Chatham House has declared Nigeria’s economy as its most competitive in 25 years, thanks to President Tinubu’s reforms, notably the naira’s devaluation. While there have been notable improvements in balance of payments and the budget, inflation remains a critical challenge. The report emphasizes the necessity of maintaining a competitive naira and improving the business environment for sustainable growth.
Chatham House, a renowned UK think tank, has identified the Nigerian economy as experiencing its most competitive phase in the past 25 years, significantly attributed to President Bola Tinubu’s economic reforms, particularly the substantial devaluation of the naira from N460 per US dollar to approximately N1,500. Key insights from the organization highlight the need for the government to maintain the naira’s competitiveness rather than strengthening it to combat inflation.
The analysis acknowledges the dissatisfaction among Nigerian voters two years post-election, noting drastic increases in petrol and food prices alongside rising poverty levels. Nevertheless, Chatham House asserts that Tinubu’s reforms may pave the way for sustainable growth, emphasizing that the future trajectory of these reforms is crucial for Nigeria’s economic stability.
A noted aspect of the reforms involves the significant devaluation of the naira, described as one of the most substantial adjustments globally, fostering improved competitiveness. The article details that the depreciated naira has positively influenced Nigeria’s balance of payments, now in surplus, and has reinvigorated capital inflows, with the Central Bank of Nigeria’s foreign exchange reserves surpassing $40 billion, lending stability to the financial landscape.
Additionally, Chatham House stresses the positive ramifications of the naira’s depreciation on the Nigerian budget, with the World Bank confirming that misaligned exchange rates have previously hampered government revenues significantly. The reduction of the fiscal deficit from 6.4 to 4.4 percent of GDP is attributed to the naira’s fall alongside the removal of petrol subsidies.
The report, however, also highlights the serious challenge of inflation, recorded at 35 percent at the close of 2024. Despite a decrease in reported inflation to 24.5 percent due to methodological changes, the urgent need to devise strategies to combat inflation remains a pressing issue. While a stronger naira is tempting, it poses a risk of eroding the competitive gains achieved through its decline.
To stabilize the economy and attract foreign direct investment (FDI), Chatham House recommends maintaining a competitive naira while enhancing the business climate, through improvements such as electricity supply and addressing corruption. They also advocate for bolstering domestic savings through higher deposit rates and raising public revenues, as Nigeria’s government revenues fall notably below global standards.
The think tank concludes by urging policymakers to resist the temptation of excessive currency strengthening post-devaluation, emphasizing that a competitive naira is essential for nurturing a diverse, capital-rich economy.
In summary, Chatham House has lauded the significant economic reforms under President Bola Tinubu, which have positioned Nigeria’s economy favorably for competitiveness. However, challenges such as inflation persist, necessitating balanced approaches to manage currency competitiveness while improving fiscal and monetary policies. The need to foster a conducive business environment and raise public revenue are crucial elements for sustainable economic growth in Nigeria.
Original Source: www.arise.tv
