading to volatile capital flows, excessive reserve depletion, huge haemorrhaging of foreign exchange and other growth-stifling elements of economic instability.

That was the situation when President Tinubu came to power on May 29, 2023. Departing from Buhari, he adopted a different policy stance and chose different policy instruments. On the domestic sources of instability, Tinubu abolished the fuel subsidies and scrapped the fixed exchange rate system, replacing it with a floating, market-determined exchange rate regime. However, Tinubu maintained and even heightened Buhari’s excessively loose fiscal stance by massively increasing Nigeria’s debt, which, following the new loans recently approved by the National Assembly, would stand at about N183trn by 2026, against N145trn in 2024. 

With respect to the external sources of instability, nothing has changed under Tinubu, as world oil prices continue to fall. Recently, crude oil price dropped to $66 per barrel, upending the government’s current N55trn budget predicated upon a higher oil price of $75 per barrel. Of course, given its narrow export base, centring on one commodity, crude oil, Nigeria’s economic stability will always be adversely affected by oil price shocks. Then, there is President Trump’s trade war, in which he imposed 15 per cent tariffs on Nigeria’s non-oil exports to the US. Trade is critical to macroeconomic stability; therefore, the collapse of world oil prices and Trump’s tariff war would, despite Tinubu reforms, remain powerful exogenous drivers of economic instability in Nigeria.

That said, when it comes to the domestic sources of instability, the two critical planks of President Tinubu’s economic reforms – the withdrawal of the fuel subsidy and the floating of the naira – stemmed the hitherto volatility of the economy. The fuel subsidy removal has brought trillions of naira into government coffers, while the scrapping of the naira peg has stopped the depletion of the country’s foreign reserves to defend the naira. In fact, considering that the level of a country’s foreign reserves depends on its exchange rate system, the floating of the naira has significantly boosted Nigeria’s foreign reserves. This is because the devaluation of the naira, resulting from its floating, has made Nigerian non-oil exports and assets cheaper and more attractive to foreigners, thereby boosting foreign capital inflows and the foreign reserves.

But here’s the rub. Economists talk about counterfactuals and trade-offs. Consider the counterfactual, what would have happened had Tinubu not introduced those reforms? Well, the answer is simple: Nigeria would still be as it was under the Buhari administration: economic disequilibrium and acute instability and volatility. So, we can all agree that President Tinubu’s reforms stopped the volatility and moved Nigeria from instability to stabilisation. But stabilisation is a process, and whether it leads to stability depends on how reforms are managed. That’s why the trade-offs and perverse consequences of any economic reform matter, because they can hinder the transitioning from instability to stability.  

Sadly, despite their benefits, Tinubu’s economic reforms have had perverse effects. The fuel subsidy removal may have boosted government coffers, but it has also utterly impoverished ordinary Nigerians. The devaluation of the naira may have swelled the foreign reserves, but it has also increased the costs of imported intermediate products and thus production costs for businesses. The subsidy removal, the devaluation and the loose fiscal stance have pushed inflation to an unacceptably high level, undermining economic stability. The CBN’s hiking up of interest rates, in response to inflation, may have attracted huge portfolio inflows, but high interest rates harm the productive sectors, hindering growth, job creation and poverty reduction. Meanwhile, the government spends multi-trillion naira on “infrastructure”, which, in Nigeria’s extractive state, enriches a well-connected few, but has no social safety nets to insulate millions of vulnerable poor from the excruciating pains of its reforms. 

So, Dr Okonjo-Iweala was too generous in praising President Tinubu “for the stability of the economy”. No, stabilisation is not stability. Yet, economic stability, properly defined, is far-fetched under current circumstances!